BNY WESTERN TRUST - DEPOSIT AND ESCROW AGMT 2000

• Section 3. Use of Rate Stabilization Fund. (i)The City and the District hereby acknowledge that the Rate Stabilization Fund has already been created pursuant to, and the permitted uses of the Rate Stabilization Fund described in, Section 5.7 of that certain Installment Sale Agreement, dated as of August 1, 2000, between the District and the DSRSD Financing Corporation (the "Installment Sale Agreement"). $55,000,000 principal amount of Certificates of Participation (the "Certificates") representing the right to receive Installment Payments payable by the District under the Installment Sale Agreement have been sold, and it is not the intent of the District or the City to amend Section 5.7 of the Installment Sale Agreement. However, for the term of this Agreement, the District is willing to restrict the use of the Rate Stabilization Fund in a way that is not detrimental to the holders of the Certificates. (ii)In order to minimize the amount of Expansion Debt Service payable from the Escrow Account, and as consideration. for the City providing the Deposit, the District hereby agrees that for the term of this Agreement it shall not expend Regional Connection Fees without the prior written consent of the City except for the purposes set forth in Section 5.7(2)(a)-(c) of the Installment Sale Agreement, and: (A) To pay LAVWMA cash advances in the amounts approved by the LAVWMA Board of Directors on October 18, 2000; or (B) To repay the City for Expansion Debt Service withdrawals and the interest thereon, as set forth in this Agreement. Section 4. Repayment of Deposit. Amounts withdrawn from the Escrow Account to pay Expansion Debt Service shall be repaid to the City by the District or LAVWMA, as provided herein, with interest, calculated as simple interest at the rate of five and one-half percent (5.50%) per annum from the date of withdrawal to the date of repayment. Expansion Debt Service withdrawals shall be repaid as follows: (A) Subject to the priorities set forth in Section 3, above, until all amounts owed to the City hereunder are repaid, within thirty (30) days of receipt by the District of Regional Connection Fees, such Regional Connection Fees shall be used by the District to repay withdrawals from the Deposit and the interest thereon. (B) Upon receipt of the proceeds from the sale of the LAVWMA Bonds by LAVWMA, the District agrees to cooperate with the City to cause LAVWMA, as soon as reasonably possible, to repay the City from the LAVWMA Bond proceeds, any unpaid withdrawals from the Deposit and the interest thereon. Section 5. Obligation to Repay. The obligation to repay the Expansion Debt Service withdrawals and to pay the interest thereon is an absolute and unconditional obligation of the District, but only payable from Regional Connection Fees, whether or not the LAVWMA Expansion Project shall be constructed, or the LAVWMA Bonds issued, and such repayments shall not be subject to reduction whether by offset, counterclaim, defense, recoupment, abatement, suspension, deferment or otherwise and shall not be conditional upon the EscrwPtn.doc - 4 -