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the storage space necessary to "firm" the participants' Windy Gap units) and address <br />any future defaults by Participants. <br />6. Under the Reallocation section, the reallocation of a forfeited allotment is <br />different for Cash Allottees and Loan Allottees, in that Loan Allottees are subject to the <br />Step -Up process, while Cash Allottees are not. Why are "Cash Allottees" not subject to <br />the "step-up" provisions in the same manner as are Loan Allottees? <br />Answer: Cash Allottees will pay their contributions for the project up front. Therefore, <br />they will not be subject to the terms of the pooled financing, including the step-up <br />requirements that would come into play if a loan Participant defaults on its capital <br />obligations. However, the Allotment Contract is also structured to allow ample time for <br />a defaulting Participant to sell its interest, and it is anticipated that there would be a <br />favorable market for that type of interest. In addition, the Participants agree that it is <br />highly unlikely that a Participant would default on a completed water project and <br />severely damage its credit rating, absent desperate circumstances. The step-up and <br />reallocation provisions are intended to be a backstop or additional layer of security in <br />the unusual circumstances where a Participant actually defaults, and no other entities <br />are willing to purchase those interests. <br />7. If an Allottee partially defaults on its allocated expenses, does that trigger a total <br />default on its entire interest in the project or a default on only the proportion of the <br />amounts in default? <br />Answer: This answer depends on whether the default is in relation to payment of <br />capital expenses, or operation/maintenance expenses. <br />If a Participant defaults on its obligation to pay operations/maintenance expenses, then <br />its entire allotment is forfeited and its Contract is terminated. This applies to both cash <br />and pooled financing Participants. <br />If a Participant defaults on its obligation to pay capital expenses, then the Contract <br />provides for the calculation of the Participant's "vested allotment" and requires <br />forfeiture of 50% of the vested allotment and 100% of the unvested allotment. <br />8. As related to the Liquidity Fund, is the deposit of 30% of the debt service amount <br />an annual obligation or is it done one-time and held through the life of the financing? <br />Answer: Each Participant's subaccount in the Liquidity Fund is funded one time at the <br />beginning of the Contract period. The amount required is based upon the debt service <br />relative to that particular Participant's level of participation in the pooled financing (i.e. <br />that Participant's "WGFP Financing Percentage"). Additional disbursements into this <br />Nt, <br />