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applied as a credit against lease payments due by the City of Santa Ana under the Lease Agreement with the City of Santa Ana (see paragraph (1) above). (g) Refunding of Fullerton Prior Obligations. Of the proceeds of the Bonds deposited in the Fullerton Project Account, $1,522,015.38 will be applied on the date hereof to pay the principal and interest amounts on the Fullerton Prior Obligations that are set forth on Exhibit B attached hereto and by this reference incorporated herein. Said proceeds will not be invested. The City of Fullerton has represented to the Authority that no amounts are on deposit in any debt service fund, sinking fund or reserve fund established for the Fullerton Prior Obligations that are being replaced by the proceeds of the Bonds being used for payment of the Fullerton Prior Obligations on the date hereof, and all proceeds of the Fullerton Prior Obligations and interest earnings thereon have been spent prior to the date hereof for the purposes for which the Fullerton Prior Obligations were incurred. (h) Reserve Account. The proceeds of the Bonds ($2,772,500) deposited in the Reserve Account of the Bond Fund equal the "Reserve Requirement," being ten percent (10%) of the principal amount of the Bonds. The Reserve Requirement is less than maximum annual debt service on the Bonds and less than one hundred and twenty-five percent (125%) of average annual debt service on the Bonds. Payment of debt service on the Bonds is guaranteed under a policy of insurance (the "Insurance") issued by MBIA Insurance Corporation (the "Insurer"). The arrangement represented by the Insurance imposes a secondary liability that unconditionally shifts substantially all of the credit risk for the payments guaranteed by the Insurance,and the Insurer is not a co-obligor on such payments. The Insurer has required the establishment of the Reserve Account in the amount of the Reserve Requirement as a condition precedent to issuance of the Insurance, and the Underwriter has represented that the issuance of the Insurance was vital to the marketing of the Bonds. Amounts deposited in the Reserve Account will be invested without yield restrictions. Interest earnings and gains resulting from said investment will be retained in the Reserve Account in the event that the amount on deposit in such Account is less than the Reserve Requirement and otherwise will be deposited in the Bond Fund and applied to the payment of debt service on the Bonds when and as due. (i) Pledge of Revenues; Debt Service Funds. The Authority has pledged the Revenues (consisting primarily of Lease Payments)to the payment of debt service on the Bonds. Upon receipt the Revenues will be deposited in the Bond Fund and, when required for the payment of debt service on the Bonds will be transferred to the Interest Account and the Principal Account within the Bond Fund. Prepayments of Lease Payments will be used for redemption of the Bonds prior to their maturity and will be deposited in the Redemption Fund. The Bond Fund and the Interest Account and the Principal Account within the Bond Fund and the Redemption Fund (together the "Debt Service Funds") have been established primarily to achieve a proper matching of revenues (consisting primarily of Revenues and certain interest earnings) and debt service due on the Bonds during each year that the Bonds are outstanding. Amounts deposited in the Debt Service Funds will be spent within thirteen (13) months of the date of deposit, and the Debt Service Funds will be depleted at least once a year except for a reasonable carryover amount not in excess of the greater of earnings on the Debt Service Funds during the preceding bond year for the Bonds (see subparagraph (p) below) or 4