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and diligently pursued, but only if such extension would not materially adversely affect the interests of any registered owner of the Bonds DEFEASANCE Notw~thstandmg anything in the Ordinance to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by Ambac Assurance Corporation pursuant to the Financial Guaranty Insurance Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City, and all covenants, agreements and other obligations of the City to the registered owners shall continue to exist and shall run to the benefit of Ambac Assurance, and Ambac Assurance shall be subrogated to the rights of such registered owners PAYMENT PROCEDURE PURSUANT TO THE FINANCIAL GUARANTY INSURANCE POLICY 1 As long as the City insurance shall be m full force and effect, the Crty and the Paying Agent agree to comply with the following provisions (a) at least one (1) business day prior to all interest payment dates the Paying Agent will determine whether there will be sufficient funds m the funds and Accounts to pay the principal of or interest on the Bonds on such interest payment date If the Paying Agent, if any, determines that there will be insufficient funds m such funds or accounts, the Paying Agent shall so notify Ambac Assurance Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest, or both. If the Paying Agent has not so notified Ambac Assurance at least one (1) business day prior to an interest payment date, Ambac Assurance will make payments of principal or interest due on the Bonds on or before the first (1st) business day next following the date on which Ambac Assurance shall have received notice of nonpayment from the Paying Agent; (b) the Paying Agent shall, after giving notice to Ambac Assurance as provided m (a) above, make available to Ambac Assurance and, at Ambac Assurance's direction, to The Bank of New York, as insurance trustee for Ambac Assurance or any successor insurance trustee (the "Insurance Trustee"), the registration books of the Crty mamtamed by the Paying Agent and all records relating to the funds and accounts mamtamed under the Ordinance, (c) the Paying Agent shall provide Ambac Assurance and the Insurance Trustee with a list of registered owners of Bonds entitled to receive principal or interest payments from Ambac Assurance under the terms of the Financial Guaranty Insurance Policy, and shall make arrangements with the Insurance Trustee (i) to mail checks or drafts to the registered owners of Bonds entitled to receive full or partial interest payments from Ambac Assurance and (ii) to pay principal upon Bonds surrendered to the Insurance Trustee by the registered owY-ers of Bonds entitled to receive full or partial principal payments from Ambac Assurance, (d) the Paying Agent shall, at the time rt provides notice to Ambac Assurance pursuant to (a) above, notify registered owners of Bonds entitled to receive the payment of principal or interest thereon from Ambac Assurance (i) as to the fact of such entitlement, (ii) that Ambac Assurance will remit to them all or a part of the interest payments next coming due upon proof of holder entitlement to interest payments and delivery to the Insurance Trustee, m form satisfactory to the Insurance Trustee, of an San Marcos GO 2007 Ordinance 3 3