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Resolution No. 9014RESOLUTION NO.9014 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON APPROVING AND AUTHORIZING THE EXECUTION AND DELIVERY OF A NATURAL GAS PURCHASE AGREEMENT, A GAS PRICE MANAGEMENT CONTRACT AND APPROVING CERTAIN TRANSACTIONS OF THE VERNON NATURAL GAS FINANCING AUTHORITY WHEREAS, the City of Vernon (the "City") owns and operates the Gas System (capitalized terms used herein and not otherwise defined shall have the meanings given such terms in Exhibit A hereto) for supplying the Electric System with natural gas and expects to expand the operations of the Gas System to provide natural gas to businesses and industries within the City; and WHEREAS, the City owns and operates the Electric System for supplying the inhabitants, businesses and industries within the City with electricity; and . WHEREAS, certain electric generating units which are part of the Electric System use natural gas as fuel; and WHEREAS, the Gas System provides natural gas, and the Electric System provides electricity, at rates which promote economic development within the City; and WHEREAS, it is necessary and in the public interest to provide natural gas to the Gas System and the Electric System on terms which allow such utilities to continue to charge rates which promote economic development within the City; and WHEREAS, the Vernon Natural Gas Financing Authority (the "Authority") has been established as a separate entity under the Joint Powers Act to undertake projects and programs that promote economic development within the City, including implementing projects and programs to assist the City in procuring natural gas for distribution by the Gas System to be used as fuel for electric generating units which are part of the Electric System and for otherwise meeting the requirements of the Gas System, on terms and conditions approved by the City; and WHEREAS, such projects and programs may include, among other things, the Authority's issuance of Bonds pursuant to any applicable Bond Law, providing Credit Facility and Liquidity Facility for Bonds, the entry into Public Finance Contracts, the entry into the Acquisition Agreement, the Natural Gas Purchase Agreement and related agreements with respect to the purchase and sale of natural gas by the Authority; and DOCSLA1:520231.3 42797-2 EJC/EJC WHEREAS, the Authority proposes to enter into the Acquisition Agreement to acquire the Purchased Gas and then to sell the Purchased Gas to the City pursuant to the Natural Gas Purchase Agreement; and WHEREAS, the Authority further proposes to finance the prepayment of the Purchased Gas under the Acquisition Agreement through the issuance of its Bonds and to obtain Credit Facilities and Liquidity Facilities for such Bonds and to enter into Public Finance Contracts in connection with such Bonds; and WHEREAS, the Authority proposes to pay the debt service on its Bonds, . and amounts due with respect to the Credit Facilities, Liquidity Facilities and Public Finance Contracts in connection therewith, from amounts paid by the City under the Natural Gas Purchase Agreement and other amounts received by the Authority in connection with the Acquisition Agreement, all of which will be pledged by the Authority under the Indenture for the Bonds to secure the foregoing payments; and WHEREAS, all payments to be made by the City under the Natural Gas Acquisition Agreement are payable only from the revenues of the Electric System; and WHEREAS, with the authorization of the Gas Price Management Contract, the City will to be able to adjust the cost basis of the Purchased Gas to be received by the City under the Natural Gas Purchase Agreement to take advantage of opportunities to reduce the cost of gas to the City; and WHEREAS, the City has determined that it is to the City's advantage and in the public interest of the inhabitants of the City, to enter into the Natural Gas Purchase Agreement, to authorize the Gas Price Management Contract and to approve the Authority's issuance of Bonds and the related transactions as described above. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: Section 1. The City Council of the City hereby finds and determines that the recitals contained hereinabove are true and correct. Section 2. The City Council of the City hereby approves the Natural Gas Purchase Agreement with the Authority in substantially the same form as the copy which is attached hereto as Exhibit B and further approves the Gas Price Management Contract with a Qualified Counterparty in substantially the same form as the copy which is attached hereto as Exhibit C. Section 3. The City Council of the City hereby authorizes the Mayor to execute the Natural Gas Purchase Agreement and the Gas Price Management Contract for, and on behalf of, the City and the Acting City Clerk is hereby authorized to attest thereto. Section 4. The City Council of the City hereby authorizes the Acting City Clerk, or his designee, to make whatever nonsubstantive, administrative and/or text changes and 2 DOCSLAI :520231.3 42797-2 EJC/EJC establish terms of agreements within the parameters set forth in Exhibit A hereto, upon advice of counsel, to the Natural Gas Purchase Agreement and the Gas Price Management Contract. Section 5. The City Council of the City hereby approves the Authority's (i) entering into the Acquisition Agreement, (ii) issuing its Bonds to provide the funds toy pay the Prepayment under the Acquisition Agreement, establish reserves and pay the cost of issuance of such Bonds, (iii) entering into agreements for Credit Facility and Liquidity Facility for, and Public Finance Contracts in connection with, all or any portion of such Bonds, in each case within the applicable parameters set forth in Exhibit A attached hereto, and (iv) pledging to the foregoing all of the Authority's rights under, and all amounts payable by the City under, the Natural Gas Purchase Agreement. Section 6. Recognizing that the purpose of the transactions described in Section 5 of this Resolution is to permit the City to acquire the Purchased Gas on favorable terms, and that all obligations of the Authority in connection with such transactions are payable from amounts received by the Authority pursuant to the Natural Gas Purchase Agreement and the related agreements, the proper officers and officials of the City are authorized to prepare, execute and deliver: (i) that portion of each disclosure document for Bonds describing the City, Electric System, its operations and financial condition; a Letter of Representations to be attached to each purchase contracts for Bonds consistent with the terms included in the purchase contracts for the City's Electric System Revenue Bonds with such variations as shall be approved by the City Attorney; and a Continuing Disclosure Agreement with respect to the Bonds consistent with the terms included in the continuing disclosure agreements for the City's Electric System Revenue Bonds with such variations as shall be approved by the City Attorney.. Section 7. The City Council of the City hereby authorizes the City Attorney, the Acting City Clerk and all other proper officers and officials of the City to execute and deliver such other agreements, documents and certificates, and to perform such other acts and deeds, as may be necessary or convenient to effect the purposes of this Resolution and the transactions herein authorized. Section 8. The Acting City Clerk of the City shall certify to the passage of this Resolution, and thereupon and thereafter the same shall be in full force and effect. APPROVED AND ADOPTED this 10th day of April, 2006. EONIS C. MALB G, Mayo ATTEST: BRU E V. KENHORST, JR., Acti Jerk 3 DOCSLAI :520231:3 42797-2 EJC/EJC STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) I, BRUCE V. MALKENHORST, JR., Acting City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. 9014, was duly adopted by the City Council of the City of Vernon at a special meeting of the City Council duly held on Monday, April 10, 2006, and thereafter was duly signed by CE (SEAL) Clerk of the City of Vernon. , JR. DOCSLA1:520231.2 EXHIBIT A DEFINITION OF CERTAIN TERMS The following terms shall have the meanings below for all purposes of the attached Resolution. "Acquisition Agreement" means the Agreement For Purchase and Sale of Natural Gas, between the Authority and Citigroup Energy Inc., with all payment obligations of Citigroup Energy Inc. under such agreement being guaranteed by Citigroup Inc. The Acquisition Agreement approved by the Resolution to which this Exhibit A is attached (the "Resolution") shall have terms within the following parameters: (i) the Authority shall purchase not more than 22,000 MMBtu per day if the gas is purchased on a daily basis and not more than 682,000 MMBtu per month if the gas is purchased on a monthly basis; (ii) the term of the agreement shall not exceed 20 years; and (iii) the upfront payment to be made by the Authority under the Acquisition Agreement shall not exceed $650,000,000. "Authority" means the Vernon Natural Gas Financing Authority. "Bond Act" means Article 2 and Article 4 of the Joint Powers Act, and any other legislation whether currently in force or hereafter enacted, which authorizes the Authority to issue Bonds. "Bonds" means bonds, notes, or other evidences of indebtedness issued by the Authority, or certificates of participation in leases or other agreements executed and delivered at the direction of the Authority, regardless of their structure, name or the statutory authority for their issuance. The Bonds may be issued under one or, more Indentures. The Bonds approved by the Resolution shall have terms within the following parameters: (i) the Bonds may be issued in one or more series in an aggregate principal amountnot to exceed $700,000,000.00; (ii) the Bonds may bear interest at a fixed rate, a variable rate, or any combination thereof, provided that the maximum interest rate on any Bond shall not exceed 15% per annum, except Bonds held by the issuer of a Credit Facility or Liquidity Facility which may bear interest at such rate or rates as may be permitted by law; and (iii) the Bonds shall have a maximum term of 20 years. "City Bond Indenture" means the Indenture of Trust, dated as of December 1, 2004, by and between the City and The Bank of New York Trust Company, N.A., as supplemented and amended from time to time in accordance with its terms. 11 "Credit Facility" means a municipal bond insurance policy, a financial guarantee insurance policy, a letter of credit, a line of credit or other surety or guarantee instrument guaranteeing the payment when due of the principal of and interest on Bonds. The Credit Facility approved by the Resolution shall have terms within the following parameters: the DOCSLA1:520231.3 42797-2 EJC/EJC A-1 Authority must conclude that the initial and ongoing fees for the Credit Facility are less than the expected savings in debt service on the Bonds as a result of having such Credit Facility. "Electric System" means the municipal electric utility owned and operated by the City, including all electric generation, distribution, transmission, administrative and other properties and facilities, and all contract rights, currently included in such municipal electric utility or hereafter acquired. "First of the Month Price" means, for any month, the price per MMBtu as published in Natural Gas Intelligence NGI s Bidweek Survey, a publication of Intelligence Press, Inc., for such month in the section for "Southern Border, SoCal" under the column heading "Avg.". If Natural Gas Intelligence NGI s Bid Week Survey ceases to publish such price, "First of the Month Price" shall mean the arithmetic mean of the prices per MMBtu as published in Natural Gas Intelligence NGI's Bidweek Survey for such month in the section for "Southern Border, SoCal" under the column heading "Range". First of the Month Price shall be stated in U.S. dollars. "Gas Price Management Contract" means the agreement, to be entered into by the City and a Qualified Counterparty, substantially in the form of Exhibit C to the Resolution, wherein the City agrees to make variable payments against a notional amount of natural gas based on one or more recognized gas price indices and the Qualified Counterparty agrees to make fixed payments against the same notional amount of natural gas. The Gas Price Management Contract approved by the Resolution shall have terms within the following parameters: (i) all amounts payable by the City under the Gas Price Management Contract will be payable solely from the revenues of the Electric System available for such payments under the City Bond Indenture and may be secured by a pledge of such available Electric System revenues; (ii) the notional amount shall not exceed 372,000 MMBtu per month; (ii) the term of the Gas Price Management Contract shall not exceed 20 years; (iii) the maximum variable price which the City shall pay with respect to the notional amount shall not exceed.the Index price; (iv) the minimum fixed rate which the City shall receive with respect to the notional amount shall not be less than $4 per MMBtu; and (v) the Authority may procure insurance with respect to its obligations under the Gas Price Management Contract if the Authority concludes that such insurance will offer the Authority more favorable terms for the Gas Price Management Contract than would be otherwise available. "Gas System" means the municipal gas utility owned and operated by the City, including all gas distribution, transmission, administrative and other properties and facilities, and all contract rights; currently included in such municipal gas utility or hereafter acquired. "Indenture" mean an instrument providing for the issuance of Bonds and specifying the terms and conditions thereof which maybe an indenture of trust, a trust agreement, a resolution, an order or any other similar instrument or proceeding, and shall include all supplements thereto entered into in accordance with the terms thereof. A-2 DOCSLA1:520231.3 42797-2 EJC/EJC "Index" means the First of the Month Price or such other comparable recognized index for the price of natural gas as shall be approved by the City Attorney. "Joint Powers Act" means the Joint Exercise of Powers Act constituting Chapter 5 of Division 7 of Title 1 of the California Government Code. "Liquidity Facility". means a letter of credit, line of credit, standby bond purchase agreement or other surety or guarantee instrument guaranteeing, subject to the conditions thereof, the payment when due of the purchase price of Bonds tendered for purchase in accordance with the applicable Indenture. A Credit Facility may also constitute a Liquidity Facility if it guarantees the payment of the purchase price of tendered Bonds as well as the principal of and interest on Bonds. The Liquidity Facility approved by the Resolution shall have terms within the following parameters: the Authority concludes that the initial and ongoing fees for the Liquidity Facility are less than the expected savings in debt service on the Bonds as a result of having such Liquidity Facility. "Natural Gas Purchase Agreement" means the Natural Gas Purchase Agreement between the City and the Authority, substantially in the form of Exhibit B to the Resolution, providing for the purchase of the Purchased Gas by the City on an installment payment basis. The Natural Gas Purchase Agreement approved by the Resolution shall have terms within the same parameters as are set forth clauses (i) and (ii) under the definition of "Acquisition Agreement." "Public Finance Contract" means an interest rate, currency, cash -flow or other similar exchange agreement relating to the Bonds or investments of the Authority, including an interest rate swap agreement, a currency swap agreement, a forward payment conversion agreement, a futures agreement, a contract providing for payments based on levels of, or changes in, interest rates, currency exchange rates, stock or other indices, 'a contract to exchange cash flows or a series of payments, or any similar contract to hedge payment, currency, rate, spread or similar exposure, including interest rate floors and caps, swaptions, options, puts and calls authorized by Section 5920 et seq. of the California Government Code or any other legislative authority whether currently in effect or hereafter enacted. The Public Finance Contracts approved by the Resolution shall have terms within the following parameters: (i) the notional amount shall not exceed the principal amount of the Bonds to which such Public Finance Contract relates; (ii) the term of the Public Finance Contract shall not exceed 20 years; (iii) the variable rate on which the Authority's payments are based shall not exceed a maximum of 25% per annum; (iv) the fixed rate on which the Authority's receipts are based shall not be less than a minimum of 3% per annum; (v) the fixed rate on which the Authority's payments are based shall not exceed a maximum of 12% per annum; (vi) the counterparty shall be a Qualified Counterparty; and (vii) the Authority may procure insurance with respect to its obligations under the Public Finance Contract if the Authority concludes that such insurance will offer the Authority more favorable terms for the Public Finance Contract than would be otherwise available. A-3 DOCSLA1:520231.3 42797-2 EJC/EJC "Purchased Gas" means the natural gas acquired by the Authority under the Acquisition Agreement on a prepayment basis and sold by the Authority to the City on an installment payment basis under the Natural Gas Purchase Agreement. "Qualified Counterparty" means, with respect to a Gas Price Management Contract or a Public Finance Contract, an entity as to which one of the following criteria are satisfied at the time of entering into the applicable contract and each transaction thereunder: (i) the long-term, unenhanced obligations of the entity are rated,at least A3 by Moody's Investors Service, Inc. ("Moody's") and A- by Standard & Poor's Rating Services ("S&P"); or (ii) the obligations of the entity under the applicable contract are unconditionally guaranteed by an entity the long-term, unenhanced obligations of which are rated at least A3 by Moody's and A- by S&P. A-4 DOCSLA1:520231.3 42797-2 EJC/EJC NATURAL GAS PURCHASE AGREEMENT by and between CITY OF VERNON and VERNON NATURAL GAS FINANCING AUTHORITY Dated as of [May 1, 2006] EXHIBIT B DOCSLA1:517770.3 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS................................................................................................. 2 Section 1.01 Definitions Incorporated by Reference........................................................ 2 Section 1.02 Additional Definitions................................................................................. 2 Section 1.03 Rules of Construction.................................................................................. 3 ARTICLE II SALE OF PURCHASED GAS........................................................................ 4 Section 2.01 The Acquisition Agreement......................................................................... 4 Section 2.02 Purchase of Purchased Gas by City............................................................. 4 Section 2.03 Rights of City With Respect to Acquisition Agreement .............................. 4 Section 2.04 Obligations of City With Respect to Acquisition Agreement ..................... 4 Section 2.05 Pledge of City's Interest in Acquisition Agreement and Guarantee............ 4 ARTICLE III INSTALLMENT PAYMENTS AND PREPAYMENTS ............................... 5 Section 3.01 Bond Payments............................................................................................ 5 Section 3.02 Bank Payments............................................................................................. 6 Section 3.03 Swap Payments............................................................................................ 6 Section 3.04 Additional Gas Payments............................................................................. 6 Section 3.05 Other Payments............................................................................................ 6 Section 3.06 Net Contract................................................................................................. 8 Section 3.07 Payment Obligations to Continue................................................................ 8 Section 3.08 Payments Operation and Maintenance Expenses ........................................ 8 Section 3.09 City's Payment Obligations Constitute Special Obligations ....................... 9 Section 3.10 Unconditional Obligations........................................................................... 9 Section 3.11 Assignment of Authority's Rights.............................................................10 Section 3.12 Amounts Remaining in Funds................................................................... 10 Section 3.13 Prepayments of Bond Payments................................................................10 Section 3.14 Termination of Qualified Swap Agreement ............................................... 11 ARTICLE IV INSURANCE POLICY.................................................................................11 Section 4.01 Provisions Relating to Insurance Policy....................................................11 Section 4.02 Information and Reports............................................................................ 11 Section 4.03 Acceleration...............................................................................................11 Section 4.04 Bond Payments Not Discharged................................................................ 11 DOCSLA1:517770.3 _i_ TABLE OF CONTENTS (continued) Page ARTICLE V COVENANTS OF THE AUTHORITY........................................................ 11 Section 5.01 Issuance of Bonds...................................................................................... 11 Section 5.02 Acquisition Agreement.............................................................................. 12 Section 5.03 Qualified Swap Agreements...................................................................... 12 ARTICLE VI COVENANTS OF THE CITY...................................................................... 12 Section 6.01 Rates for Electric Service........................................................................... 12 Section 6.02 Collection of Rates and Charges................................................................ 12 Section 6.03 Deposit and Application of Electric Revenues .......................................... 12 Section 6.04 Creation of Prior Liens on Electric Revenues ............................................ 13 Section 6.05 Against Encumbrances............................................................................... 13 Section 6.06 Sale or Other Disposition of Property........................................................ 13 Section 6.07 Operation and Maintenance of the Electric System; Budgets ...................13 Section 6.08 Insurance.................................................................................................... 13 Section 6.09 Accounting Records; Financial Statements and Other Reports. ................ 14 Section 6.10 Payment of Taxes and Compliance with Governmental Regulations ....... 14 Section 6.11- Tax Covenants........................................................................................... 14 Section 6.12 Continuing Disclosure...............................................................................15 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES................................................15 Section 7.01 Events of Default Agreement..................................................................... 15 Section 7.02 Acceleration of Certain Authority Obligations .......................................... 16 Section7.03 Remedies....................................................................................................16 Section 7.04 Remedies Not Exclusive ............................... :............................................ 17 SectionT.05 Non-Waiver................................................................................................17 ARTICLE VIII MISCELLANEOUS ......................................................................................17 Section 8.01 Benefits of Agreement Limited................................................................. 17 Section 8.02 Successor Is Deemed Included in all References to Predecessor .............. 17 Section 8.03 Article and Section Headings, Gender and References .............................18 Section 8.04 Partial Invalidity......................................................................................... 18 Section 8.05 California Law........................................................................................... 18 Section 8.06 Indemnification.......................................................................................... 18 Section 8.07 Representations as to Purchased Gas ......................................................... 19 DOCSLA1:517770.3 -ii- TABLE OF CONTENTS (continued) Page Section8.08 Notices......................................................................................................19 Section 8.09 Effective Date............................................................................................ 19 Section 8.10 Execution in Counterparts..........................................................................19 0 DOCSLA1:517770.3 -iii- An extra section break has been inserted above this paragraph. Do not delete this section break if you plan to add text after the Table of Contents/Authorities. Deleting this break will cause Table of Contents/Authorities headers and footers to appear on any pages following the Table of Contents/Authorities. DOCSLA1:517770.3 NATURAL GAS PURCHASE AGREEMENT This Natural Gas Purchase Agreement, dated as of [May 1, 2006], by and between the City of Vernon, California, a municipal corporation and a chartered city duly organized and existing under and by virtue of the Constitution and laws of the State of California and its Charter, and the Vernon Natural Gas Financing Authority, a joint exercise of powers entity duly organized and existing under and by virtue of the laws of the State of California, WITNESSETH: WHEREAS, the City (capitalized terms used in this Agreement shall have the meanings given such terms in Article I) owns and operates the Gas System for supplying the Electric System with natural gas and expects to expand the operations of the Gas System to provide natural gas to businesses and industries within the City; and WHEREAS, the Electric System supplies the inhabitants, businesses and industries within the City with electricity; and WHEREAS, certain electric generating units which are part of the Electric System use natural gas as fuel; and WHEREAS, the Gas System provides natural gas, and the Electric System provides electricity, at rates which promote economic development within the City; and WHEREAS, the Authority has been established as a separate entity under the Act and the Joint Powers Agreement to undertake projects and programs that promote economic development within the City, including implementing projects and programs to assist the City in procuring natural gas for distribution by the Gas System to be used as fuel for electric generating units which are part of the Electric System and for otherwise meeting the requirements of the Gas System, on terms and conditions approved by the City; and WHEREAS, simultaneously with the execution and delivery of this Agreement, the Authority and Citigroup Energy Inc. have entered into the Acquisition Agreement pursuant to which the Authority acquired the Purchased Gas and the City has approved the terms and conditions of the Acquisition Agreement; and WHEREAS, the Acquisition Agreement requires the Authority to make the Prepayment to pay for the Purchased Gas; and WHEREAS, the Authority and the City are entering into this Agreement to assist the City in procuring natural gas for distribution by the Gas System to be used fuel for electric generating units which are part of the Electric System and, to the extent not needed therefor, for otherwise meeting the requirements of the Gas System; and WHEREAS, amounts payable by the City under this Agreement constitute Operation and Maintenance Expenses of the Electric System; and DOCSLA1:517770.3 WHEREAS, the Authority is authorized under the Act to issue its bonds to finance the Prepayment of the Purchased Gas; and WHEREAS, the Authority has determined to provide for the issuance from time to time of Bonds payable from the Revenues and amounts held in certain funds maintained under this Indenture and, with respect to each Series of Bonds, from such Bank Facilities as may be provided for such Series pursuant to the Supplemental Indenture authorizing such Series of Bonds; WHEREAS, at the request of the City and simultaneously with the execution and delivery hereof, the Authority is entering into the Master Indenture and the First Supplemental Indenture pursuant to which the Authority is issuing the 2006 Series Bonds and apply a portion of the proceeds of the 2006 Series Bonds to the Prepayment of the Purchased Gas; and WHEREAS, at the request of the City and simultaneously with the execution and delivery hereof, the Authority is entering into the 2006 Swap Agreement in connection with the 2006 SeriesBCD Bonds and the Initial 2006B Liquidity Facility for the 2006 Series B Bonds; and WHEREAS, the City and the Authority have determined that all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Agreement; NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: ARTICLE I DEFINITIONS Section 1.01. Definitions Incorporated by Referenee. Unless the context otherwise requires, terms used in this Agreement and not otherwise defined herein shall have the meanings given such terms in the Indenture of Trust and the First Supplemental Indenture of Trust, each dated as of May 1, 2006, and each between the Vernon Natural Gas Financing Authority and The Bank of New York Trust Company, N.A. and such definitions are hereby incorporated by reference as if such. definitions were set forth in full herein. Section 1.02. Additional Definitions. Unless the context otherwise requires, the following terms, for all purposes of this Agreement, shall have the meanings set forth below: "Additional Gas Payments" mean the payments to be made by the City pursuant to Section 3.04. -2- DOCSLA1:517770.3 "Agreement Event of Default" means the occurrence and continuation of any one or more of the events set forth in Section 7.01. "Alternate Delivery Point" means a delivery point for the receipt of Purchased Gas into the Southern California Gas Company system other than the Delivery Points specified in the Acquisition Agreement. "Bank Payments" means the payments to be made by the City pursuant to Section 3.02. "Bond Payments" mean the payments to be made by the City pursuant to Section 3.01. "Delivery Point" means any existing or future border receipt points for Purchased Gas into Southern California Gas Company's system determined pursuant to the Acquisition Agreement. "Imbalance Charges" means any fees, penalties, costs or charges (in cash or in kind) assessed by a transporter of the Purchased Gas for failure to satisfy such transporter's balance and/or nomination requirements. "Light and Power Department Fund" means the Light and Power Department Fund established pursuant to Ordinance No. 950 of the City (codified as Section 2.65 of the City Administrative Code) and shall include any successor or replacement fund established by the City for the collection of revenues and the payment of expenses of the Electric System. "MMBtu" means one million international British Thermal Units. "Net Electric Revenues" means, with respect to any period of time, the Electric Revenues for such period less the Operation and Maintenance Expenses for such period. "Principal Installment" means, as of any date, the principal of the Outstanding Bonds due on such date whether at maturity, upon redemption from Sinking Fund Installments or upon a declaration of maturity pursuant to Section 10.04 of the Master Indenture. "Swap Payments" means the payments to be made by the City pursuant to Section 3.03. Section 1.03. Rules of Construction. Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neutral genders. Except where the context otherwise requires, words importing the singular number shall include the plural number and vice versa, and words importing persons shall include corporations and associations, including districts, agencies and other public bodies, as well as natural persons. Unless otherwise indicated, references in this Agreement to subsections, Sections and Articles are to such subsections, Sections and Articles of this Agreement. Unless the context requires otherwise, the terms "herein," "hereof," "hereunder" and any similar terms, as used in this Agreement, shall refer to this Agreement as a whole and not to any particular provisions of this Agreement. Defined terms shall include any variant of the terms set forth in this Article. The word "including" shall be construed to mean "including without limitation." -3- DOCSLA1:517770.3 ARTICLE II SALE OF PURCHASED GAS Section 2.01. The Acquisition Agreement. The City acknowledges that it has reviewed and approved the terms of the Acquisition Agreement, and further that it has requested the Authority to enter into the Acquisition Agreement, to issue the 2006 Series Bonds, to apply a portion of the proceeds of the 2006 Series Bonds to the Prepayment required by the Acquisition Agreement, to procure the Insurance Policy to secure the payment of the 2006 Series Bonds, to enter into the 2006 Swap Agreement and to enter into a Liquidity Facility for the 2006 Series B Bonds. Section 2.02. Purchase of Purchased Gas by City. In consideration of the obligation of the City to make the payments required hereunder, and subject to the terms and conditions hereof, including the retention by the Authority of a security interest in the Acquisition Agreement and the Guarantee to secure the performance by the City of its obligations hereunder, the Authority hereby sells and transfers to the City, and the City hereby purchases from the Authority, the Purchased Gas and transfers and assigns to the City all of the Authority's right, title and interest in and to the Guarantee. The City shall take delivery of the Purchased Gas at the Delivery Points in accordance with the Acquisition Agreement and shall take title to each MMBtu of the Purchased Gas at the Delivery Point thereof. The City shall have sole responsibility for transporting the Purchased Gas from the applicable Delivery Point(s), including arranging for such transportation and paying all costs associated with such transportation. Section 2.03. Rights of City With Respect to Acquisition Agreement. So long as no Agreement Event of Default shall have occurred and is continuing, the City shall exercise all of the rights with respect to Alternate Delivery Points, Imbalance Charges, dispute resolution, nomination activities and audit rights with respect to the Purchased Gas granted to the Authority under the Acquisition Agreement and all rights of the Authority with respect to the Guarantee. Section 2.04. Obligations of City With Respect to Acquisition Agreement. The City shall be responsible for the Imbalance Charges, taxes, indemnification payments and all other payments, other than the Prepayment, for which the Authority has any liability under the Acquisition Agreement. Section 2.05. Pledge of City's Interest in Acquisition Agreement and Guarantee. To secure the payment of all of the City's obligations under this Agreement, the City hereby irrevocably grants a lien on and a security interest in, and pledges, all of the City's right, title and interest in and to the Purchased Gas, the Acquisition Agreement and the Guarantee for the benefit of the Owners of the Outstanding Bonds, including without limitation Bank Bonds, the Credit Providers, the Liquidity Providers and the Qualified Counterparties under the Qualified Swap Agreements. The lien on and security interest in and pledge of all of the City's right, title and interest in and to the Purchased Gas, the Acquisition Agreement and the Guarantee granted and made in this Section shall constitute a first pledge of and charge and lien upon such right, title and interest, shall immediately attach and be effective, binding, and enforceable against the City, its successors, purchasers of any of such right, title and interest, -4- DOCSLA1:517770.3 creditors, and all others asserting rights therein to the extent set forth in, and in accordance with, this Agreement, irrespective of whether those parties have notice of the lien on, security interest in and pledge of such right; title and interest, and without the need for any physical delivery, recordation filing or further act. The grant of a lien on and security interest in, and pledge of, such right, title and interest, pursuant to this Section is made pursuant to Chapter 5.5 of Division 6 of Title 1 (commencing with Section 5450) of the Government Code of the State. ARTICLE III INSTALLMENT PAYMENTS AND PREPAYMENTS Section 3.01. Bond Payments. (a) The City covenants and agrees to pay to the Trustee, as the assignee of the Authority's rights with respect thereto, on or .before each date provided in or pursuant to the Indenture for the payment of a Principal Installment of and/or interest on the Outstanding Bonds, until the principal of and interest on all Bonds issued under the Indenture shall have been fully paid or provision for the payment thereof shall have been made in accordance with Article IX of the Master Indenture, in immediately available funds, for deposit in the Debt Service Fund, a sum equal to the amount then payable as a Principal Installment of and/or interest on the Outstanding Bonds as provided in the Indenture. (b) Each Bond Payment made by the City pursuant to this Section shall at all times be sufficient to pay the total amount of interest and Principal Installment then payable on the Outstanding Bonds; provided that any amount held by the Trustee in the Debt Service Fund, including Net Payments made by the Counterparty and deposited in the Debt Service Fund, on any due date for a Bond Payment hereunder shall be credited against the Bond Payment due on such date to the extent available for such purpose; and provided further that, subject to the provisions of this subsection, if at any time the available amounts held by the Trustee in the Debt Service Fund and the Debt Service Reserve Fund are sufficient to pay all of the principal of and interest and premium, if any, on the Outstanding Bonds as such payments become due, the City shall be relieved of any obligation to make any further Bond Payments. Notwithstanding the foregoing, if on any date the amount held by the Trustee in the Debt Service Fund is insufficient to make any required payments of Principal Installments of and interest on the Outstanding Bonds as such payments become due, the City shall forthwith pay such deficiency as a Bond Payment hereunder.. (c) Without limiting the generality of the obligations of the City under subsection (a) of this Section, to ensure that the moneys available in the_>Debt Service Fund are sufficient to pay when due the Principal Installments of and interest on the Outstanding Bonds, when due, but without duplication, the City shall make the deposits with the Trustee of the amounts described in (i) and (ii) below. (1) Interest Deposits. The City hereby agrees that it will deposit with the Trustee eight Business Days preceding each Interest Payment Date for Outstanding Bonds an amount equal to the amount of the interest payable on the Outstanding Bonds on such Interest Payment Date less any amounts then on deposit in the Debt Service Fund available to pay such interest. -5- DOCSLA1:517770.3 (2) Principal Deposits. The City hereby agrees that it will deposit with the Trustee eight Business Days preceding each date on which an Outstanding Bond is scheduled to mature and each date on which an Outstanding Bond (or a fraction thereof) is scheduled to be redeemed from Sinking Fund Installments an amount equal to the amount of such principal and Sinking Fund Installment due on such date. The amount so due on any date shall be reduced by any amounts then on deposit in the Debt Service Fund available to pay such principal or Sinking Fund Installments on such date. Section 3.02. Bank Payments. The City covenants and agrees to pay to the Trustee, as the assignee of the Authority's rights with respect thereto, on or before each date provided in or pursuant to each Bank Agreement for the payment of any amount by the Authority, all amounts payable by the Authority on such date under each Bank Agreement. Section 3.03. Swap Payments. The City covenants and agrees to pay to the Trustee, as the assignee of the Authority's rights with respect thereto, on or before each date provided in or pursuant to each Qualified Swap Agreement, including the 2006 Swap Agreement, for the payment of any amount by the Authority, including without limitation Net Payments and Termination Payments, all amounts payable by the Authority on such date under each Qualified Swap Agreement. Section 3.04. Additional Gas Payments. The City covenants and agrees to pay to the Trustee, as the assignee of the Authority's rights with respect thereto, on or before each date provided in or pursuant to the Acquisition Agreement for the payment of any amount by the Authority other than the Prepayment, including without limitation Imbalance Charges, taxes, and indemnification payments, all amounts payable by the Authority on such date under the Acquisition Agreement other than the Prepayment. The City shall make all payments required under this Section for the account of the Authority directly to the party entitled to such payment. Section 3.05. Other Payments. (a) Subject to the right of the City to require the Authority to deposit a Reserve Financial Guaranty in lieu of a cash deposit as provided in Section 5.06(e) of the Master Indenture, within two Business Days after a withdrawal of moneys from the Debt Service Reserve Fund in accordance with the provisions of the Indenture (except a withdrawal of moneys therefrom pursuant to Section 5.06(c) of the Master Indenture) and on each Debt Service Reserve Valuation Date, the City shall pay to the Trustee, as assignee of the Authority, an amount such that, after the deposit of such amount in the Debt Service Reserve Fund, the amount on deposit therein shall be at least equal to the Debt Service Reserve Requirement, including amounts necessary to reinstate any Reserve Financial Guaranties on deposit in the Debt Service Reserve Fund. If at any time the Trustee shall draw upon any Reserve Financial Guaranty, then the City shall promptly pay to the Trustee, as assignee of the Authority, the amount of such draw plus any interest payable with respect to such draw to reimburse the applicable Reserve Guaranty Provider for such draw. If at any time obligations insured or issued by a Reserve Guaranty Provider shall no longer maintain the required ratings set forth in the definition of "Reserve Financial Guaranty" in Section 1.01 of the Master Indenture, the City shall provide or cause to be provided cash or a substitute Reserve Financial Guaranty meeting such requirements to the extent necessary to satisfy the Debt Service Reserve Requirement, with either cash, qualified Reserve Financial Guaranties or a combination thereof. -6- DOCSLA1:517770.3 (b) The City agrees to pay to the party entitled thereto, each of the following: (1) the annual fee of the Trustee for its ordinary services rendered as trustee, and its ordinary expenses incurred under the Indenture, as and when the same become due; (2) the reasonable fees, charges and expenses of the Trustee for the necessary extraordinary services rendered by it and extraordinary expenses (including reasonable attorneys' fees) incurred by it under the Indenture, as and when the same become due; (3) the cost of printing any Bonds required to be furnished by the Authority; (4) All taxes and assessments of any type or character charged to the Authority or to the Trustee affecting the amount available to the Authority or the Trustee from payments to be received hereunder or in any way arising due to the transactions contemplated hereby (including taxes and assessments assessed or levied by any public agency or governmental authority of whatsoever character having power to levy taxes or assessments) but excluding any taxes based upon the capital and/or income of the Trustee or any other Person other than the City; provided, however, that, to the extent provided by law, the City shall have the right to protest any such taxes or assessments and to require the Authority or the Trustee, as the case may be, at the City's expense, to protest and contest any such taxes or assessments assessed or levied upon them and that the City shall have the right to withhold payment of any such taxes or assessments pending disposition of any such protest or contest unless such withholding, protest or contest would materially adversely affect the rights or interests of the Authority or the Trustee or the payment when due of the principal of and interest on the Bonds; (5) the Authority's expenses in connection with the sale of this Agreement, the Acquisition Agreement, the Bonds, the Indenture, the Tax Agreement, each Bank Facility, each Qualified Swap Agreement and any other documents contemplated hereby or thereby,, including without limitation reasonable expenses incurred by any attorneys representing the Authority (including attorneys that are employees of the Authority) in connection with any litigation, investigation or matter that may at any time be instituted or any other questions or matter involving this Agreement, the Acquisition Agreement, the Bonds, the Indenture, the Tax Agreement, each Bank Facility, each Qualified Swap Agreement or any other documents contemplated hereby or thereby; (6) all expenses required to be paid by the Authority under the terms of any purchase agreement, including exhibits thereto, executed by it in connection with the sale of any Bonds; (7) all expenses of the Authority related to the sale of the Purchased Gas and the application of the proceeds of the Bonds which are not otherwise required to be paid by the City under the terms of this Agreement; (8) the fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority or the Trustee to prepare audits, financial -7- DOCSLA1:517770.3 statements or opinions or provide such other services as are reasonably required under this Agreement, the Acquisition Agreement, the Indenture, the Tax Agreement, a Bank Facility, a Qualified Swap Agreement or any other document contemplated hereby and thereby; (9) such amounts as may be necessary to satisfy the rebate requirements for the Bonds in accordance with the Tax Agreement; and (10) any and all charges, fees, costs, and expenses that the Insurer may reasonably pay or incur in connection with the following: (A) the administration, enforcement, defense, or preservation of any rights or security hereunder or under the Indenture; (B) the pursuit of any remedies hereunder, or under the Indenture, or otherwise afforded by law or equity, (C) any amendment, waiver, or other action with respect to or related to this Agreement or the Indenture; (D) the violation by the City of any law, rule, or regulation or any judgment, order or decree applicable to it; (E) any advances or payments made by the Insurer to cure defaults of the City under the Indenture or this Agreement; and (F) any litigation or other dispute in connection with this Agreement or the Indenture, or the transactions contemplated hereby or thereby, other than amounts resulting from the failure of the Insurer to honor its payment obligations under the Insurance Policy. The payments described above shall be billed to the City by the Authority, the Insurer or the Trustee, as applicable, from, time to time, together with (y) a statement executed by a duly authorized officer or agent of the Authority, the Trustee, or the Insurer, as the case may be, stating that the amount billed has been incurred or paid by the Authority, the Trustee or the Insurer, for one or more of the above items and (z) a copy of the invoice or statement for the amount so incurred or paid. Amounts so billed shall be paid by the City within thirty (30) days after receipt of the bill by the City. Section 3.06. Net Contract. This Agreement shall be deemed and construed to be a net contract, and the City shall pay absolutely net during the term hereof the Bond Payments, the Bank Payments, the Swap Payments, the Additional Gas Payments and all other payments required under this Agreement, free of any deduction_ s and without abatement, diminution or set-off whatsoever. Section 3.07. Payment Obligations to Continue. The City agrees that the provisions of this Article providing for payments by the City shall survive the discharge of the Indenture and the retirement of all the Bonds issued under the Indenture, the termination or transfer of the Acquisition Agreement, the termination of any Bank Facility or Qualified Swap Agreement and the resignation or removal of the Trustee. In the event the City should fail to make any of the payments required by any Section of this Article, such payments shall continue as obligations of the City until such amounts shall have been fully paid. Section 3.08. Payments Operation and Maintenance Expenses. The City represents and warrants that the Bond Payments, the Bank Payments, the Swap Payments, the Additional Gas Payments and all other payments required hereunder constitute Operation and Maintenance Expenses under the City Bond Indenture. -8- DOCSLA1:517770.3 Section 3.09. City's Payment Obligations Constitute Special Obligations. The City's obligations to make payments hereunder shall not constitute a charge against the general credit of the City but shall constitute and evidence special obligations of the City payable only from amounts in the Light and Power Fund as an Operation and Maintenance Expense of the Electric System. The provisions of this Section shall not preclude the payment by the City of amounts due hereunder, at the election of the City in its sole and absolute discretion, from any other legally available funds. The Bonds will be secured by a legal or equitable pledge of, or lien or charge upon, any property of the City or any of its income or receipts, and are payable only from amounts in the Light and Power Fund. Neither the faith and credit nor the taxing power of the State of California, the City or any other public agency is pledged to the payment of amounts due hereunder and the execution and delivery of this Agreement shall not directly, indirectly or contingently obligate the City, the State or any political subdivision thereof, to levy or pledge any form of taxation or to make any appropriation for the payments due hereunder. The obligation of the City to make payments hereunder does not constitute a debt, liability . or obligation of the State of California or any public agency, including the City (other than the special obligation of the City as provided in this Section). Neither the members of the City Council of the City, nor any person executing this Agreement, nor any officer or employee of the City shall be liable personally for any payments to be made by the City hereunder or be subject to any personal liability or accountability by reason of the execution and delivery of this Agreement or in respect of any undertakings by the City under this Agreement. Section 3.10. Unconditional Obligations. Subject to the limitations set forth in Section 3.08, the obligations of the City to make the payments required by this Agreement and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional, irrespective of any defense or any rights of setoff, recoupment or counterclaim it might otherwise have against the Authority or any other Person, and the City shall pay absolutely net the payments required by this Agreement as prescribed herein, free of any deductions and without abatement, diminution or setoff. Until such time as the principal of and interest on all Bonds issued under the Indenture shall have been fully paid, or provision for the payment thereof shall have been made as required by Article IX of the Master Indenture, all Bank Facilities and Qualified Swap Agreements have been terminated and all amounts due from the Authority in connection therewith have been paid, and all other amounts payable by the City hereunder have been paid in full, the City (i) will not suspend or discontinue any payments provided for this Agreement; (ii) will perform and observe all of its other covenants contained in this Agreement; and (iii) except as provided in this Agreement for the prepayment of all amounts due hereunder, will not terminate this Agreement for any cause, including, without limitation, the occurrence of any act or circumstances that may constitute failure of consideration, destruction of or damage to,. or taking or condemnation of, all or any part of the Electric System, termination, assignment or transfer of any agreement relating to the Electric System, including this Agreement and the Acquisition Agreement, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either of these, or any failure of the Authority, the Trustee, any Credit Provider, any Liquidity Provider, Citigroup Energy Inc., any Qualified counterparty, or any other Person to perform and observe any covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, the Indenture, the Acquisition Agreement, the Guarantee, the 2006 Swap Agreement, or any other Qualified Swap Agreement, the Insurance Policy, or any -9- DOCSLA1:517770.3 other Credit Facility, the 2006B Liquidity Facility or any other Liquidity Facility, or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Authority or any force majeure, including acts of God, tempest, storm, earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial disputes, lockouts, lack of transportation facilities, fire, explosion, or acts or regulations of governmental authorities. Section 3.11. Assignment of Authority's Rights. As security for the payment .of the Bonds, including Bank Bonds, and all amounts due from the Authority under, or with respect to, Bank Facilities and Qualified Swap Agreements, the Authority will assign to the Trustee the Authority's rights, other than the Reserved Rights, but not its obligations, under this Agreement, including the right to receive Bond Payments, Bank Payments and Swap Payments hereunder and the Authority hereby directs the City to make the Bond Payments, Bank Payments and Swap Payments directly to the Trustee. The City hereby assents to such' assignment and agrees to make the Bond Payments, Bank Payments and Swap Payments directly to the Trustee without defense or setoff by reason of any dispute between the City and the Authority or the Trustee. Section 3.12. Amounts Remaining in Funds. It is agreed by the parties hereto that any amounts remaining in any fund held by the Trustee under the Indenture after payment in full of (i) all the Bonds issued under the Indenture, or after provision for such payment shall have been made as provided in Article IX of the Indenture, all amounts due and to become due under the Bank Facilities and Qualified Swap Agreements, (ii) the fees, charges and expenses of the Trustee due and owing in accordance with this Agreement and the Indenture and (iii) all other amounts required to be paid under this Agreement and the Indenture, including the Rebate Requirement, shall be applied as provided in Section 5.14 of the Master Indenture. Section 3.13. Prepayments of Bond Payments. The City shall have the right at any time or from time to time from any available funds to prepay all or any part of the Bond Payments, and the Authority shall accept such prepayments when the same are tendered by the City. All prepayments of Bond Payments shall be deposited upon receipt with the Trustee in the Redemption Fund and applied to the purchase or redemption of Outstanding Bonds in the manner and subject to the terms and conditions set forth in the Indenture, or making provision for the payment of Outstanding Bonds in accordance with Article IX of the Master Indenture. With respect to prepayments of Bond Payments, the City shall determine which Bond Payments are to be prepaid, the Series, maturities and principal amount of Outstanding Bonds to be paid or redeemed at the option of the Authority with such prepayment and; subject to the provisions of this Section, the date on which each such prepayment is to be made; provided, however, that any Outstanding Bonds which are Bank Bonds shall be prepaid before any other Bonds are paid or redeemed at the option of theAuthority. Before making any prepayment pursuant to this Section, the City shall give written notice to the Authority specifying the date on which the prepayment will be paid, which date shall be not less than fifty (50) days from the date such notice is given; provided, that notwithstanding any such prepayment, the City shall not be relieved of its obligations hereunder, including specifically its obligations under this Article, until all payments required to be made by the City hereunder shall have been fully paid (including provision for payment of Bonds pursuant to Article IX of the Indenture). -10- DOCSLA1:517770.3 Section 3.14. Termination of Qualified Swap Agreement. The City shall have the right at any time no Agreement Event of Default shall have occurred and be continuing hereunder, by a written direction from an Authorized City Representative accompanied by any Termination Payment required to be made by the Authority in connection therewith, to cause the Authority to optionally terminate any Qualified Swap Agreement. Upon receipt of such direction and Termination Payment, the Authority shall optionally terminate the specified Qualified Swap Agreement in accordance with the directions of the City to the extent such directions are consistent with the terms of such Qualified Swap Agreement. All such payments shall be applied in the manner and subject to the terms and conditions set forth in the applicable Qualified Swap Agreement. ARTICLE IV INSURANCE POLICY Section 4.01. Provisions Relating to Insurance Policy. For so long as, and only during such time as the Insurer is not in default under the Insurance Policy, the following provisions shall be in effect, and any conflict between the provisions of this Article and the provisions of any other Section hereof shall be governed by the provisions of this Article. Section 4.02. Information and Reports As soon as practicable after the filing thereof with the Authority, the City shall provide the Insurer a copy of any financial statement of the City and a copy of any audit and annual report of the City delivered by the City pursuant Section 6.09 and a copy of any report or notice required to be filed pursuant to the Continuing Disclosure Agreement. Section 4.03. Acceleration. Any acceleration of unpaid payments hereunder pursuant to Section 7.01 or any annulment thereof shall be subject to the prior written consent of the Insurer. Section 4.04. Bond Payments Not Discharged. Notwithstanding anything contained herein to the contrary, in the event that any principal of or interest on any 2006 Series Bond shall be paid by the Insurer pursuant to the Insurance Policy, the Bond Payments in connection with such principal and interest shall remain unpaid hereunder for all purposes, shall not be discharged or otherwise satisfied and shall not be considered paid and all agreements, covenants and other obligations of the City hereunder with respect thereto shall continue to exist and shall run to the benefit of the Insurer. ARTICLE V COVENANTS OF THE AUTHORITY Section 5.01. Issuance of Bonds. The City hereby requests the Authority to issue the 2006 Series Bonds. The Authority agrees to issue the 2006 Series Bonds for the purposes and upon the terms set forth in the Master Indenture as supplemented by the First r, -11- DOCSLAI :517770.3 Supplemental Indenture and agrees to use its best efforts to issue Bonds in addition to the 2006 Series Bonds for any of the purposes specified in Section 2.04 (a) of the Master Indenture as and when requested to do so by the City. The Authority will not issue any Bonds under the Indenture unless specifically requested to do so by the City. Section 5.02. Acquisition Agreement. So long as no Agreement Event of Default has occurred and is continuing, the Authority will use its best efforts to comply with the requests of the City with respect to any actions authorized to be taken by the Authority at its option or in its discretion under the Acquisition Agreement and will not take any action under the Acquisition Agreement at its option or in its discretion to which the City makes timely written objection. The Authority shall not enter into any amendment or supplement to the Acquisition Agreement without the written consent of the City. Section 5.03. Qualified Swap Allreements. So long as no Agreement Event of Default has occurred and is continuing, the Authority will use its best efforts to comply with the requests of the City with respect to any actions authorized to be taken by the Authority at its option or in its discretion under a Qualified Swap Agreement and will not take any action under a Qualified Swap Agreement at its option or in its discretion to which the City makes timely written objection. The Authority shall not enter into any amendment or supplement to a Qualified Swap Agreement without the written consent of the City ARTICLE VI COVENANTS OF THE CITY Section 6.01. Rates for Electric Service. The City shall at all times fix, prescribe and collect rates and charges for the Electric Service of the Electric System during each Fiscal Year which shall provide Electric Revenues sufficient, together with other available funds, to pay when due the Operation and Maintenance Expenses, including all payments required hereunder, and all other payments which are a charge or lien on the Electric Revenues as the same become due and payable. Section 6.02. Collection of Rates and Charges. The City shall have in effect at all times rules and regulations requiring each consumer or customer located on any premises connected with the Electric System to pay the rates and charges applicable to the Electric Service provided to such premises and providing for the billing thereof and for a due date and a delinquency date for each bill. The City shall not permit any part of the Electric System or any facility thereof to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency (including the United States of America, the State of California and any city, county, district, political subdivision, public corporation or agency of any thereof). Nothing in this Agreement shall prevent the City, in its sole and exclusive discretion, from permitting other parties from selling electricity to retail customers within the service area of the Electric System; provided, however, that permitting such sales shall not relieve the City of its obligations under this Agreement. Section 6.03. Deposit and Application of Electric Revenues. The City shall deposit or cause to be deposited all Electric Revenues into the Light and Power Department Fund -12- DOCSLA1:517770.3 upon receipt thereof. The City shall apply moneys in the Light and Power Department Fund to the payment of Operation and Maintenance Expenses then due and payable, including the payment of amounts due hereunder, before applying such moneys to. be applied to any other purpose. Section 6.04. Creation of Prior Liens on Electric Revenues. The City shall not issue any bond, note, or other evidence of indebtedness payable from or secured by the Electric Revenues on a basis which is: (1) in any manner prior to the payments due hereunder, or (ii) except for other Operation and Maintenance Expenses, payable on a parity with the payments due hereunder. Section 6.05. Against Encumbrances. The City shall pay or cause to be paid when due all sums of money that may become due or purporting to be due for any labor, services, materials, supplies or equipment furnished, or alleged to have been furnished, to or for the City in, upon, about or relating to the Electric System and shall keep the Electric System free of any and all liens against any portion of the Electric System. In the event any such lien attaches to or is filed against any portion of the Electric System, the City shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that if the City desires to contest any such lien it may do so if contesting such lien shall not materially impair operation of the Electric System. If any such lien shall be reduced to final judgment and such judgment or any process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and such stay thereafter expires, the City shall forthwith pay or cause to be paid and discharged such judgment. Section 6.06. Sale or Other Disposition of Property. The City shall. not sell, transfer or otherwise dispose of any of the works, plant, properties, facilities or other part or rights of the Electric System or any real or personal property comprising a part of the Electric System if such sale, transfer or disposition would cause the City to be unable to satisfy the requirements of Section 6.02. Section 6.07. Operation and Maintenance of the Electric System; Budliets. The City shall maintain and preserve the Electric System in good repair and working order at all times and shall operate the Electric System in an efficient and economical manner and shall pay all Operation and Maintenance Expenses as they become due and payable. The City shall prepare, not later than July 30 of each Fiscal Year, a budget for the Electric System approved by the City Council setting forth the estimated Operation and Maintenance Expenses and scheduled payments of principal of and interest on bonds issued under the City Bond Indenture for such Fiscal Year and shall take such action as may be necessary to include all such principal and interest payments and all other amounts payable from Net Electric Revenues coming due in such Fiscal Year in the budget for the Electric System. Any such budget may be amended at any time during any Fiscal Year provided that such amended budget shall include all payments coming due in such Fiscal Year with respect to Operation and Maintenance Expenses and all obligations payable from Net Electric Revenues. Section 6.08. Insurance. The City shall procure and maintain such insurance relating to the Electric System which it shall deem advisable or necessary to protect its interests and the interests of the Trustee, the Owners of the Bonds and the owners of the bonds issued -13- DOCSLA1:517770.3 under the City Bond Indenture, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with public electric utility systems similar to the Electric System; provided, that any such insurance may be maintained under a self- insurance program so long as such self-insurance is maintained in the amounts and manner as is, in the opinion of an accredited actuary, actuarially sound. All policies of insurance required to be maintained under this Agreement shall provide that the Trustee shall be given thirty (30) days' written notice of any intended cancellation thereof or reduction of coverage provided thereby. Section 6.09. Accounting Records; Financial Statements and Other Reports. (a) The City shall keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Electric System, which records shall be available for inspection by the Trustee at reasonable hours and under reasonable conditions. (b) The City shall prepare and file with the Trustee annually within one hundred eighty (180) days after the close of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2006): (1) financial statements of the City for such Fiscal Year prepared in accordance with Generally Accepted Accounting Principles, together with an audit report thereon by an Independent Certified Public Accountant; and (2) a detailed report as to all insurance policies maintained and self- insurance programs maintained by the City with respect to the Electric System as of the close of such Fiscal Year, including the names of the insurers which have issued the policies and the amounts thereof and the property or risks covered thereby. Section 6.10. Payment of Taxes and Compliance with Governmental ReEulations. The City shall pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Electric System or any part thereof when the same shall become due. The City shall duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Electric 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 and contesting such validity or application shall not materially impair the operations or financial condition of the Electric System or the performance of the City under this Agreement. Section 6.11. Tax Covenants. (a) The City hereby covenants it shall not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the Tax-exempt status of interest on any Bond under Section 103 of the Code. Without limiting the generality of the foregoing, the City shall comply with the requirements of the Tax Agreement, if any, delivered in connection with the issuance of each Series of Bonds. -14- DOCSLA1:517770.3 (b) In the event that at any time the City is of the opinion that, in order to comply with its obligations under subsection (a) of this Section, it is necessary or helpful to restrict or limit the yield on the investment of any moneys in any of the Funds held by the Trustee pursuant to the Indenture, the City shall so instruct the Trustee in writing, and cause the Trustee to take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the City shall provide to the Trustee an Opinion of Bond Counsel to the effect that any specified action required under this Section or a Tax Agreement is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Bonds under Section 103 of the Code, the City and the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the applicable Tax Agreement, and the covenants hereunder shall be deemed to be modified to that extent. (d) The covenants in this Section shall survive payment in full of the Bonds or the provision of such payment in accordance with Article IX of the Master Indenture. Section 6.12. Continuing Disclosure. The City hereby covenant's and agrees, whenever required by Rule 15c2-12, to comply with the continuing disclosure requirements in connection with the Bonds as promulgated under Rule 15c2-12, as it may from time to time hereafter be amended or supplemented. Without limiting the generality of the foregoing, the City hereby further covenants and agrees that it will comply with and carry out all of its obligations under the Continuing Disclosure Agreement to be delivered by the City in connection with the issuance of the 2006 Series Bonds. Notwithstanding any other provision of this Agreement, failure of the City to comply with the requirements of Rule 15c2-12 applicable to Bonds, as it may from time to time hereafter be amended or supplemented, or failure of the City to comply with the Continuing Disclosure Agreement shall not be considered an Agreement Event of Default and the Authority shall have no right to accelerate amounts due hereunder as a result thereof; provided, however, that any Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or the Trustee, as the case may be, to comply with its obligations in this Section and the Continuing Disclosure Agreement. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default Agreement. The occurrence and continuation of one or more of the following events shall constitute an Agreement Event of Default, that is to say: (a) if default shall be made in the due and punctual payment of any Bond Payment, Swap Payment or Bank Payment when and as the same shall become due and payable; (b) if default shall be made by the City in the performance of any of the agreements or covenants contained herein required to be performed by it, other than as set forth in (a) above, and such default shall have continued for a period of sixty (60) days after the City shall have -15- DOCSLA1:517770.3 been given notice in writing of such default by the Authority, the Trustee, the Insurer or the Owners of not less than ten percent (10%) in principal amount of the Outstanding Bonds; provided, however, is such default is such that it can be corrected by the City, but not within the applicable period specified above, it shall not constitute an Agreement Event of Default if corrective action is instituted by the City within thirty (30) days of the City's receipt of the notice of default required by this paragraph and is diligently pursued until the default is corrected; or (c) if an Event of Bankruptcy shall have occurred and be continuing with respect to the City. Section 7.02. Acceleration of Certain Authority Obligations. The City recognizes and agrees that an Agreement Event of Default constitutes an Agreement Event of Default under the Indenture. Upon the occurrence of an Agreement Event of Default under the Indenture, including an Agreement Event of Default, the Trustee is authorized to declare the principal amount of the Outstanding Bonds and the interest thereon to be immediately due and payable as well as pursuing the other remedies available under the Indenture. In addition the occurrence of an Agreement Event of Default will constitute a default under each Bank Agreement and Qualified Swap Agreement. Upon the occurrence of events of default under Bank Agreements and/or Qualified Swap Agreements, including an Agreement Event of Default, the parties to such Bank Agreement and/or Qualified Swap Agreement (other than the Authority) are authorized to declare amounts due thereunder immediately due and payable and to pursue the other remedies available under such Bank Agreements and Qualified Swap Agreements. All such amounts so due shall then be payable by the City pursuant to Article III. Section 7.03. Remedies. (a) Upon the happening and continuation of an Agreement Event of Default, the Authority shall have the right to institute any proceedings deemed appropriate by the Authority, at law or in equity, to collect any amounts due from the City hereunder (but only from the services specified in Section 3.08) and to enforce by specific performance or mandemus the performance by the City of each and every agreement and covenant of the City herein, including specifically the City's obligations under Article VI. Without limiting the generality of the foregoing, the Authority shall have the right: (i) to enforce and realize on the pledge of, and the Authority's security interest in, the City's interest in the Purchased Gas, the Acquisition Agreement and the Guarantee, including selling, assigning or otherwise transferring, by any commercially reasonable means, the City's interest in the Acquisition Agreement and the Guarantee; (ii) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the City or any officer or employee thereof, and to compel the City or any such officer or employee to perform and carry out its or his or her duties under the law and the agreements and covenants required to be performed by it or him or her contained in this Agreement; (iii) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority; or -16- DOCSLAI :517770.3 (iv) by suit in equity to require the City and its officers and employees to account as the trustee of an express trust with respect to the Electric Revenues and the Acquisition Agreement and the Guarantee and all amounts payable thereunder. (b) The City recognizes and acknowledges that by virtue of assignment of certain rights of the Authority to the Trustee pursuant to the Indenture to secure the payment of amounts due with respect to Outstanding Bonds, Bank Agreements and Qualified Swap Agreements, that the Trustee and in certain circumstances other parties such as Owners, Credit Providers and Liquidity Providers may be authorized to enforce the Authority's rights under this Agreement and, upon the occurrence of an Agreement Event of Default, to pursue the remedies available to the Authority hereunder and under applicable law. Section 7.04. Remedies Not Exclusive.. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by law. Section 7.05. Non -Waiver. A waiver by the Authority of any default or breach of duty or contract by the City hereunder shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Authority to exercise any right or remedy accruing upon any default or breach of duty or contract by the City hereunder shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Authority by law or by this Article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Authority. If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Authority, the Authority shall be restored to its former position, rights and remedies as if such action, proceeding or suit had not been brought or taken. ARTICLE VIII MISCELLANEOUS Section 8.01. Benefits of Agreement Limited. Nothing contained in this Agreement, expressed or implied, is intended to give to any person other than the Authority, the Trustee (with respect to its rights as the assignee of the Authority's rights hereunder for the benefit of the Owners, the parties to the Bank Agreements and Qualified Swap Agreements) and the City is not in default) any right, remedy or claim under or pursuant hereto, and any agreement or covenant required herein to be performed by or on behalf of the Authority (and the Trustee, as the assignee of the Authority's rights hereunder) or the City shall be for the sole and exclusive benefit of the other party. Section 8.02. Successor Is Deemed Included in all References to Predecessor. Whenever either the Authority or the City is named or referred to herein, such reference shall be -17- DOCSLA1:517770.3 deemed to include the successor to the powers, duties and functions that are presently vested in the Authority or the City, and all agreements and covenants required hereby to be performed by or on behalf of the Authority or the City shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 8.03. Article and Section Headings, Gender and References. The headings or titles of the several articles and sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof. Section 8.04. Partial Invalidity. If any one or more of the agreements or covenants or portions thereof required hereby to be performed by or on the part of the Authority or the City shall be contrary to law, then such agreement or agreements, such covenant or covenants or such portions thereof shall be null and void and shall be deemed separable from the remaining agreements and covenants or portions thereof and shall in no way affect the validity hereof. The Authority and the City hereby declare that they would have executed this Agreement, and each and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof irrespective of the fact that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 8.05. California Law. This Agreement shall be construed and governed in accordance with the laws of the State of California applicable to contracts made and to be performed in the State of California. Section 8.06. Indemnification. The City shall, to the full extent then permitted by law, indemnify, protect, hold harmless, save and keep harmless the Authority and the Trustee and their directors, officers and employees from and against any and all liability, obligations, losses, claims and damages whatsoever, regardless of the cause thereof, and expenses in connection therewith, including, without limitation, counsel fees and expenses, penalties and interest arising out of or as the result of (i) the entering into of this Agreement, the use of any of the Electric System or the Purchased Gas or any accident in connection with the operation, use, condition or possession of the Electric System or the Purchased Gas or any portion thereof resulting in damage to property or injury to or death to any person including, without limitation, any claim alleging latent and other defects, whether or not discoverable by the City or the Authority, (ii) any claim for patent, trademark or copyright infringement, (iii) any claim arising out of strict liability in tort, (iv) without negligence or willful misconduct, the Trustee's acceptance or administration of the trust under the Indenture, or the exercise or performance of any of its powers or duties thereunder or hereunder; or (v) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading in any official statement or other offering circular utilized in connection with the sale of any Bonds. The indemnification arising under this Section shall continue in full force and effect notwithstanding the full payment of all obligations hereunder or the termination of the other provisions hereof for any reason. The City agrees not to withhold or abate any portion of the. payments required pursuant to this Section by reason of any defects, malfunctions, -18- DOCSLAI :517770.3 breakdowns or infirmities of the Electric System or any of the Purchased Gas or any default by any party to any agreement, including the Acquisition Agreement, the Guarantee, any Bank Agreement or any Qualified Swap Agreement. The City and the Authority mutually agree to promptly give notice to each other of any claim or liability hereby indemnified against following either's learning thereof. The Trustee's rights to indemnification from the City pursuant to this Section shall survive the termination hereof or the resignation or removal of the Trustee. Section 8.07. Representations as to Purchased Gas. The Authority makes no representations or warranty as to the quality of the Purchased Gas or its fitness for the intended purposes of the City. The City agrees that Citigroup Energy Inc. and not the Authority shall.be responsible for the quality of the Purchased Gas, the delivery of the Purchased Gas to the Delivery Point(s) and all other matters relating to the Purchased Gas; provided, however, that nothing in this Section shall be construed to limit the City's rights under the Guarantee. Section 8.08. Notices. All notices, requests, certificates or other communications hereunder shall be given or made in writing and shall be delivered personally, or sent by certified or registered mail, postage prepaid, return receipt requested, by overnight delivery services or by Electronic Notice to the party to whom they are directed at the following address for each such party, or at such other address as may be designated by notice (given in accordance with this Section) from such party to the other parties listed below: If to the Authority: Vernon Natural Gas Financing Authority 4305 Santa Fe Avenue Vernon, CA 90058 Attention: Authority Attorney If to the City: City of Vernon 4305 Santa Fe Avenue Vernon, CA 90058 Attention: City Attorney Section 8.09. Effective Date. This Agreement shall become effective upon its execution and delivery by the City and the Authority, and, except as otherwise specifically provided with respect to particular terms hereof, shall terminate when all payments to be made by the City hereunder have been made or provision for the payment thereof, satisfactory to the party entitled to such payment shall have been made. Section 8.10. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. [Remainder of Page Intentionally Left Blank.] -19- DOCSLA1:517770.3 IN WITNESS WHEREOF, the parties hereto have executed and attested this Agreement by their respective officers thereunto duly authorized, as of the day and year first written above. CITY OF VERNON Lo Attest: Bruce V. Malkenhorst, Jr., Acting City Clerk City Attorney Leonis C. Malburg, Mayor VERNON NATURAL GAS FINANCING AUTHORITY LZI Attest: Bruce V. Malkenhorst, Jr., Secretary of the Authority APPROVED: Attorney for the Authority Leonis C. Malburg Chairman, Board of Directors DOCSLA1:517770.3 (Local Currency -Single Jurisdiction) EXHIBIT C ISDA@ International Swaps and Derivatives Association, Inc. MASTER AGREEMENT dated as of May _, 2006 [NAME OF QUALIFIED COUNTERPARTY] and the CITY OF VERNON have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement (the "Master Agreement"), which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:- 1. Interpretation (a) Definitions. The terms defined in Section 12 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. Obligations (a) General Conditions. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by DOCSLAI:520497.1 payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. (b) Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) Netting. If on any date amounts would otherwise be payable: (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over, the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of branches or offices through which the parties make and receive payments or deliveries. (d) Default Interest, Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the DOCSLA1:520497.1 2 other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. Representations Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into) that: — (a) Basic Representations. (i) Status. It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorize such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance. with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document DOCSLA1:520497.1 3 to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. 4. Agreements Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party: — (a) Furnish Specified Information. It will deliver to the other party any forms, documents or certificates specified in the Schedule or any Confirmation by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. (b) Maintain Authorizations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. 5. Events of Default and Termination Events (a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:— (i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(d) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(d) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) Credit Support Default. DOCSLA1:520497.1 4 (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) Misrepresentation. A representation made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); DOCSLA1:520497. I (vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:— (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they, become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding -up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding -up or liquidation or (13) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding - up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:— (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of DOCSLA1:520497.1 6 ,any event specified below constitutes an Illegality if the event is specified in (i) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (ii) below or an Additional Termination Event if the event is specified pursuant to (iii) below:-- (i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):— (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X" ), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the. Affected Party); or (iii) Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 6. Early Termination (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non -defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then, DOCSLAl :520497.1 7 an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) Right to Terminate Following Termination Event. (i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iii) Right to Terminate. If: (1) an agreement under Section 6(b)(ii) has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality other than that referred to in Section 6(b)(ii), a Credit Event Upon Merger or an Additional Termination Event occurs, either party in the case of an Illegality, any Affected Party in the case of an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) Effect of Designation. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(d) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) Calculations. DOCSLA1:520497.1 8 (i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment), from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss," and a payment method, either the "First Method" or the "Second Method." If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method," as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) Events of Default. If the Early Termination Date results from an Event of Default:— (1) First.Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non -defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non -defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts owing to the Non -defaulting Party over (B) the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non -defaulting Party, if a positive number, the Non -defaulting Party's Loss in respect of this Agreement. (3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non -defaulting Party) in respect of the DOCSLA1:520497.1 Terminated Transactions and the Unpaid Amounts owing to the Non -defaulting Party less (B) the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non -defaulting Party; if it is a negative number, the Non -defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non -defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non -defaulting Party; if it is a negative number, the Non -defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) Termination Events. If the Early Termination Date results from a Termination Event:— (1) One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non -defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Two Affected Parties. If there are two Affected Parties: — (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Unpaid Amounts owing to X less (II) the Unpaid Amounts owing to Y; and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number; X will pay the absolute value of that amount to Y. (iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). DOCSLA1:520497.1 10 (iv) Pre -Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre -estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. Transfer Neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that: — (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all of its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. Miscellaneous (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this. Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. (e) Counterparts and Confirmations. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise).' A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging DOCSLA1:520497.1 11 system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 9. Expenses A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Parry is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 10. Notices (a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:— (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received; (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the. recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery ) or that receipt, as applicable, is not a Local DOCSLAI :520497.1 12 Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 11. Governing Law and Jurisdiction (a) Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:— (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment), and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. DOCSLA1:520497.1 13 12. Definitions As used in this Agreement: — "Additional Termination Event" has the meaning specified in Section 5(b). "Affected Party" has the meaning specified in Section 5(b). "Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "Applicable Rate" means: — (A) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (B) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (C) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non -defaulting Party, the Non -default Rate; and (D) in all other cases, the Termination Rate. "Consent" includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent. "Credit Event Upon Merger" has the meaning specified in Section 5(b). "Credit Support Document" means any agreement or instrument that is specified as such in this Agreement. "Credit Support Provider" has the meaning specified in the Schedule. "Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1 % per annum. "Defaulting Party" has the meaning specified in Section 6(a). "Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iii). "Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. I "Illegality" has the meaning specified in Section 5(b). "Law" includes any treaty, law, rule or regulation and "lawful" and "unlawful" will be construed accordingly. "Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other DOCSLA1:520497.1 14 payment, in the place where the relevant account is located, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before, the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 9. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market -makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market -maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the, parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market -maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market -maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than. one quotation has the DOCSLA1:520497.1 15 same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "Non -default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non -defaulting Party (as certified by it) if it were to fund the relevant amount. "Non -defaulting Party" has the meaning specified in Section 6(a). "Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Reference Market -makers" means four leading dealers in the relevant market selected by the parry determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "Set-off' means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of. — the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "Specified Entity" has the meaning specified in the Schedule. "Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such parry or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross -currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of DOCSLA1:520497.1 16 Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before .that Early Termination Date). "Termination Event" means an Illegality or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such parry under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the fair market values reasonably determined by both parties. DOCSLAl :520497.1 17 IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. [NAME OF QUALIFIED COUNTERPARTY] CITY OF VERNON By: Name: Title: Date: IN Name: Title: Date: DOCSLA1:520497.1 18 SCHEDULE to the ISDA 2002 Master Agreement dated as of [ ], between and City of Vernon, a national banking association organized a charter city organized and existing hl under the laws of the United States under the laws of the state of California ("Party B") ("Party A") Part 1 Termination Provisions In this Agreement: (a) "Specified Entity" means for the purpose of Section 5(a)(v) of this Agreement, (i) in relation to Party A, any Affiliates of Party A, any Affiliate of Party A and (ii) in relation to Party B, None. (b) "Specified Transaction" will have the meaning specified in Section 14 of this Agreement. For purposes of clause (c) of such definition, Specified Transaction includes any securities options, margin loans, short sales, and any other similar transaction now existing or hereafter entered into between Party A (or any Affiliate of Party A) and Party B. (c) The "Cross Default" provisions of Section 5(a)(vi) will apply to Party A and will apply to Party B. For purposes of Section 5(a)(vi), the following provisions apply: "Specified Indebtedness" shall have the meaning set forth in Section 14 of this Agreement: provided, however, that Specified Indebtedness shall not include deposits received in the course of a parry's ordinary banking business. "Threshold Amount" means: (i) with respect to Party A, 2% of stockholders' equity; and (ii) with respect to Party B, $5,000,000; and including the U.S. Dollar equivalent on the date of any default, event of default or other similar condition or event of any obligation stated in any other currency. DOCSLAI :520497.1 For purposes of the above, stockholders' equity shall be determined by reference to the relevant party's most recent consolidated (quarterly, in the case of a U.S. incorporated party) balance sheet and shall include, in the case of a U.S. incorporated party, legal capital, paid -in capital, retained earnings and cumulative translation adjustments. Such balance sheet shall be prepared in accordance with accounting principles that are generally accepted in such party's country of organization. (d) Clause (6) of Section 5(a)(vii) of this Agreement is hereby amended to read in its entirety as follows: "(6)(A) seeks or becomes subject to the appointment of any administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets or (B) in the case of a Government Entity, any Credit Support Provider of such Government Entity or applicable Specified Entity of such Governmental Entity, (i) there shall be appointed or designated with respect to it, any entity such as an organization, board, commission, authority, agency or body to monitor, review, oversee, recommend or declare a financial emergency or similar state of financial distress with respect to it or (ii) there shall be declared or introduced or proposed for consideration by it or by any legislative or regulatory body with competent jurisdiction over it, the existence of a state of financial emergency or similar state of financial distress in respect of it;" (e) Section 5(a)(viii) is hereby amended by: (i) deleting the introductory paragraph in its entirety and replacing it with the following: "(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity (or, without limiting the foregoing, if such party is a Government Entity, .an entity such as an organization, board, commission, authority, agency or body succeeds to the principal functions of, or power and duties granted to, such party or any Credit Support Provider of such party) and, at the time of such consolidation, amalgamation, merger, transfer or succession: (1) the resulting, surviving, transferee, or successor entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) .the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving, transferee or successor entity of its obligations under this Agreement." (f) The "Credit Event Upon Merger" provisions of Section 5(b)(v) of this Agreement will apply to Party A and will apply to Party B; provided, however, that such Section is amended to read in its entirety as follows: "(v) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity (or, without limiting the foregoing, if X is a Government Entity, an entity such as an organization, board, commission, authority, agency or body succeeds to the principal functions of, or powers and duties granted to, X, any Credit Support Provider of X or any Specified Entity of X) and such action does not constitute an event described in Section 5(a)(viii), but the creditworthiness of the resulting, surviving, transferee or successor `entity is materially weaker than that of X, such Credit Support Provider or such DOCSLA1:520497.1 2 Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or" (g) The "Automatic Early Termination" provisions of Section 6(a) will not apply to Party A and will not apply to Party B; provided, however, that with respect to a party, where the Event of Default specified in Section 5(a)(vii)(1), (3), (4), (5), (6) or to the extent analogous thereto, (8) is governed by a system of law which does not permit termination to take place after the occurrence of the relevant Event of Default, then the Automatic Early Termination provisions of Section 6(a) will apply to such party. (h) "Termination Currency" will have the meaning specified in Section 14 of this Agreement. (i) "Additional Termination Event" will apply. The following shall constitute an Additional Termination Event with Party B as the sole Affected Party: (i) Termination of the Agreement for Purchase and Sale of Natural Gas between Citigroup Energy Inc. and Vernon Natural Gas _Financing Authority dated of even date herewith (the "Gas Agreement"). Notwithstanding anything to the contrary, no amount shall be due pursuant to Section 6(c), other than amounts accrued prior to the Early Termination Date. Part 2 Tax Representations (a) Payer Representations. For the purpose of Section 3(e) of this Agreement, Party A will make the following representation and Party B will make the following representation: It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 9(h) of this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, except that it will not be a breach of this representation where reliance is placed on clause (ii) above and the other party does not deliver a form or documents under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position. (b) Payee Representations. For the purpose of Section 3(f) of the Agreement, Party A and Party B make the representations specified below, if any: The following representation will apply to Party A: It is a national banking association organized under the laws of the United States and its U.S. taxpayer identification number is 13-5266470. It is "exempt" within the meaning of Treasury Regulation sections 1.6041-3(p) and 1.6049-4(c) from information reporting on Form 1099 and backup withholding. DOCSLA1:520497.1 I Part 3 Agreement to Deliver Documents For the purpose of Section 4(a) of this Agreement: I. Tax forms, documents or certificates to be delivered are: Party required to deliver document Form/Document/ Certificate Party A As required under Section 4(a)(iii) of the Agreement, IRS Form W-9, IRS Form W-813EN, IRS Form W- 8ECI, IRS Form W-8EXP and/or IRS Form W-WAY, whichever is relevant. II. Other documents to be delivered are: Party required to deliver Form/Document/ document Certificate Party A and Party B Evidence reasonably satisfactory to the other party of the (i) authority of such party and its Credit Support Provider, if any, to enter into this Agreement, any Transactions and any Credit Support Document and (ii) the authority and genuine signature of the individual signing this Agreement and any Credit Support Document on behalf of such party to execute the same. Date by which to be delivered Promptly upon execution of this Agreement Date by which to be delivered As soon as practicable after execution of this Agreement and, if requested by the other party, as soon as practicable after execution of any Confirmation of any other Transaction. Covered by Section 301 Yes DOCSLA 1:520497.1 4 Party B Party B Party A and B Party B Party A and B Certified copies of: (1) the charter, enabling statutes, and constitution or comparable legislation, creating or authorizing Party B; (2) bylaws of Party B; (3) other charter and constituent instruments of Party B; (4) investment policies, guidelines or restrictions of Party B; (5) resolution approving the Transactions contemplated by this Agreement and authorizing a specified person or persons to execute and deliver on behalf of Party B this Agreement, the exhibits, supplements, and attachments hereto, the documents incorporated by reference herein, and the Confirmations hereunder; and (6) amendments to any of the foregoing Legal opinion in the form of Attachment 1 attached hereto Credit Support Documents Certified copies of (i) the Gas Agreement and (ii) the Indenture The party's annual report containing audited consolidated financial statements prepared in accordance with accounting principles that are generally accepted in such party's country of organization and certified by independent certified public accountants for each fiscal year. Upon execution of this Yes Agreement Upon execution of this Agreement No Upon execution of this Yes Agreement As soon as available and in any event within 120 days (or as soon as practicable after becoming publicly available) after the end of each of its fiscal years or of its Credit Support Provider, as applicable, if such financial statement is not available on "EDGAR" or a party's, or its Credit Support Provider's, home page on the World Wide Web at www.citigroup.com for Party A and [ ] for Party B. Yes DOCSLAI :520497.1 Party A and Party B (a) The party's unaudited consolidated financial statements, the consolidated balance sheet and related statements of income for each fiscal Quarter prepared in accordance with accounting principles that are generally accepted in Party B's country of organization. Part 4 Miscellaneous As soon as available and in any event within 60 days (or as soon as practicable after becoming publicly available) after the end of each of its fiscal quarters or its Credit Support Provider if such financial statement is not available on "EDGAR" or a party's, or its Credit Support Provider's, home page on the World Wide Web at www.citigroup.com for Party A and [ I for Party B. Addresses for Notices. For the purpose of Section 12(a) of this Agreement: Address for notices or communications to Party A: Address: [Please Provide] Attention: [Please Provide Title of Contact] Facsimile No.: [Please Provide] (For all purposes) Address for notices or communications to Party B: Address: [Please Provide] Attention: [Please Provide Title of Contact] Facsimile No: [Please Provide] (b) Process Agent. For the purpose of Section 13(c) of this Agreement: Yes Party A appoints as its Process Agent: : [None.] [If not organized in the U.S., please provide a Process Agent in New York] Party B appoints as its Process Agent: None. (c) Offices. The provisions of Section 10(a) will apply to this Agreement. (d) Multibranch Party. For the purpose of Section 10(b) of this Agreement: DOCSLA1:520497.1 6 Party A is a Multibranch Party and may enter into a Transaction through any of the following offices: Party B is not a Multibranch Party. (e) Calculation Agent. The Calculation Agent will be Party A unless otherwise specified in a Confirmation in reference to the relevant Transaction. (f) Credit Support Document. The Credit Support Documents are (i) the Credit Support Annex and (ii) the Indenture. (g) Credit Support Provider. The Credit Support Provider for Party A is: Not applicable. The Credit Support Provider for Party B is: Not applicable. (h) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York. (i) Jurisdiction. Section 13(b)(i) of the Agreement is hereby amended by deleting in line 2 of paragraph 2 the word "non-" and by deleting paragraph (iii) thereof. The following shall be added at the end of Section 13(b): "Nothing in this provision shall prohibit a party from bringing an action to enforce a money judgment in any other jurisdiction." 0) No Agency. The provisions of Section 3(g) will apply to this Agreement. (k) Representations. (i) The introductory clause of Section 3 of this Agreement is hereby amended to add the following language at the end thereof: "In addition, each party also represents that, in the case of the representations contained in Section 3(a) and 3(n), such representations will be deemed to be repeated to each party on each date on which a Transactions is entered into and at all times until the termination of this Agreement):" (ii) Section 3(a)(ii) of this Agreement is hereby amended to read in its entirety as follows: "(ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action and made all necessary determinations and findings to authorize such execution, delivery and performance;" (iii)_ Section 3(b) of this Agreement is hereby amended to read in its entirety as follows: DOCSLA1:520497.1 "(b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Incipient Illegality (in the case of a Government Entity) or Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party." (1) Additional Representation will apply. For the purpose of Section 3 of this Agreement, the following will constitute an Additional Representation (which will be deemed to be repeated by the parties on each date on which a Transaction is entered into): "(h) Relationship Between Parties. Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction): (1) No Reliance. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. It has not received from the other party any assurance or guarantee as to the expected results of that Transaction. (2) Evaluation and Understanding. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the financial and other risks of that Transaction. (3) Status of Parties. The other party is not acting as a fiduciary for or an advisor to it in respect of that Transaction. (i) Risk Management. Party B alone represents that this Agreement has been, and each Transaction hereunder has been or will be, as the case may be, entered into for the purpose of managing its borrowings or investments, hedging its underlying assets or liabilities or in connection with its line of business (including financial intermediation services) and not for the purpose of speculation. 0) Eligible Contract Participant. (a) It is an "eligible contract participant" within the meaning of Section 1(a)(12) of the Commodity Exchange Act, as amended. (k) Financial Institution. Party A only represents that it is a "financial institution" as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991 or Regulation EE promulgated by the Federal Reserve Board thereunder. (1) No Employee Benefit Assets. The assets that are used, directly or indirectly, in connection with the execution, delivery and performance of this Agreement and the Transactions entered into pursuant hereto are legally and beneficially owned by such party and are not held by it, directly or indirectly, for the benefit of or under any form of DOCSLA1:520497.1 any employee benefit or other plan, trust plan, pension plan, individual retirement accounts or other type of similar plans. (m) Additional Representations of Party B. For the purpose of Section 3 of the Agreement, Party B hereby further represents and warrants to Party A that: (i) Non -Speculation. This Agreement and each Transaction has been and will be, entered into not for the purpose of speculation but solely in connection with the financing activities of Party B, including, without limitation, increasing the predictability of cash flow, including earnings on invested funds, and otherwise improving Party B's ability to manage its funds and revenues. (ii) No Immunity. It is not entitled to claim immunity on the grounds of sovereignty or other similar grounds with respect to itself or its revenues or assets (irrespective of their use or intended use) from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) or (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be made subject to in any suit, action or proceedings relating to this Agreement in the courts of any jurisdiction, and no such immunity (whether or not claimed) may be attributed to such party or its revenues or assets. (iii) Legal Investment. This Agreement and each Transaction hereunder do not constitute any kind of investment by Party B that is proscribed by any constitution, charter, law, rule, regulation, investment guideline, restriction or policy, government code, constituent or governing instrument, resolution, guideline, ordinance, order, writ, judgment, decree, charge, or ruling to which Party B (or any of its officials in their respective capacities as such) or its property or revenues is subject. (iv) Assets of Party B. No Affiliate or other person, firm, corporation, entity or association may liquidate, borrow, encumber or otherwise utilize the assets (including without limitation the source of funds) of Party B. (v) Organization. Party B is a state or political subdivision thereof, or an instrumentality, agency or department of either of the foregoing. (vi) Investment Policies. It has clear investment policies, its personnel are fully trained in and knowledgeable of such investment policies, and such investment policies are subject to regular reviews. (m) Agreements. W The introductory clause of Section 4 of this Agreement is hereby amended to read in its entirety as follows: "Bach party agrees with the other (or, in the case of Section 4(d), (e) and (f), the Government Entity, agrees with the other party) that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:" (ii) Section 4 of this Agreement is hereby amended by adding the following subsections (h), (i), 0) and (k) thereto: DOCSLA1:520497.1 9 "(h) Notice of Incipient Illegality. If an Incipient Illegality occurs, the Government Entity will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Incipient Illegality and will also give such other information about that Incipient Illegality as the other party may reasonably require. (i) Security and Source of Payment of Party B's Obligations. The obligation of Party B to make payment to Party A under this Agreement and each Transaction hereunder shall remain, payable solely out of or from [specify source of payments] [Orrick to provide.]. 0) Nature of Obligations. The obligations of Party B to make payments to Party A under this Agreement and each Transaction (a) are not subject to appropriation or similar action and (b) do not (1) constitute any kind of indebtedness of Party B or (2) create any kind of lien on or security interest in any property or revenues of Party B which, in either case (1) or (2), is proscribed by any constitution, charter, law, rule, regulation, investment guideline, restriction or policy, government code, constituent or governing instrument, resolution, guideline, ordinance, order, writ, judgment, decree, charge, or ruling to which Party B (or any of its officials in their respective capacities as such) or its property or revenues is subject." (k) Compliance with Covered Documents. Party B will observe, perform and fulfill each provision of the Covered Documents, including all defined terms related to, used or included within any such provision as the same are in effect on the Covered Documents Incorporation Date, as any of those provisions may be amended, supplemented or modified for purposes of this Agreement with the prior written consent of Party A (the "Incorporated Provisions"), with the effect that Party A will have the benefit of each of the Incorporated Provisions (including without limitation, covenants, right to consent to certain actions subject to consent under the Covered Documents and delivery of financial statements and other notices and information). In the event the Covered .Documents ceases to be in effect prior to the termination of this Agreement, the Incorporated Provisions (other than those provisions requiring payments in respect of bonds, notes, warrants or other similar instruments issued under the Covered Documents) will remain in full force and effect for purposes of this Agreement as though set forth herein until such date on which all of the obligations of Party B under this Agreement and any obligations of Party B or any Credit Support Provider of Party B under a Credit Support Document have been fully satisfied. The Incorporated Provisions are hereby incorporated by reference and made a part of this Agreement to the same extent as if such provisions were set forth herein. For purposes of this Agreement, the Incorporated Provisions shall be construed as though (i) all references therein to any party making loans, extensions of credit or financial accommodations thereunder or commitments therefor (the "Financings") were to Party A and (ii) to the extent that such Incorporated Provisions are conditioned on or relate to the existence of such Financings or Party B having any obligations in connection therewith, all references to such Financings or obligations were to the obligations of Party B under this Agreement. Any amendment, supplement, modification or waiver of any of the Incorporated DOCSLAI :520497.1 10 Provisions without the prior written consent of Party A shall have no force and effect with respect to this Agreement. Any amendment, supplement or modification for which such consent is obtained shall be part of the Incorporated Provisions for purposes of this Agreement. (a) Jurisdiction. Section 11(b) of this Agreement is hereby amended to read in its entirety as follows:— "(b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably: — submits, to the fullest extent permitted by applicable law, to the non-exclusive jurisdiction of each of the courts of the State of New York, the United States District Court located in the Borough of Manhattan in New York City, the courts of the state in which Party B's principal executive offices are located and the United States District Court with jurisdiction over the location of Party B's principal executive offices; and waives, to the fullest extent permitted by applicable law, (1) any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, (2) any claim that such Proceedings have been brought in an inconvenient forum and (3) the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings .in any other jurisdiction." (b) Definitions. Section 12 of this Agreement is hereby amended to add or amend the following definitions in their appropriate alphabetical order: — "Bonds" means any Bonds issued by Party B from time to time under the Indenture or other obligations issued by Party B from time to time which are secured by lien on and security interest in the revenues of Party B's Electric System on a parity with the Bonds issued under the Indenture. "Covered Documents" means, collectively, the Indenture and the Gas Agreement. "Covered Documents Incorporation Date" means the date of this Agreement. "Indenture" means the Indenture of Trust, dated as of December 1, 2004, between Party B and The Bank of New York Trust Company, N.A., as trustee, under which the Bonds are issued and secured, as the same may be amended and supplemented from time to time in accordance with its terms and the terms hereof (m) "Netting of Payments". Multiple Transaction Payment Netting will not apply for purposes of Section 2(c) of this Agreement. DOCSLA1:520497.1 11 Part 5 Other Provisions (a) Obligations. Section 2(a)(iii) of this Agreement is hereby amended to read in its entirety as follows: "(iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default, Potential Event of Default or Incipient Illegality with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement." (b) Waiver of Right to Trial by Jury. Each party hereby irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to this Agreement. (c) Severability. Except as otherwise provided in Sections 5(b)(i) or 5(b)(ii) in the event that any one or more of the provisions contained in this Agreement should be held invalid, illegal, or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor, in good faith negotiations, to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. (d) Netting. In the event that any Terminated Transaction cannot be aggregated and netted against all other Terminated Transactions under Section 6(e) of the Agreement, such excluded Terminated Transactions shall be aggregated and netted amongst themselves to the fullest extent permitted by law. (e) Confirmation Procedures. For each Transaction that Party A and Party B enter hereunder, Party A shall promptly send to Party B a Confirmation setting forth the terms of such Transaction. Party B shall execute and return the Confirmation to Party A or request correction of any error within five Business Days of receipt. Failure of Party B to respond within such period shall not affect ' the validity or enforceability of such Transaction and shall be deemed to be an affirmation and acceptance of such terms. (f) Escrow Payments. If by reason of the time difference between the cities in which payments are to be made, it is not possible for simultaneous payments to be made on any date on which both parties are required to make payments hereunder, either party may at its option and in its sole discretion notify the other party that payments on that date are to be made in escrow. In this case the deposit of the payment due earlier on that date shall be made by 2:00 p.m. (local time at the place for the earlier payment) on that date with an escrow agent selected by the party giving the notice, accompanied by irrevocable payment instructions (i) to release the deposited payment to the intended recipient upon receipt by the escrow agent of the required deposit of the corresponding payment from the other party on the same date accompanied by the irrevocable payment instructions to the same effect or (ii) if the required deposit of the corresponding payment is not made on that same date, to return the payment deposited to the party that paid it into escrow. The party that elects to have payments made in escrow shall pay the costs of the escrow arrangements and shall cause those arrangements to provide that the intended recipient of the payment due to be deposited first shall be entitled to interest on that deposited payment for each day in the period of its deposit at the rate offered by the escrow agent for that day for overnight deposits in the relevant currency in the office where it holds that deposited payment (at 11:00 am. local time on that day) if that payment is not released by 5:00 p.m. on the date it is deposited for any reason other than the intended recipients' failure to make the escrow deposit it is required to make hereunder in a timely fashion. DOCSLA1:520497.1 12 (g) Recording of Conversations. Each party hereto consents to the recording of its telephone conversations relating to this Agreement or any potential Transaction. To the extent that one party records telephone conversations (the "Recording Party") and the other party does not (the "Non - Recording Party"), the Recording Party shall, in the event of any dispute, make a complete and unedited copy of such party's tape of the entire day's conversations with the Non -Recording Parry's personnel available to the Non -Recording Party. The Recording Party's tapes may be used by either party in any forum in which a dispute is sought to be resolved and the Recording Party will retain tapes for a consistent period of time in accordance with the Recording Party's policy unless one party notifies the other that a particular transaction is under review and warrants further retention. (h) Limitation of Liability. No party shall be required to pay or be liable to the other party for any consequential, indirect or punitive damages, opportunity costs or lost profits. (i) Definitions. This Agreement, each Confirmation, and each Transaction are subject to the 2000 ISDA Definitions ("Definitions"), as published by the International Swaps and Derivatives Association, Inc. ("ISDA"), and will be governed in all respects by the Definitions (except that any references to "Swap Transactions" in the Definitions will be deemed to be references to "Transactions"). The Definitions are incorporated by reference in, and made part of, this Agreement and each relevant Confirmation as if set forth in full in this Agreement and such Confirmation. In the event of any inconsistency between the provisions of this Agreement and the Definitions, this Agreement will prevail. 0) Commodity Definitions. The 2005 ISDA Commodity Definitions as published by the International Swaps and Derivatives Association, Inc. and otherwise as amended, supplemented or modified from time to time (the "Commodity Definitions"), are incorporated by reference in this Agreement and the relevant Confirmations with respect to "Transactions", as defined by the Commodity Definitions, except as otherwise specifically provided in the relevant Confirmation. (k) 2002 Master Agreement Protocol. The parties agree that the definitions and provisions contained in Annexes 1 to 16 and Section 6 of the 2002 Master Agreement Protocol published by the International Swaps and Derivatives Association, Inc. on 15th July, 2003 are incorporated into and apply to this Agreement. (1) Additional Definitions. Section 14 of the Agreement is hereby amended by adding the following definitions: (i) "Government Entity" means Party B. (ii) "Incipient Illegality" means (a) the enactment by any legislative body with competent jurisdiction over a Government Entity of legislation which, if adopted as law, would render unlawful (i) the performance by such Government Entity of any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of a Transaction or the compliance by such Government Entity with any other material provision of this Agreement relating to such Transaction or (ii) the performance by a Government Entity or a Credit Support Provider of such Government Entity of any contingent or other obligation which the Government Entity (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction, (b) any assertion in any proceeding, forum or action by a Government Entity, in respect of such Government Entity or in respect of any entity located or organized under the laws of the state in which such Government Entity is located to the effect that performance under this Agreement or similar agreements is unlawful or (c) the occurrence with respect to a Government Entity or any Credit Support Provider of such Government Entity of any event that constitutes an Illegality." DOCSLA1:520497.1 13 IN WITNESS WHEREOF, the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. [NAME OF COUNTERPARTY] (Party A) By: Name: Title: Date: QUALIFIED CITY OF VERNON (Party B) By: Name: Title: Date: DOCSLA1:520497.1. 14 ISDA CREDIT SUPPORT ANNEX to the Schedule to the ISDA Master Agreement dated as of [ ], a national banking association organized under the laws of the United States ("Party A") Paragraph 13. Elections and Variables between and City of Vernon, a charter city organized and existing under the laws of the state of California ("Party B") (a) Security Interest for "Obligations". The term "Obligations" shall have the meaning set forth in Paragraph 12. (b) Credit Support Obligations. (i) Delivery Amount, Return Amount and Credit Support Amount; Addition to Paragraph 3 of this Annex. (A) "Delivery Amount" has the meaning set forth in Paragraph 3(a). (B) "Return Amount" has the meaning set forth in Paragraph 3(b). (C) "Credit Support Amount" means for any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus (ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any, minus (iii) the Pledgor's Threshold, if any; provided, however, that (x) in the case where the sum of the Independent Amounts applicable to the Pledgor exceeds zero, the Credit Support Amount will not be less than the sum of all Independent Amounts applicable to the Pledgor and (y) in all other cases, the Credit Support Amount will be deemed to be zero whenever the calculation of the Credit Support Amount yields an amount less than zero. (ii) Eligible Collateral. The following items will qualify as "Eligible Collateral" for the party specified: Party A Party B (A) Cash -1- DOCSLA1:520497.1 [X] [X] Valuation Percentage 100% (B) (x) Negotiable debt obligations issued by the U.S. Treasury Department or the Government National Mortgage Association ("Ginnie Mae"), or (y) mortgage backed securities issued by Ginnie Mae (but with respect to either (x) or (y) excluding interest only or principal only stripped securities, securities representing residual interests in mortgage pools, or securities that are not listed on a national securities exchange or regularly quoted in a national quotation service) and in each case having a remaining maturity of- (i) less than one year (ii) one year or greater but less than 10 years (iii) 10 years or greater (C) (x) Negotiable debt obligations issued by the Federal Home Loan Mortgage Association ("Freddie Mad') or the Federal National Mortgage Association ("Fannie Mad') or (y) mortgage -backed securities issued by Freddie Mac or Fannie Mae but excluding interest only or principal only stripped securities, securities representing residual interests in mortgage pools, or securities that are not listed on a national securities exchange or regularly quoted in a national quotation service. -2- DOCSLA1:520497.1 [X] [X] 100% [X] [XI 98% [X] [XI 95% [X] [XI 95% (D) Agency CMO. "Agency [X] [X] 95% CMO" means U.S. Dollar - denominated collateralized mortgage obligations of fixed maturity with a rating classification of Aaa by Moody's and AAA by S&P (in the event of a split rating, the lower rating shall apply) and issued directly by or guaranteed by FNMA; FHLMC or Ginnie Mae which (i) is a senior tranche security ranking pari passu with the highest debt class for payment priority in the issuance and (ii) is listed as a PAC, sequential, scheduled or support obligation on Bloomberg or Intex or successor listing service excluding interest only or principal only stripped securities and securities representing residual interest on mortgage pools. (E) Any other collateral [X] [X] [*] acceptable to the Secured Party in its sole discretion * The Valuation Percentage shall be determined by the. Valuation Agent from time to time and in its sole discretion. (iii) Other Eligible Support. The following items will quality as "Other Eligible Support" for the party specified: Party A Party B Valuation Percentage Letter of Credit [ ] (iv) Thresholds. [X] 100%, provided that if a Letter of Credit Default has occurred and is continuing with respect to such Letter of Credit, or twenty (20) or fewer New York Banking Days remain prior to the expiration of such Letter of Credit, the applicable Valuation Percentage shall be zero. (A) "Independent Amount" shall mean with respect to Party A and Party B and with regard to any Transaction, the USD equivalent of the amount as specified in the relevant Confirmation. (B) "Threshold" shall mean, with respect to a party (a) the amount set forth below opposite the lower of the Credit Ratings in effect on any Valuation Date for such party; or -3- DOCSLA1:520497.1 (b) zero if on any Valuation Date an Event of Default or Potential Event of Default with respect to such party has occurred and is continuing. Threshold U.S. $20,000,000 U.S. $15,000,000 U.S. $10,000,000 U.S. $5,000,000 Zero S&P Credit Rating AA- A+ A A - BBB+ and below Moody's Credit Ratin Aa3 Al A2 A3 Baal and below (C) "Minimum Transfer Amount" for purposes of computing a Delivery Amount pursuant to Paragraph 3(a) and a Return Amount pursuant to Paragraph 3(b), as of any date shall mean, with respect to Party A, U.S. $100,000, and with respect to Party B, U.S. $100,000. (D) Rounding. The Delivery Amounts will be rounded up and Return Amounts will be rounded down to the nearest integral multiple of U.S. $100,000. (c) Valuation and Timing. (i) "Valuation Agent" means the Secured Party. (ii) "Valuation Date" means each Local Business Day. (iii) "Valuation Time" means, with respect to the determination of Exposure, Value of Eligible Credit Support and Posted Credit Support, the close of business on the Local Business Day immediately before the Valuation Date or date of calculation, as applicable. (iv) "Notification Time" means 10:00 a.m., New York time on a Valuation Date provided, however, that, notwithstanding Paragraph 4(b), if a request for Transfer is made by the Notification Time, then the relevant Transfer shall be made not later than the close of business on such day and, if such request is received after the Notification Time, not later than the close of business on the next Local Business Day following such request. Notwithstanding anything herein to the contrary, with regard to Transfers of Independent Amounts, the relevant Transfer shall be made by the close of business on the second Local Business Day following the Trade Date of the applicable Transaction. (d) Conditions Precedent and Secured Party's Rights and Remedies. Each Termination Event specified below with respect to a party will be a "Specified Condition" for that party (the specified party being the Affected Party if a Termination Event or Additional Termination Event occurs with respect to such party): Party A Party B Illegality [ ] [ ] Tax Event [ } [ ] Tax Event Upon Merger [ ] [ ] Credit Event Upon Merger [X] [X] Additional Termination Events specified in [X] [X] the Schedule to this Agreement (e) Substitution. -4- DOCSLA1:520497.1 (i) "Substitution Date" has the meaning specified in Paragraph 4(d)(ii) of this Annex. (ii) The following phrase shall be inserted after the word "Support" and before the period at the end of Paragraph 4(d)(ii): "and in an amount in excess of the Pledgor's Minimum Transfer Amount". (f) Dispute Resolution. (i) "Resolution Time" means 1:00 p.m., New York time, on the Local Business Day following the date on which notice is given that gives rise to a dispute under Paragraph 5. (ii) Value. For the purpose of Paragraphs 5(i)(C) and 5(ii), the Value of Posted Credit Support will be calculated as follows: the sum of (i) (x) the arithmetic mean of the mid market quotations on the relevant date of three nationally recognized principal market makers (which may include an affiliate of Party A) for such security chosen by the Valuation Agent multiplied by the applicable Valuation Percentage or (y) if no quotations are available from such principal market makers on the relevant date, the arithmetic mean of the closing bid prices on the next preceding date multiplied by the applicable Valuation Percentage plus (ii) the accrued interest on such security (except to the extent Transferred to a party pursuant to any applicable provision of this Agreement or included in the applicable price referred to in (i) of this clause) as of such date. (iv) Alternative. The provisions of Paragraph 5 will apply. (g) Holding and Using Posted Collateral. (i) Eligibility to Hold Posted Collateral; Custodians. A party or its Custodian will be entitled to hold Posted Collateral pursuant to Paragraph 6(b) provided that such party is not a Defaulting Party. Initially Party A shall not be using a Custodian and Party B shall not be using a Custodian. (ii) Use of Posted Collateral. The provisions of Section 6(c) will apply to both parties; provided that in the case of Party A it has a Credit Rating of at least `Baa3BBB" as determined by Moody's and S&P, respectively, and in the case of Party B, it has a Credit Rating of at least `Baa3/BBB-" as determined by Moody's and S&P, respectively. (h) Distributions and Interest Amount. (i) Interest Rate. The "Interest Rate" will be the overnight ask rate in effect for such day, as set forth opposite the caption "O/N" under the heading "USD" on Telerate Page 4659 or any successor page thereto on or about 11:00 a.m., New York time, on such day and if no successor page is quoted, as agreed by the parties. (ii) Transfer of Interest Amount. Transfers of the Interest Amount will be made in arrears on the last Local Business Day of each calendar month. (iii) Alternative to Interest Amount. The provisions of Paragraph 6(d)(ii) will apply, provided, however, that the Interest Amount will compound daily. (i) Other Eligible Support and Other Posted Support. (i) "Value with respect to Other Eligible Support and Other Posted Support means: The amount then available under the Letter of Credit to be unconditionally drawn down by Party A, as the Secured Party. -5- DOCSLA1:520497.1 (ii) "Transfer" with respect to Other Eligible Support and Other Posted Support means: For purposes of Paragraph 3(a), (1) delivery by Party B, as the Pledgor, to Party A, as the Secured Party, at the address specified in this Annex, of the Letter of Credit or (2) delivery to Party A, as the Secured Party, of an amendment of such Letter of Credit extending the term or increasing the amount available to Party A, as the Secured Party, thereunder; and for purposes of Paragraph 3(b), return of the Letter of Credit by Party A, as the Secured Party, to Party B, as the Pledgor, at the address specified in this Annex, or agreement by Party A, as the Secured Party, to an amendment to the Letter of Credit in form and substance satisfactory to Party B, as the Pledgor, reducing the amount available to Party A, as the Secured Party, thereunder. (iii) All Other Eligible Support and Other Posted Support consisting of Letters of Credit shall be issued and maintained in accordance with the provisions set forth in Schedule I attached hereto. (j) Demands and Notices. All demands, specifications and notices under this Annex will be made pursuant to the Notices Section of this Agreement, provided, that the address for Party A for such purposes shall be: [Please Advice] and the address for Party B for such purposes shall be: [Please Advise] (k) Other Provisions. (i) Custodians. A party shall be eligible to serve as Custodian if and for so long as it (i) is not affiliated with Party A or Party B, (ii) is a trust company or commercial bank with trust powers, organized under the laws of the United States of America or any state thereof and subject to supervision or examination by federal or state authority, having a combined capital surplus of at least $10,000,000,000 and (iii) shall have outstanding long term unsecured unsubordinated debt securities rated at least "AY' by Moody's and "A-" by S&P. (ii) Actions Hereunder. Either party may take any actions hereunder, including liquidation rights, through its Custodian or other agent. (iii) Events of Default. Paragraph 7(i) shall be amended and restated in its entirety as follows: "(i) that party fails (or fails to cause its Custodian) to make, when due any Transfer of Eligible Collateral, Posted Collateral or the Interest Amount, as applicable, required to be made by it and that failure continues for one Local Business Day after notice of that failure is given to that party;" (iv) Amendments to Definitions. Paragraph 12 of this Annex is hereby amended by adding or amending, as applicable, the following defined terms: "Local Business Day" is hereby amended by inserting the following in lieu thereof "Local Business Day" shall mean a day on which commercial banks in New York City are open for business (including dealings in foreign exchange and foreign currency deposits)." -6- DOCSLA1:520497.1 "Credit Rating" shall mean with respect to Party A, on any date of determination, the respective ratings then assigned to Party A's unsecured, senior long-term debt or deposit obligations (not supported by third party credit enhancement) by S&P, Moody's or any other specified rating agency or agencies and with respect to Party B, on any date of determination, the respective ratings then assigned to Party B's Electric System Revenue Bonds (not supported by third party credit enhancement) by S&P, Moody's or any other specified rating agency or agencies. "Letter of Credit" means an irrevocable, standby transferable letter of credit, issued by a major U.S. commercial bank or a U.S. branch office of a foreign bank which is satisfactory to Party A, as the Secured Party, in Party A's reasonable discretion utilizing the form set forth in Exhibit A attached hereto, with such changes to the terms in that form as the issuing bank may require and as may be acceptable to Party A; where (i) such letter of credit bank has a senior unsecured long term debt rating of "A-" or better by S&P and "AY' or better by Moody's and has a combined capital surplus of at least $10,000,000,000. Each Letter of Credit shall be a Credit Support Document. "Moody's" shall mean Moody's Investors Service, Inc. "New York Banking Day" means any day on which commercial banks are open for general business (including dealings in foreign exchange and foreign currency deposits) in New York City. "S&P" shall mean Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. IN WITNESS WHEREOF, the parties hereto have executed this Annex as of the date first above written. (Parry A) City of Vernon (Party B) By: By: Name: Name: Title: Title: Date: Date: -7- DOCSLA1:520497.1 Schedule I to Paragraph 13 of the ISDA Credit Support Annex LETTER OF CREDIT PROVISIONS I. Letters of Credit. Other Eligible Support provided by Party B ("X") for the benefit of Party A ("Y") in the form of a Letter of Credit shall be subject to the following provisions. (a) Any Letter of Credit shall be delivered by X to such address as Y shall specify and shall be maintained for the benefit of Y or its designee. X shall (i) cause the renewal of each outstanding Letter of Credit on a timely basis as provided in the relevant Letter of Credit, (ii) if the bank that issued an outstanding Letter of Credit has indicated its intent not to renew such Letter of Credit, provide a substitute Letter of Credit at least twenty (20) New York Banking Days prior to the expiration of the outstanding Letter of Credit, and (iii) if a bank issuing a Letter of Credit shall fail to honor Y's properly documented request to draw on an outstanding Letter of Credit, provide for the benefit of Y a substitute Letter of Credit that is issued by a bank acceptable to Y, other than the bank failing to honor the outstanding Letter of Credit, within two (2) New York Banking Days after such refusal. Any failure of the second bank to honor Y's proposed document request to draw on an outstanding Letter of Credit or failure by X to deliver such substitute Letter of Credit shall constitute an Event of Default under this Agreement. (b) Upon the occurrence of a Letter of Credit Default, X agrees to either cause the delivery to Y of a substitute Letter of Credit, or, alternatively, X shall provide other Eligible Collateral, in each case on or before the second Business Day after the occurrence thereof (or on or before the fifth Business Day after the occurrence thereof if only clause (i) under definition of Letter of Credit Default applies). "Letter of Credit Default" shall mean with respect to an outstanding Letter of Credit, the occurrence of any of the following events: (i) the bank issuing the Letter of Credit shall fail to maintain a Credit Rating of at least "A-" by S&P and "AY' by Moody's; (ii) the bank issuing the Letter of Credit shall fail to comply with or perform its obligations under such Letter of Credit; (iii) the bank issuing such Letter of Credit shall disaffirm, disclaim, repudiate or reject, in whole or in part, or challenge the validity of, such Letter of Credit; (iv) such Letter of Credit shall expire or terminate, or shall fail or cease to be in full force and effect at any time during the term of this Agreement; or (v) any event analogous to an event specified in Section 5(a)(vii) of this Agreement shall occur with respect to the bank issuing the Letter of Credit; provided, however, that no Letter of Credit Default shall occur in any event with respect to a Letter of Credit after the time such Letter of Credit is required to be cancelled or returned to the issuer thereof, in accordance with the terms of this Agreement. (c) As one method of providing additional Posted Credit Support, X may increase the amount of an outstanding Letter of Credit or establish one or more additional Letters of Credit. (d) A Letter of Credit shall provide that Y may draw upon the Letter of Credit in an amount that is equal to all amounts that are due and owing from X but have not been paid to Y within the time allowed for such payments under this Agreement. A Letter of Credit shall provide that a drawing may be made on the Letter of Credit upon submission to the bank issuing the Letter of Credit of one or more certificates in accordance with specific requirements of the Letter of Credit. (e) (i) Upon or at any time after the occurrence of an Event of Default, Y may draw on any outstanding Letter of Credit upon presentation to the bank issuing the Letter of Credit of one or more certificates in accordance with the specific requirements of any such Letter of Credit. Cash -8- DOCSLA1:520497.1 received from drawing upon the Letter of Credit shall be deemed Posted Collateral and shall either be (y) applied against all amounts that are due and owing from X but have not been paid to Y under this Agreement or (z) held by Y as Posted Collateral in accordance with this Annex. Notwithstanding Y's receipt of Cash from any drawing under a Letter of Credit, X shall remain liable for any amounts owing to Y. and.remaining unpaid after the application of the amounts so drawn by Y. (ii) Upon or at any time after the occurrence or deemed occurrence of an Early Termination Date as a result of a Termination Event and the failure of X to make all payments due and owing to Y in accordance with the terms of this Agreement, Y may, subject to the availability of such amounts for drawing, draw on any outstanding Letter of Credit in an amount equal to such amounts owing to it upon presentation to the bank issuing the Letter of Credit of one or more certificates in accordance with the specific requirements of any such Letter of Credit. Notwithstanding Y's receipt of Cash from any drawing under a Letter of Credit, X shall remain obligated to Y to Transfer sufficient Eligible Collateral to Y in accordance with the terms of this Annex. In addition, X shall remain obligated to Y for any amounts owing to Y and remaining unpaid after the application of any amounts so drawn by Y. (f) The provisions of this Schedule I shall constitute agreements for all purposes of this Agreement and this Annex. (g) Party B covenants and agrees that so long as a Transaction shall remain outstanding under this Agreement, no Letter of Credit shall be secured by any mortgage, security interest, pledge, lien or other encumbrance upon the property of Party B. (h) In all cases, the costs and expenses (including but not limited to the reasonable costs, expenses, and attorneys' fees of Y) of establishing, renewing, substituting, canceling, and increasing the amount of a Letter of Credit shall be borne by X. la DOCSLA1:520497.1 EXHIBIT A to Paragraph 13 of the ISDA Credit Support Annex IRREVOCABLE TRANSFERABLE STANDBY LETTER OF CREDIT Letter of Credit No. Beneficiary: [Party A's Name] [Address] Attn: Ladies and Gentlemen: Issue Date: , 20_ Account Party: [Name of Account Party] [Address of Account Party] Attn: We hereby establish in favor of you, [Party A's Name] (the "Beneficiary"), at the request and for the account of [name of account party] (the "Account Party"), with respect to the ISDA Master Agreement dated as of , 20 , by and between you and the Account Party (as may be amended from time to time, the "Master Agreement"), our Irrevocable Transferable Standby Letter of Credit No. (the "Credit") whereby we irrevocably authorize you to draw on us, in accordance with the terms and conditions hereinafter set forth, in an amount not to exceed in the aggregate $ , (as such amount may be reduced from time to time as hereinafter set forth, the "Credit Amount"). Subject to the terms hereof, funds are available to you hereunder against presentation of a completed certificate (a "Certificate"), dated and signed by your representative, including one of the following statements: An Event of Default (as defined in the Master Agreement) has occurred and is continuing with respect to the Account Party under the Master Agreement. Wherefore the Beneficiary does hereby demand payment of the entire undrawn amount of the Credit; or 2. An Early Termination Date (as defined in the Master Agreement) has occurred as a result of a Termination Event (as defined in the Master Agreement) and Account Party has failed to make payments in an aggregate amount of $ due and owing to the Beneficiary in accordance with the terms of the Master Agreement. Wherefore the Beneficiary does hereby demand payment of $ Partial drawings are allowed under this Credit. The amount which may be drawn under this Credit shall be automatically reduced by the amount of any drawings previously paid by us hereunder. Presentation of your Certificate shall be made on any day which is a New York Banking Day for us at or prior to [5:00 p.m. (New York time)] at our office located at Presentation must be made by hand, mail or courier service, to such address[, or by tested telex or SWIFT]. If your presentation is made at such office, in compliance with the other terms and conditions of this Credit, on or prior to the expiry date hereof, we hereby irrevocably undertake to honor such presentation [by close of business on the next New York Banking Day]. -10- DOCSLAI :520497.1 This Credit is effective immediately and expires at our close of business on 20_, [(the "Initial Expiry Date"); provided however, that this Credit shall be automatically extended without amendment for one or more additional one-year periods from the Initial Expiry Date or any subsequent expiry date, unless at least 30 days prior to such date you receive a notice in writing by certified mail, [tested telex or SWIFT] at the above address, that we elect not to extend this Credit for such additional period. Upon your receipt of such a notice of non -extension, you shall be entitled to make immediate demand for payment of the full amount available under this Credit, by presentation of your Certificate. This Credit shall be subject to the provisions of the International Standby Practices 1998, International Chamber of Commerce Publication No. 590 ("ISP"), and as to matters not addressed by ISP, shall be governed by the laws of the State of New York and applicable U.S. federal laws. This Credit is transferable, and we hereby consent to such transfer, but otherwise may not be amended, changed or modified without our express written consent and that of the Beneficiary and the Account Party. Very truly yours, [ISSUING BANK] -11- DOCSLA1:520497.1 AGREEMENT NOT RECEIVED - LEGAL DOES NOT HAVE A COPY ON FILE u O R R I C K February 26, 2010 VIA FEDERAL EXPRESS Donal O'Callaghan, City Administrator City of Vernon 4305 Santa Fe Avenue Vernon, California 90058 ORRICK, HERRINGTON & SUTCLIFFE LLP 777 SOUTH FIGUEROA STREET SUITE 3200 LOS ANGELES, CALIFORNIA 90017.5855 tel +1-213-629-2020 fax +1-213-612-2499 WWW.ORRICK.COM Sean J. Baxter (213) 612-2171 sbaxter@orrick.com Re: Termination of Commodity Swap Transaction with Societe Generale Dear Donal: In connection with the above -referenced transaction, enclosed please find a full set of original documents for the City's records. Please do not hesitate to call me at (213) 612-2171 if you have any questions. Very truly yours, J,e�o� Aw Sean J. Baxter Enclosures f'1 FID OHS West260850569.1 42797-2 TERMINATION OF COMMODITY SWAP TRANSACTION WITH SOCIETE GENERALE Termination Date: February 23, 2010 SCHEDULE OF TRANSCRIPT DOCUMENTS 1. Termination Agreement, dated February 23, 2010, by and between the City of Vernon (the "City") and Societe Generale ("SG"). 2. Incumbency Certificate for the City Administrator of the City. 3. Power of Attorney and Certificate of Authority of SG's authorized signer. 4. Opinion of the Law Offices of Eric T. Fresch, Ltd., as counsel to the City. 5. Opinion of General Counsel Corporate and Investment Banking of SG, as counsel to SG. OHS West:260850515.1 42797-2 EXHIBIT 1 Termination Agreement This Termination Agreement dated February 23, 2010 (the "Agreement") between Societe Generale ("SG") and the City of Vernon (the "City" and, together with SG, the "Parties") sets forth the agreement between the Parties to terminate the Transaction referred to herein, effective as of the Termination Date, as defined herein. Reference is made to the ISDA Master Agreement and Schedule thereto dated as of July 12, 2006 (collectively, the "Master Agreement") between SG and the City and the confirmation of a commodity swap transaction entered into on July 12, 2006 (the "Confirmation") between SG and the City with a notional quantity of 22,073,637 MMBtus of natural gas (the "Transaction"). Capitalized terms used but not defined herein have the meanings set forth in the Master Agreement as supplemented by the Confirmation: WHEREAS, the City has determined that it is the public interest to terminate the Transaction; WHEREAS, the each of the Parties has obtained all necessary approvals, consents and authorizations required on its part to enter into this Agreement and terminate the Transaction on the terms set forth herein; NOW THEREFORE, in consideration of the mutual agreements contained herein and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, SG and the City. agree as follows: 1. Termination. The Transaction is hereby terminated, effective as of February 23, 2010 ("Termination Date"). On the Termination Date, SG and the City shall each be released and discharged from further obligations to each other with respect to the Transaction and their respective rights against each other under the Transaction shall be cancelled. 2. Final Settlement Amount. In consideration of the termination and release in Section 1 hereof, and in full and final settlement of all claims whatsoever past, present or future arising under or in connection with the Transaction, SG agrees to pay a final settlement amount of US $4,445,000 on or before the fifth (5th) Business Day following the Termination Date. 3. Representations. Each of SG and the City hereby (1) repeats each of its representations in the Master Agreement as of the date hereof and as of the Termination Date, as if this Agreement were a transaction under the Master Agreement, and (2) represents to the other as of the Termination Date that (a) no default with respect to it has occurred and is continuing under the Master Agreement, (b) termination of the Transaction will not cause or constitute a default under any agreement or other instrument to which it is a party, and (c) this Agreement is a valid and binding obligation of such Party enforceable in accordance with its terms. The City represents to SG as of the Termination Date that (1) no Additional Termination Event, as defined in the Confirmation, has occurred and is continuing, and (2) after consultation with its bond counsel, the City has determined that 1 termination of the Transaction will not affect the tax status of any tax-exempt obligations issued by the City or its financing authority. 4. Non -Reliance Representation. Each of SG and the City represents to the other as follows: a. Non -Reliance. It is acting for its own account, and it has made its own independent decisions to into this Agreement and as to whether this Agreement is appropriate or proper for it based on its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Agreement, it being understood that information and explanations related to the terms and conditions of this Agreement will not be considered investment advice or a recommendation to enter into this Agreement. No communication (written or oral) received from the other party will be deemed to be an assurance or guarantee as to the expected results of this Agreement. b. Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Agreement. It is also capable of assuming, and assumes, the risks of this Agreement. c. Status of Parties. The other party is not acting as a fiduciary for or an adviser to it in respect of this Agreement. 5. Entire Agreement: Execution in Counterparts: Amendments. This Agreement constitutes the entire understanding and agreement with respect to the subject matter hereof and supersedes any prior representations, understandings or agreements written or oral between the Parties relating to the subject matter of this Agreement. This Agreement may be executed in counterparts, including by facsimile transmission, and each counterpart shall be deemed an original. This Agreement may not be modified or amended except in a writing signed by both Parties. 6. Governing Law: Waiver of Jury Trial: Jurisdiction; Notices. The provisions set forth in the Master Agreement relating to governing law, waiver of jury trial, submission to jurisdiction and addresses for notices shall apply to this Agreement. IN WITNESS WHEREOF, the Parties have duly executed and delivered this Termination Agreement effective as of the Termination Date set forth above. SOCIETE ERALE CITY OF VERNON By: By: Name: Name: Title: BalailleTitle: City Administrator Managing Director Head of Commod Amerity Markets- TheAttest: By: Name: Title: City Clerk Approved: By: Name: Title: EXHIBIT 2 CERTIFICATE AS TO OFFICERS OF THE CITY OF VERNON AND SIGNATURES I, Manuela Giron, City Clerk of the City of Vernon (the "City") HEREBY CERTIFY that the signature set forth opposite the respective name of the following officer of the City is a manual specimen of his signature: Name . Office Signature Donal O'Callaghan City Administrator IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of February, 2010. Manuela Giron, City Clerk EXHIBIT 3 SOCIETE GENERALE Corporate & Investment Banking POUVOIR ----Le soussigne, Monsieur Olivier KHAYAT, demeurant a PARIS, 29 boulevard HAUSSMANN, Directeur de la Division Marches de Taux, Changes et Matieres Premieres (FICC) de la Banque de Financement et d'Investissement a la SOCIETE GENERALE Societe anonyme au capital de 738 409 055 euros, ayant son siege social a PARIS, 29 boulevard Haussmann, immatriculee au Registre du Commerce et des Societes sous le n 552 120 222 RCS PARIS ---------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- ------ agissant en vertu des pouvoirs qui lui ont ete conferes le 15 fevrier 2008 par Monsieur Jean-Pierre MUSTIER, Directeur General Adjoint de la SOCIETE GENERALE en charge de la Banque de Financement et d'investissement, deposes le 27 fevrier 2008 au rang des minutes de I'Office notarial sis a Paris 9 rue d'Astorg ------ --------------------------------- ------------------------------------------------------------------------------------------------------------------------ ------ confere a Monsieur Gonzague BATAILLE, Responsable du Departement « Matieres premieres, Metaux, Energie >> de la Division Marches de Taux, Changes et Matieres Premieres (FICC) de la Banque de Financement et d'investissement a la SOCIETE GENERALE, les pouvoirs ci-apres :------------------------------------------------------------------------------------ ----------------- ------signer tous contrats, conventions, transactions, compromis avec tous clients, tous debiteurs ou autres personnes, portant sur tout bien ou droit mobilier ou immobilier ou toute prestation de service ; consentir toutes mentions et subrogations avec ou sans garanties ; desister la SOCIETE GENERALE avec ou sans constatation de paiement, de tous droits, actions, privileges et hypotheques, donner egalement, avec ou sans constatation de paiement, mainlevee de toutes inscriptions, saisies, oppositions et autres empechements quelconques ; consentir toutes anteriorites, toutes restrictions et limitations de privileges et d'hypotheques, ---- ------- signer tous documents, attestations ou declarations en matiere juridique, fiscale, comptable ou administrative,--------------------------------------------------------------------------------------- ------acquerir, souscrire, vendre, ceder et transferer, aux prix et conditions qu'il avisera, toutes valeurs, rentes, actions et obligations, parts sociales, autres titres ou droits ; a cet effet, signer tout document necessaire, requerir toutes conversions au porteur ou au nominatif, retirer tous titres, en donner decharge ; en cas d'amortissement total ou partiel des titres, actions ou obligations, en demander le remboursement ; toucher le montant de tout remboursement, en donnerdecharge------------------------------------------------------------------------------------------------------- ------ consentir tous decouverts, prets et ouvertures de credit, en fixer les modalites de remboursement, les interets et tous accessoires ainsi que toutes conditions,------------------------- ------------------------ ------cautionner ou garantir, aupres de toutes administrations, societes et particuliers, 1'execution de toutes operations ou de tous engagements -------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------ ------ consentir toutes avances sur titres,-------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------ ------constituer toutes suretes mobilieres en ,garantie de toutes operations et de tour engagements de la SOCIETE GENERALE --------------------------------------------------------------------- --------------------------- --------------------------------------------------------------------------------------------------- ------ accepter toutes garanties et notamment requerir toutes inscriptions d'hypotheques, de privileges immobiliers, de nantissements, gages ou autres, les renouveler, former opposition, - ------accorder des remises et delais, declarer toutes creances, recevoir tous dividendes, prendre part a toutes assemblees de creanciers, designer tout controleur, et, plus generalement, faire tout ce qui sera utile et necessaire, dans le cadre de toute procedure de traitement amiable ou judiciaire des difficultes des entreprises-------------------------------------------- ----------- ---------------------------------------------------------------------------------------------------------------- ------ representer ou agir au nom de la SOCIETE GENERALE, soit en demandant, soit en defendant, devant toutes autorites ou toutes juridictions ; se desister de toutes actions, acquiescer en son nom a tous jugements et decisions ; exercer toutes voies de recours ouvertes par la loi, le tout, tant en France qu'A 1'etranger--------------------------------------------------- ------ effectuer tous paiements, en exiger decharge, ------signer les quittances des sommes qui sont ou pourraient titre dues a la SOCIETE GENERALE a quelque titre et pour quelque cause que ce soit ; en donner bonne et valable quittance---------------------------------------------------------------------------------------------------------------- ------signer tous contrats relatifs a des operations de marche, a des operations sur titres de quelque nature que ce soit, notamment _sur instruments financiers, a toutes operations sur metaux precieux, devises, matieres premieres ou marchandises ; signer tous contrats de change ; signer tous contrats d'instruments financiers a terme, dont les derives de credit et plus generalement, signer tous contrats relatifs a des produits financiers tant pour le compte de la SOCIETE GENERALE que pour le compte de tiers ; signer tous contrats d'appels de marge ainsi que tous actes constitutifsde suretes mobilieres en garantie des engagements consentis par la SOCIETE GENERALE dans le cadre des contrats et operations vises ci dessus ; signer tous actes constitutifs de suretes personnelles en garantie des engagements consentis par des tiers dans le cadre des contrats et operations vises ci-dessus ; accepter toute garantie ou surete personnelle ou reelle dont la SOCIETE GENERALE est beneficiaire dans le cadre des contrats et operations vises ci-dessus--------------------------------------------------- ------ signer tous documents relatifs a la gestion des operations de marche, des operations sur titres de quelque nature que ce soit, notamment sur instruments financiers, a la gestion des operations sur metaux precieux, devises, matieres premieres ou marchandises, a la gestion des operations de change, des instruments financiers A terme, dont les derives de credit et plus generalement, A la gestion des produits financiers tant pour le compte de la SOCIETE GENERALE que pour le compte de tiers ; signer tous documents relatifs a la gestion des contrats d'appels de marge ainsi qu'A la gestion des suretes mobilieres en garantie des engagements consentis par la SOCIETE GENERALE ou a la gestion des suretes personnelles en garantie des engagements consentis par des tiers dans le cadre des contrats et operations visesci-dessus.-------------------------------------------------------------------------------------------------------- ------signer toes contrats cadre relatifs a des operations de marche, A des operations sur titres de quelque nature que ce soit, notamment sur instruments financiers, A toutes operations sur metaux precieux, devises, matieres premieres ou marchandises ; signer tous contrats cadre d'operations de change ; signer tous contrats cadre d'instruments financiers a terme, dont les derives de credit et plus generalement, signer tous contrats cadre relatifs A des produits financiers tant pour le compte de la SOCIETE GENERALE que pour le compte de tiers; signer tous contrats d'appels de marge ainsi que tous actes constitutifs de soretes mobilieres en garantie des engagements consentis par la SOCIETE GENERALE dans le cadre des contrats et operations vises ci-dessus ; signer tous actes constitutifs de suretes personnelles en garantie des engagements consentis par des tiers dans le cadre des contrats et operations vises ci-dessus accepter toute garantie ou surete personnelle ou reelle dont la SOCIETE GENERALE est beneficiaire dans le cadre des contrats et operations vises ci-dessus------------- ------ representer la SOCIETE GENERALE a toutes assemblees constitutives de societes ou autres personnes morales, ainsi qu'A toutes assemblees ordinaires et extraordinaires en sa qualite d'associe, de nu-proprietaire, d'usufruitier, de bailleur ou de membre, prendre part A toutes deliberations ou decisions collectives, accepter toutes fonctions, signer toutes feuilles de presence, tour registres et proces-verbaux ; signer tous actes relatifs a la constitution ou la creation de societes de toute nature, Groupement d'Interet Economique (GIE), Groupement Europeen d'Interet Economique (GEIE), associations et fondations; exercer vis-a-vis de toute societe ou personne morale, le droit de communication dont dispose la SOCIETE GENERALE en sa qualite d'associe, de nu-proprietaire, d'usufruitier, de bailleur ou de membre- ---------------- ------------------------------------------------------------------------------------------------------------------------------ ------representer la SOCIETE GENERALE a toutes assemblees de titulaires d'obligations, de valeurs mobilieres donnant acces au capital ou de titres participatifs, prendre part a toutes deliberations ou decisions collectives, signer toutes feuilles de presence, tous registres et proces-verbaux ; exercer vis-a-vis de toute societe le droit de communication dont dispose la SOCIETE GENERALE en sa qualite de titulaire d'obligations, de valeurs mobilieres donnant acces au capital ou de titres participatifs------------------------------------------------------------------------ ------signer tour actes relatifs a la constitution de societes ou autres personnes morales, -------- ------signer toute declaration de dissolution de societe dont la SOCIETE GENERALE est associeunique. -------------------------------------------------------------------------------------------------------- ------certifier toute signature autorisee de la SOCIETE GENERALE, ----------------------------------- ------consentir toutes substitutions, mais seulement affaire par affaire---------------------------------- ------ aux effets ci-dessus, passer et signer tous actes, pieces et pouvoirs, elire domicile, substituer dans les conditions ci-dessus enoncees, et, generalement, faire le necessaire--------- ------ Les presents pouvoirs se substituent a compter de ce jour a ceux qui ont pu titre precedemment donnes a Monsieur Gonzague BATAILLE----------------------------------------------- ------------------ Fait a Paris le 15 juillet 2008 SOCIETE GENERALE Corporate & Investment Banking POWER OF ATTORNEY ------- 1, the undersigned, Mr. Olivier KHAYAT, domiciled at 29, boulevard Haussmann, Paris, Head of Fixed Income, Currencies and Commodities Division (FICC) of SOCIETE GENERALE Corporate and Investment Banking, a « societe anonyme >> with capital of 738,409,055 Euros, whose head office is at 29, boulevard Haussmann, Paris, registered on the Trade and Companies Register under number RCS Paris 552 120 222----------------------- -------------------------------------------- ------ acting in pursuance of powers confered on 15th February 2008 by Mr. Jean-Pierre MUSTIER, Chief Executive Officer of SOCIETE GENERALE Corporate and Investment Banking, filed in the records of the firm of notaries at 9, rue d'Astorg, Paris 8, on the 27th February2008------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------- ------------ confer the following powers to Mr. Gonzague BATAILLE, Head of the Department "Commodities Markets" of Fixed Income, Currencies and. Commodities Division (FICC) of SOCIETE GENERALE Corporate and Investment Banking -------------- _-------------- ---------------- ------------------------------------------------------------------------------------------------------------------------- ------ sign all contracts, agreements, transactions, settlements with all customers, all debtors or other persons, applying to any movable or immovable assets or rights or any provision of services; grant any registration of charges with or without security; withdraw any of SOCIETE GENERALE's rights, actions, privileges or mortgages with or without acknowledgement of payment; discharge all registered charges, seizures, opposition and any other impediments, with or without. acknowledgement of payment; grant all precedents, all restrictions and limitations of privileges or mortgages ----------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- ---------------------- ------ sign all documents, attestations or declarations in legal, tax, accounting or administrative matters,------------------------------------------------------------------------------------------------------------------ ------acquire, subscribe to, sell, assign and transfer, according to the prices and conditions which he thinks fit, all assets, stocks, shares and bonds, partnership shares, other securities or rights; for this purpose, sign any necessary documents; request all conversions into bearer or registered form; withdraw all securities and give discharges for same; in the event of total or partial redemption of securities, shares or bonds, request reimbursement of same; receive the value of any reimbursement, give discharges for same,---------------------------------------------------- ------ grant all loans and all credit facilities; define the reimbursement procedures, interest, all incidental charges and all conditions for same ----------------------------------------------------------------- ------ stand surety for or guarantee the execution of all operations or commitments with respect to all official bodies, companies and private individuals --------- --------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------ ------ grant all security -backed loans,----------------------------------------------------------------------------- ------- grant all movable guarantees as surety for all SOCIETE GENERALE operations and commitments-------------- ------------------------------------------------------------- =-------------------------------- ------ accept all guarantees and, in particular, require all official entries of mortgages, immovable privileges, pledges; renew same; state opposition,-------------------------------------------- ------in the event of private receivership or official receivership or liquidation, grant all rebates and payment extensions; declare all receivables; receive all dividends; take part in all creditors meetings; appoint all auditors, and, more generally, take all measures that could be deemed usefulor necessary,-------------------;------------------------------------------------------------------------------ ------represent or act in the name of SOCIETE GENERALE as either plaintiff or defendant before any and all bodies or jurisdictions; withdraw the said company from all actions; agree in its name to all judgements and decisions; enter all appeals and more generally, take all avenues of recourse available under the law, both in France and abroad, ----------------------------- ------ make all payments, require discharges for same ------------------------------------------------------- ------ sign receipts for sums which are or may be due to SOCIETE GENERALE on any basis and for any reason whatsoever; give proper and valid discharges for same, -------------------------- ------sign all contracts for market operations, for all operations involving securities of any nature, in particular financial instruments, preciousmetals, foreign currency, raw materials or merchandise; sign all foreign exchange transactions; agree on all forward transactions involving financial instruments, including credit derivatives and more generally, sign all agreements on all other financial products on behalf of both SOCIETE GENERALE and third parties, sign all margin call agreements, and any agreements which constitute a personal property security given as a guarantee to commitments given by SOCIETE GENERALE in the contracts and transactions listed above; sign all agreements which constitute a personal security given as a guarantee to commitments given by third parties in the contracts and transactions listed above; accept all real or personal guarantees or securities of which SOCIETE GENERALE is beneficiary in the contracts and transactions listed above. --------------- ------ sign all documents relating to the management of market operations, of operations involving securities of any nature, in particular financial instruments, precious metals, foreign currency, raw materials or merchandise, of operations involving foreign exchange transactions, all forward transactions involving financial instruments, including credit derivatives and more .generally, sign all documents relating to all other financial products on behalf of both SOCIETE GENERALE and third parties; sign all documents relating to the management of margin call agreements and of personal property securities given as a guarantee to commitments given by SOCIETE GENERALE, or of personal securities given as a guarantee to commitments given by third parties in the contracts and transactions listed above. -------------------------------------------- ------ sign all master agreements for capital market transactions, for operations involving securities of any nature, in particular financial instruments, precious metals, foreign currency, raw materials or merchandise; sign all master agreements for all forward transactions involving financial instruments, including credit derivatives and more generally, sign all master agreements for all other financial products on behalf of both SOCIETE GENERALE and third parties; sign all master agreements for margin call agreements and for all agreements which constitute a personal property security given, as a guarantee to commitments given by SOCIETE GENERALE in the contracts and transactions listed above; sign all agreements which constitute a personal security given as a guarantee to commitments given by third parties in the contracts and transactions listed above; accept all real or personal guarantees or securities of which SOCIETE GENERALE is beneficiary in the contracts and transactions listed above.----------------------------------------------------------------------------------------------------------- ------represent SOCIETE GENERALE at all constituent general meetings of companies or other legal entities and at,all ordinary or extraordinary general meetings in its quality as partner, bare owner, usufructuary, lessor or member, take part in all collective proceedings or decisions; accept all posts; sign all attendance sheets, all minute books; sign all documents relating to the constitution of companies of any type, Economic Interest Groups (EIG), European Economic Interest Groups (EEIG), associations and foundations; use with regards to any company or legal entity the right of communication to which SOCIETE GENERALE is entitled in its quality as partner, bare owner, usufructuary, lessor or member, ------------------------ ------------------------------------------------------------------------------------------------------------------------------ ------represent SOCIETE GENERALE at all general meetings of holders of bonds or transferable securities which give the holder the right to capital or redeemable shares, take part in all collective deliberations or decisions, sign any presence sheets, registers and records; use with regards to any company the right of communication to which SOCIETE GENERALE is entitled in its quality as a holder of bonds, or transferable securities giving the holder the right to capital or redeemable shares,__________________________________________________________________________________ ------------------------------------------------------------------------------------------------------------------------------ __--__sign all documents relating to the incorporation of companies or other legal entities, -------- ------ sign all declarations relating to the winding -up of companies in which SOCIETE GENERALE is the sole and unique partner,-------------------------------------------------------------------- ------certify any authorized SOCIETE GENERALE signatures, ___ ---------------------------------------- ------ grant all substitutions though only on a case by case basis; ---------------------------------------- -----for the above purposes, draw up and sign all agreements, documents and powers; elect domicile; substitute under the above -mentioned conditions and, generally, do everything necessary. -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------ --__--These powers replace those previously given to Mr. Gonzague BATAILLE asof this day ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ Paris, on 15'h July 2008 Certificate of Authority I, Patricia Epstein, do hereby certify on behalf of Societe Gdndrale (the "Bank") that I am a Managing Director of the Bank, that the following person is authorized to negotiate, execute and deliver on behalf of the Bank ISDA Master Agreements, including but not limited to, Schedules thereto, ISDA Credit Support Annexes thereto, trade confirmations and any other documents related thereto, and that the signature of such person set forth opposite his name is his genuine signature. Name Current Title Signature Gonzague Bataille Managing Director A-Z:� IN WITNESS WHEREOF, I have executed this certificate on this a3 day of July, 2008. Assistant Secretary c:ltempinotes0563bdlsggonzague bataille incumbency cert.doc ERIC T. FRESCH KATHERINE J. BRADSTREET February 23, 2010 Societe Generale 29 Boulevard Haussmann 75009 Paris, France LAW OFFICES OF ERIC T. FBESCH, LTD. 33 NEW MONTGOMERY, SIXTH FLOOR SAN FRANCISCO, CALIFORNIA 94105-4537 TELEPHONE (415) 488-7760 e.fresch@comoast.net Re: Termination Agreement dated February 23, 2010 Ladies. and Gentlemen: LOS ANGELES OFFICE 11766 WILSHIRE BLVD. SIXTH FLOOR LOS ANGELES,-CA 90025-6538 (213) 392-0930 I have served as counsel to the City of Vernon (the "City") in connection with the Termination Agreement (the "Agreement") dated February 23, 2010 between the City and Societe Generale (the "Counterparty"). The Agreement terminates the transaction between the City and the Counterparty under the ISDA Master Agreement, dated as of July 12, 2006, between the City and the Counterparty, as supplemented by the Schedule, dated as of July 12, 2006 and the confirmation of a transaction entered into on July 12, 2006 between the City and the Counterparty. I am of the opinion that the: 1. The City is a chartered city, duly organized and existing under the Constitution and laws of the State of California. 2. The City has the authority and right to execute and deliver the Agreement, and the City has complied with the provisions of applicable law in all matters relating to the transactions contemplated by the Agreement. 3. The Agreement has been duly authorized, executed and delivered by the City and, assuming that the Agreement constitutes the legal, valid and binding agreement of the Counterparty, the Agreement constitutes the legal, valid and binding agreement of the City enforceable against it in accordance with its terms, except, in each case, as enforceability may be limited by laws relating to bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought. 4. No approval, consent or authorization of any governmental or public agency, authority or person is required for the execution and delivery by the City of the Agreement or the performance by the City of its obligations thereunder. Societe Generale February 23, 2010 Page 2 5. The execution and delivery of the Agreement by the City and compliance with the provisions thereof will not conflict with or constitute a breach or default under any instrument relating to the organization, existence or operation of the City, or any contractual restriction known to me binding on or affecting the City or any of its assets, the violation or conflict with which would have a material adverse effect on the City, or any ruling, regulation, ordinance, judgment, or decree to which the City or any of its officers in their respective capacities as such are subject or any provision of the laws of the State of California relating to the City and its affairs. Respectfully submitted, 1�_ Eric T. Fresch EXHIBIT 5 SOCIETE GENERALE Secretariat General Direction Juridique Banque de Financements et d'Investissements TO: The City of Vernon 4305, Santa Fe Avenue Vernon California 90058 Dear Sirs, I have acted as General Counsel Corporate and Investment Banking of SOCIETE GENERALE in connection with the Termination Agreement dated as of FebruaryD, 2010 (the "Agreement") between SOCIETE GENERALE and the City of Vernon. I have examined the Agreement and have conducted such other investigations of fact and law as I have deemed necessary or advisable for the purposes of this opinion. I express no opinion as to any laws other than the laws and regulations of France as currently in effect. Upon the basis of the foregoing, I am of the opinion that: 1. SOCIETE GENERALE has been duly incorporated and is validly existing as a " societe anonyme" under the laws of France. 2. SOCIETE GENERALE has the corporate power to enter into and perform the Agreement and has taken all necessary corporate action to authorise the execution, delivery and performance of the Agreement in accordance with its terms. 3. The Agreement constitutes a legal, valid and binding obligation of SOCIETE GENERALE enforceable against it in France in accordance with its terms, subject however to any bankruptcy, insolvency, reorganisation, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and remedies, as the same may be applied in the event of bankruptcy, insolvency, liquidation, reorganisation, moratorium or similar situation of SOCIETE GENERALE. 4. All authorisations (approvals, consents, licences, exemptions, filings and registrations) and other requirements of governmental, judicial and public bodies and authorities required for the: execution, delivery and performance of the Agreement have been obtained or effected and are, to the best of my knowledge, in full force and effect. 5. To the best of my knowledge, the execution, delivery and performance by SOCIETE GENERALE of the Agreement will not result in any violation of the provisions of the organisational documents of SOCIETE GENERALE or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction in France over SOCIETE GENERALE or any of its properties. Societe Generale Societe Anonyme au capital de: 582 831 013,75 EUR Tour Societe Generale - SEGUJUR/CIB Siege Social 17 cours Valmy Tel. 33 (0)1 42 13 60 00 29, Bd Haussmann 75009 Paris nnn- I-.:- i ,, non.___. -_._ - ........I _,., --- --- ccn inn 000 of' C o...t.. SOCIETE GENERALE 6. The submission to the non-exclusive jurisdiction of the courts of the State of New York for all purposes in connection with the Agreement is valid and binding on SOCIETE GENERALE under the laws of France and if any final and conclusive judgment of the courts of the State of New York is rendered against SOCIETE GENERALE in connection with the Agreement, such judgment would be recognised and enforced by the courts of France in accordance with Council Regulation (EC) n° 44/2001 of 22 December 2000 on jurisdiction and recognition and enforcement of judgments in civil and commercial matters, and the rules and regulations promulgated pursuant thereto. 7. The foregoing is subject to the following qualification: it is a principle of French law that obligations are not capable of being specifically enforced (except where such obligations relate to the payment of a sum of money and in some other limited cases) and French courts may issue an award of damages where specific performance cannot be ordered or an award of damages is determined adequate. I am furnishing this opinion solely for your benefit. It is not to be used, disclosed, quoted or otherwise referred to for any other purpose. Very truly yours Date: v Name: Dominique Bourrinet Title: General Counsel Corporate and Investment Banking 2 RESOLUTION NO. 2010-19 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON AUTHORIZING AND APPROVING THE CITY ADMINISTRATOR TO TERMINATE A COMMODITY SWAP TRANSACTION WHEN APPROPRIATE; APPROVING THE TERMINATION AGREEMENT PURSUANT TO WHICH SUCH TERMINATION SHALL OCCUR; AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO WHEREAS, the City of Vernon (the "City") is a municipal corporation and a chartered city of the State of California organized and existing under its Charter and the Constitution of the State of California; and WHEREAS, the City and Societe Generale ("SG") entered into a commodity swap transaction (the "Transaction") pursuant to a Master Agreement, dated as of July 12, 2006 (the "Agreement"), between the City and SG, a Schedule to the Agreement, dated as of July 12, 2006, between the City and SG, and a Confirmation, dated July 12, 2006; and WHEREAS, the City and SG desire to terminate the. Transaction; and WHEREAS, the City and SG have proposed the terms of the termination agreement (the "Termination Agreement"), between the City and SG for the termination of the Transaction; and WHEREAS,. there has been submitted to this meeting a draft of the Termination Agreement. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON, AS FOLLOWS: SECTION 1: The City Council of the City of Vernon hereby finds and determines that the recitals contained hereinabove are true and correct. SECTION 2: The Termination Agreement, in substantially the form attached hereto as Exhibit A and made a part hereof as though set forth in full herein, be and the same is hereby approved. The City Administrator of the City (the "City Administrator"), is hereby authorized to execute and deliver the Termination Agreement, in the name of and on behalf of the City, in substantially the form attached hereto with such changes, insertions and deletions as may be approved by the City Administrator, his execution thereof being conclusive evidence of such approval, and the City Clerk is hereby authorized to attest thereto; provided that the City shall not be obligated to make any termination payment to SG pursuant to the Termination Agreement. SECTION 3: The termination of the Transaction on the terms contained in the Termination Agreement as executed and delivered on behalf of the City as provided in this Resolution is hereby authorized and approved. SECTION 4: The Mayor, the Mayor Pro Tem, the City Administrator, the Treasurer, the City Clerk and the City Attorney of the City, and any other proper official, officer or employee of the City, acting singly, be and each of them hereby is authorized to execute and deliver any and all documents and instruments (except that only the City Administrator is authorized to execute and deliver the Termination Agreement) and to do and cause to be done any and all acts and things necessary or convenient in carrying out the actions authorized by this - 2 - Resolution and the transactions contemplated by the documents and instruments approved or authorized by this Resolution. SECTION 5: The City Clerk of the City of Vernon shall certify to the passage, approval and adoption of this resolution, and the City Clerk of the City of Vernon shall cause this resolution and the City Clerk's certification to be entered in the File of Resolutions of the Council of this City. APPROVED AND ADOPTED this 1st day of February, 2010. AT ST: V � AtX� UELA GIRON, C'ty Clerk - 3 - NAME: Hilario Gonzales TITLE: MAYOR-/ STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) I, MANUELA GIRON, City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. 2010-19, was duly passed, approved and adopted by the City Council of the City of Vernon at a regular meeting of the City Council duly held on Monday, February 1, 2010, and thereafter was duly signed by the Mayor or Mayor Pro-Tem of the City of Vernon. 2/Executed this day of February, 2010, at Vernon, California. (SEAL) - 4 - /t!CU/�ELAGIR pity Clerk EXHIBIT A Exhibit A [Termination Agreement Attached] Termination Agreement This Termination Agreement dated February _, 2010 (the "Agreement") between Societe Generale ("SG") and the City of Vernon (the "City" and, together with SG, the "Parties") sets forth the agreement between the Parties to terminate the Transaction referred to herein, effective as of the Effective Date, as defined herein. Reference is made to the ISDA Master Agreement and Schedule thereto dated as of July 12, 2006 (collectively, the "Master Agreement") between SG the City and the confirmation of a commodity swap transaction entered into on July 12, 2006 (the "Confirmation") between SG and the City with a notional quantity of 22,073,637 MMBtus of natural gas (the "Transaction"). Capitalized terms used but not defined herein have the meanings set forth in the Master Agreement or, if not defined therein, in the Confirmation. WHEREAS, the City has determined that it is the public interest to terminate the Transaction; WHEREAS, no default by the City has occurred and is continuing under the Master Agreement or any commitment, agreement or other instrument to which the City is a party, and termination of the Transaction will not cause or constitute a default under any commitment, agreement or other instrument to which the City is a party; WHEREAS, the City has obtained all necessary approvals, consents and authorizations to enter into this Agreement and terminate the Transaction on the terms set forth herein; NOW THEREFORE, in consideration of the mutual agreements contained herein and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, SG and the City agree as follows: 1. Termination. The Transaction is hereby terminated, effective as of February _, 2010 ("Termination Date"). On the Termination Date, SG and the City shall each be released and discharged from further obligations to each other with respect to the Transaction and their respective rights against each other under the Transaction shall be cancelled. 2. Final Settlement Amount. In consideration of such termination and release, and in full and final settlement of all claims whatsoever past, present or future arising under or in connection with the Transaction, SG agrees to pay a final settlement amount of US $ (the "Final Settlement Amount") on or before the [ ] Business Day following the Termination Date. 3. Representations. Each of SG and the City hereby repeats each of its representations in the Master Agreement as of the date hereof and as of the Termination Date, as if this Agreement were a transaction under the Master Agreement. The City represents to SG as of the Termination Date that (1) no Additional Termination Event, as defined in the Confirmation, has occurred and is continuing, and (2) after consultation with its bond counsel, the City has determined that termination of the Transaction will not affect the tax status of any tax-exempt obligations issued by the City or its financing authority. 1 4. Non -Reliance Representation. Each of SG and the City represents to the other as follows: a. Non -Reliance. It is acting for its own account, and it has made its own independent decisions to into this Agreement and as to whether this Agreement is appropriate or proper for it based on its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Agreement, it being understood that information and explanations related to the terms and conditions of this Agreement will not be considered investment advice or a recommendation to enter into this Agreement. No communication (written or oral) received from the other party will be deemed to be an assurance or guarantee as to the expected results of this Agreement. b. Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Agreement. It is also capable of assuming, and assumes, the risks of this Agreement. c. Status of Parties. The other party is not acting as a fiduciary for or an adviser to it in respect of this Agreement. 5. Entire Agreement; Execution in Counterparts; Amendments. This Agreement constitutes the entire understanding and agreement with respect to the subject matter hereof and supersedes any prior representations, understandings or agreements written or oral between the Parties relating to the subject matter of this Agreement. This Agreement may be executed in counterparts, including by facsimile transaction, and each counterpart shall be deemed an original. This Agreement may not be modified or amended except in a writing signed by both Parties. 6. Governing Law; Waiver of Jury Trial; Jurisdiction; Notices. The provisions set forth in the Master Agreement relating to governing law, waiver of jury trial, submission to jurisdiction and addresses for notices shall apply to this Agreement. K CITY CLERK'S OFFICE INTEROFFICE MEMORANDUM DATE: March 9, 2010 TO: Donal O'Callaghan, City Administrator/Director of Light & Power FROM: Willard Yamaguchi, City Clerk RE: Resolution No. 2010-19 - A Resolution of the City Council of the City of Vernon Authorizing and Approving the City Administrator to Terminate a Commodity Swap Transaction When Appropriate; Approving the Termination Agreement Pursuant to Which Such Termination Shall Occur; and Authorizing Certain Other Matters Relating Thereto Transmitted herewith is a copy of the original agreement and Resolution No. 2010-19 referenced above, which was approved by City Council on February 1, 2010. Thank you. WY:dj c: Rory Burnett Masami Higa Alex Kung Joaquin Leon Resolution No. 2010-19, VNGFA-0002, 9014 Agreement File No. 10-010, 06-043, 06-071