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HomeMy WebLinkAbout06-11-2014 Administration Committee Agenda Orange County Sanitation District SANITATION DISTRICT Wednesday, June 11, 2014 Regular Meeting of the 5:30 P.M. Administration CommitteerM Administration Building Board Room 10844 Ellis Avenue AIR Fountain Valley, CA (714) 593-7130 1954-2014 AGENDA PLEDGE OF ALLEGIANCE: DECLARATION OF QUORUM: PUBLIC COMMENTS: If you wish to speak, please complete a Speaker's Form and give it to the Clerk of the Board. Speakers are requested to limit comments to three minutes. REPORTS: The Committee Chair and the General Manager may present verbal reports on miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: CONSENT CALENDAR: 1. Approve Minutes of the May 14, 2014, Administration Committee Meeting. 2. Recommend to the Board of Directors to: Adopt Resolution No. OCSD 14-XX, Establishing Use Charges for the FY 2014- 15 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. 3. Recommend to the Board of Directors to: Adopt Resolution No. OCSD 14-XX, Establishing the Annual Appropriations Limit for Fiscal Year 2014-15, for the District in accordance with the Provisions of Division 9 of Title 1 of the California Government Code. 06(11/14 Administration Committee Agenda Page 1 of 3 4. Recommend to the Board of Directors to: A. Adopt Resolution No. OCSD14-XX, authorizing the execution and delivery by the District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A, authorizing the execution and delivery of such Revenue Obligations, evidencing principal in an aggregate amount of not to exceed $225,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the offering and sale of such Revenue Obligations and authorizing the execution of necessary documents and related actions; and B. That the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate amount not to exceed $225,000,000. NON-CONSENT CALENDAR: 5. Recommend to the Board of Directors to: A. Reject the apparent low bid submitted by Office Supply Inc. as deemed non-responsive in accordance with specification requirements for Purchase of Cisco Parts, Specification No. E-2014-616BD; and B. Approve a Purchase Order Agreement with Presidio Networked Solutions, the lowest responsible and responsible bidder, for Purchase of Cisco Parts, Specification No. E-2014-616BD, for an amount not to exceed $435,587; and C. Approve a contingency of$21,780 (5%). 6. Recommend to the Board of Directors to: Approve proposed Operating, Capital, Debt/COP Service and Self-Insurance Budgets for FY 2014-15 and 2015-16. INFORMATION ITEMS: 7. Collections Systems 8. Pretreatment Program and Industrial Permiting 06/11/14 Administration Committee Agenda Page 2 of 3 CLOSED SESSION: None. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: The next Administration Committee meeting is scheduled for Wednesday, July 9, 2014 at 5:30 p.m. Accommodations for the Disabled: Meeting Rooms are wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board's office at (714)593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Aaenda Posting: In accordance with the requirements of California Government Code Section 54954.2,this agenda has been posted outside the main gate of the Sanitation District's Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all,or a majority of the Board of Directors,are available for public inspection in the office of the Clerk of the Board. NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting. Mafia E.Ayala Clerk of the Board (714)593-7130 mavala(d)ocsd.com For any questions on the agenda,Committee members may contact staff at: General Manager James Herberg (714)593-7300 iherbem(rpomd.com Assistant General Manager Bob Ghirelli (714)593-7400 rahirelli(fDocsd.com Director of Finance and Lorenzo Tyner (714)593-7550 Itvner0ocsd.com Administrative Services Director of Human Resources Jeff Reed (714)593-7144 ireed(rpocsd.com 06/11/14 Administration Committee Agenda Page 3 of 3 ITEM NO. 1 MINUTES OF THE REGULAR MEETING OF THE ADMINISTRATION COMMITTEE Orange County Sanitation District Wednesday, May 14, 2014, at 5:30 P.M. A regular meeting of the Administration Committee of the Orange County Sanitation District was held on May 14, 2014, at 5:35 p.m., in the Sanitation District's Administration Building. Director Hernandez led the Flag Salute. A quorum was declared present, as follows: COMMITTEE MEMBERS PRESENT: STAFF PRESENT: Brad Reese, Chair Jim Herberg, General Manager David Benavides Bob Ghirelli, Assistant General Manager Steven Choi Lorenzo Tyner, Director of Finance Tyler Diep &Administrative Services Gerard Goedhart (Alternate) Jeff Reed, Director of Human Resources Gene Hernandez Rob Thompson, Director of Engineering Prakash Narain Ed Torres, Director of Operations and Janet Nguyen Maintenance Robert Ooten (Alternate) Maria Ayala, Clerk of the Board Teresa Smith Norbert Gaia Dave Sullivan (Alternate) Mark Esquer Troy Edgar, Board Chair Al Garcia Tom Beamish, Board Vice-Chair Marco Guard! Randy Kleinman COMMITTEE MEMBERS ABSENT: Laurie Klinger John Withers, Vice-Chair Rich Spencer Mike White OTHERS PRESENT: Brad Hogin, General Counsel Anna Laliberte, Alliant Insurance Services PUBLIC COMMENTS: None. REPORT OF COMMITTEE CHAIR: Committee Chair Reese did not provide a report. M14/2014 Administration Committee Minutes Page 1 d 6 REPORT OF GENERAL MANAGER: General Manager, Jim Herberg, announced the following: - Reminder about the OCSD 601" Anniversary State of the District event, scheduled for May 21at. He asked the Committee members to RSVP for the event if they are able to attend. - Reminder about the harassment and discrimination training requirement. Asked that if the Directors have not already signed up, to please contact the Clerk of the Board to participate in the upcoming trainings. - Notified the Committee that the first OCSD/SAWPA Joint Policy Committee had met on May 121". SAWPA invited the OCSD Board to attend a tour of their Chino II Desalter. More information will be provided at a later date. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: Director of Finance and Administrative Services, Lorenzo Tyner introduced OCSD's new Risk Manager, Marco Guardi. CONSENT CALENDAR: 1. MOVED, SECONDED, AND DULY CARRIED: Approve Minutes of the April 9, 2014 Administration Committee Meeting. AYES: Beamish, Benavides, Choi, Diep, Edgar, Hernandez, Goedhart (Alternate), Narain, Nguyen, Ooten (Alternate), Reese and Smith NOES: None ABSTENTIONS: None ABSENT: Sullivan (Alternate) and Withers. 2. MOVED, SECONDED, AND DULY CARRIED: Recommend to the Board of Directors to: Approve not-to-exceed numbers as follows, with the understanding that the Sanitation District's insurance broker will continue to negotiate with insurers to seek the lowest possible premiums prior to the expiration date of the current major insurance policies: 05/14/2014 Administration Committee Minutes Page 2 of 6 A. Excess liability insurance - $390,224; and B. Excess workers compensation insurance - a rate of$0.3408 per$100 of payroll (estimated premium at $223,000); and C. Property and Boiler & Machinery combined - $705,830. AYES: Beamish, Benavides, Choi, Diep, Edgar, Hernandez, Goedhart (Alternate), Narain, Nguyen, Ooten (Alternate), Reese and Smith NOES: None ABSTENTIONS: None ABSENT: Sullivan (Alternate) and Withers. 3. MOVED, SECONDED, AND DULY CARRIED: Recommend to the Board of Directors to: A. Authorize the General Manager to enter into contracts for Temporary Employment Services (Specification No.CS-2009-421BD) for a one-year period (July 1, 2014 through June 30, 2015), for a total amount not to exceed $550,000 per year, with a 5% annual aggregate escalation factor, with four one-year renewal options; and B. Authorize the General Manager to add or delete such firms as necessary to meet work requirements as identified by the Human Resources Department. AYES: Beamish, Benavides, Choi, Diep, Edgar, Hernandez, Goedhart (Alternate), Narain, Nguyen, Ooten (Alternate), Reese, Smith and Withers NOES: None ABSTENTIONS: None ABSENT: Sullivan (Alternate) and Withers. 05/14/2014 Administration Committee Minutes Page 3 of 6 4. Receive and file District purchases made under the General Manager's authority for the period of January 1, 2014 — March 31, 2014. AYES: Beamish, Benavides, Choi, Diep, Edgar, Hernandez, Goedhart (Alternate), Narain, Nguyen, Ooten (Alternate), Reese and Smith NOES: None ABSTENTIONS: None ABSENT: Sullivan (Alternate) and Withers. Chair Reese announced that the Committee would hear Agenda Item No. 6 at this time. 6. FY 2014-15 Benefits Program Renewal Costs Jeff Reed, Director of Human Resources, and Rich Spencer, Human Resources Manager, gave a brief report on benefits renewal costs and premium changes and stated that due to fees (pass-through costs) mandated by the Affordable Care Act, the cost of insurance coverage will increase by 4.5% for the next fiscal year. Alternate Director Dave Sullivan arrived at 5:39 p.m. NON-CONSENT CALENDAR: Mr. Tyner gave a brief explanation of how the proposed amendments to Ordinance No. OCSD41 would affect business rate payers' claims. The Committee had various questions regarding how the businesses are notified, the time period for claims to be filed after the amendments take effect, how claims are submitted, etc. Staff responded to questions accordingly. 5. Recommend to the Board of Directors to: A. Introduce Ordinance No. OCSD-XX, entitled "An Ordinance of the Board of Directors of the Orange County Sanitation District amending Section 2.03 of Article II of Ordinance No. OCSD-41 concerning rebates and refunds of Sanitary Sewer Service Charges."; and B. Motion to read Ordinance No. OCSD-XX by title only and waive reading of said entire Ordinance on May 28, 2014; and C. Set June 25, 2014 for the second reading and adoption of Ordinance No. OCSD-XX; and M14/2014 Administration Committee Minutes Page 4 of 6 D. Direct the Clerk of the Board to publish summaries of the Ordinance as required by law. AYES: Beamish, Benavides, Choi, Diep, Edgar, Hernandez, Goedhart (Alternate), Narain, Ooten (Alternate), Reese, Smith and Sullivan (Alternate) NOES: Nguyen ABSTENTIONS: None ABSENT: Withers INFORMATION ITEMS: 7. Post March 28, 2014 Earthquake Activities Mr. Tyner presented information on the District's Integrated Emergency Response Plan (IERP). He explained the appropriate level of response that was put into effect after the recent earthquakes, and further explained that the District has a series of steps to go through in the event there is an emergency. 8. OCSD Reserves, Investments and Financial Management Policies Mr. Tyner presented an informational PowerPoint Presentation regarding: four major categories of revenues; user fees; debt issuances; operating contingency fees; seven major criteria for reserves; and funds management. He explained the RFP process for the selection of a new Investment Advisor and Investment Manager. He clarified that the Advisor and the Manager could not be the same firm. Mr. Tyner answered questions from the Committee regarding: Pimco's performance and fee structure; possibly changing to a fee structure linked with performance; unfunded liability and excess reserves. Director Benavides departed the meeting at 6:15 p.m. Director Nguyen departed the meeting at 6:20 p.m. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: Director Choi invited everybody to attend the Korean Festival in Irvine on May 17th. 05/14/2014 Administration Committee Minutes Page 5 of 6 ADJOURNMENT: Committee Chair Reese declared the meeting adjourned at 6:25 p.m., to the next regularly scheduled meeting of June 11, 2014. Submitted by: Maria E. Ayala Clerk of the Board 05/14/2014 Administration Committee Minutes Page 6 of 6 ADMINISTRATION COMMITTEE Meeting Date T1.1 Of Dir. 06/11/I, 6/25/14 AGENDA REPORT Item Number Item Number z Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: SANTA ANA WATERSHED PROJECT AUTHORITY (SAWPA) RESOLUTION GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No. OCSD 14-XX, Establishing Use Charges for the FY 2014-15 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. SUMMARY Currently, OCSD invoices Santa Ana Watershed Project Authority on a quarterly basis for the wastewater discharge we receive from the SARI line. Annually, the rates for flow, biochemical oxygen demand (BOD), and total suspended solids (TSS) are calculated based upon the fiscal year budget for treatment and disposal costs and the 1996 Wastewater Treatment and Disposal agreement. The rates calculated for each constituent for FY 2014-15 for wastewater discharge are: FLOW $182.74 BOD $290.16 TSS $404.60 The FY 2014-15 rates are a 12.39% increase, 16.34% increase and a 9.30% increase respectively. In January 2013, OCSD completed a rate study that updated the allocation parameters between discharge constituents and the change in equivalent usage per EDU for each constituent. The rate model changes have been implemented in the calculation of SAWPA's O&M rates for the 14-15 fiscal year. These rates are separate from the rates charged for additional capacity purchases by SAWPA. Over the last year, OCSD staff has provided SAWPA staff preliminary information regarding these increases and officially communicated the exact figures in May 2014. PRIOR COMMITTEE/BOARD ACTIONS June - 2013 - Adopted Resolution No OCSD 13-11 Establishing Use Charges for the FY 2013-14 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. June - 2012 - Adopted Resolution No OCSD 12-08 Establishing Use Charges for the FY 2012-13 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. Page 1 of 2 June - 2011 - Adopted Resolution No OCSD 11-08 Establishing Use Charges for the FY 2011-12 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. June - 2010 - Adopted Resolution No OCSD 10-09 Establishing Use Charges for the FY 2010-11 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. June - 2009 - Adopted Resolution No OCSD 09-08 Establishing Use Charges for the FY 2009-10 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. June - 2008 - Adopted Resolution No OCSD 08-09 Establishing Use Charges for the FY 2008-09 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. June - 2007 - Adopted Resolution No OCSD 07-15 Establishing Use Charges for the FY 2007-08 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. ADDITIONAL INFORMATION N/A CEQA N/A BUDGET/PURCHASING ORDINANCE COMPLIANCE N/A ATTACHMENT The following attachment(s) are included in hard copy and may also be viewed on-line at the OCSD website(www.ocsd.corn with the complete agenda package: • Draft Resolution No. OCSD 14-XX Page 2 of 2 Return to Mende Report RESOLUTION NO. OCSD 14-XX A RESOLUTION OF THE BOARD OF DIRECTORS OF ORANGE COUNTY SANITATION DISTRICT ESTABLISHING USE CHARGES FOR THE 2014-15 FISCAL YEAR PURSUANT TO THE WASTEWATER TREATMENT AND DISPOSAL AGREEMENT WITH THE SANTA ANA WATERSHED PROJECT AUTHORITY ("SAWPA") WHEREAS, the Board of Directors has approved the Wastewater Treatment and Disposal Agreement with the SANTA ANA WATERSHED PROJECT AUTHORITY ("SAWPA"); and, WHEREAS, said agreement provides for payment of Disposal Costs for the measured and sampled Flow of Wastewater discharged from SAWPA's SARI Service Area to Districts' facilities; and, WHEREAS, said agreement provides for adjustment of said Disposal Costs on an annual basis. NOW, THEREFORE, The Board of Directors of the Orange County Sanitation District, DOES HEREBY RESOLVE, DETERMINE, AND ORDER: Section 1. That pursuant to Section C4 of the Wastewater Treatment and Disposal Agreement, the 2014-15 fiscal year charges for Disposal Costs are hereby established as follows: For Flow: $ 182.74 per million gallons of flow For Biochemical Oxygen Demand: $ 290.16 per thousand pounds For Total Suspended Solids: $ 404.60 per thousand pounds OCSD 14-XX-1 Return to Mende Report PASSED AND ADOPTED at a regular meeting of the Board of Directors held June 25, 2014. Troy Edgar Chairman of the Board ATTEST: Maria E. Ayala Clerk of the Board OCSD 14-XX-2 Return b Mends Report STATE OF CALIFORNIA ) ss COUNTY OF ORANGE ) I, Maria E. Ayala, Clerk of the Board of Directors of the Orange County Sanitation District, do hereby certify that the foregoing Resolution No. OCSD 14-xx was passed and adopted at a regular meeting of said Board on the 25th day of June 2014, by the following vote, to wit: AYES: None. NOES: None. ABSTENTIONS: None. ABSENT: None. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of Orange County Sanitation District this 25th day of June, 2014. Maria E. Ayala Clerk of the Board of Directors Orange County Sanitation District OCSD 14-XX-3 ADMINISTRATION COMMITTEE Neeting Date T1.1 of Dir. 06/11/14 6/26/14 AGENDA REPORT Item Number Item Number 3 Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: GANN APPROPRIATIONS LIMIT FOR FISCAL YEAR 2014-15 GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No. OCSD 14-XX, Establishing the Annual Appropriations Limit for Fiscal Year 2014-15, for the District in accordance with the Provisions of Division 9 of Title 1 of the California Government Code. SUMMARY This routine annual action adopts a resolution establishing the spending limit for "proceeds of taxes" in accordance with Article XIII B of the Constitution of the State of California (Section 7910 of the Government Code). The Sanitation District's annual appropriations are well below the limit. In 1979, Proposition 4 (the Gann Initiative) was approved adding Article XIII B to the State Constitution. The provisions of this article place limits on the amount of revenue that can be appropriated by all entities of government. This initiative was designed to constrain government expenditures by placing an annual limit on jurisdictions' revenue and appropriation growth. The Appropriation Limit is based on actual appropriations during the 1978-1979 fiscal year, as increased each year using specified population and inflationary growth factors. This annual allowance growth is linked to changes in population and cost of living. The passage of Proposition 111 in June 1990 amended Article XIIIB, making changes in the base year upon which the appropriations limit is based, establishing new cost of living factors and new population factors for use by local governments, and increasing appropriations not subject to the limit (primarily qualified capital outlay projects). The financial constraints of Article XIII B apply to the State, all cities, counties, special districts and all other political subdivisions. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION N/A Page 1 of 2 CEQA N/A BUDGET/PURCHASING ORDINANCE COMPLIANCE N/A ATTACHMENTS The following attachment(a) are included in hard copy and may also be viewed on-line at the OCSD website(www.ocsd.coml with the complete agenda package: Draft Resolution No. OCSD 14-XX Page 2 of 2 Return b Mends Report RESOLUTION NO. OCSD 14-XX A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT ESTABLISHING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2014-15 FOR THE DISTRICT IN ACCORDANCE WITH THE PROVISIONS OF DIVISION 9 OF TITLE 1 OF THE CALIFORNIA GOVERNMENT CODE WHEREAS, Article XIII B of the Constitution of the State of California as proposed by the Initiative Measure approved by the people at the special statewide election held on November 6, 1979, provides that the total annual appropriations limit of each local government agency shall not exceed the appropriations limit of such entity for the prior year, adjusted for changes in the cost of living and population, except as otherwise specifically provided for in said Article; and, WHEREAS, the State Legislature added Division 9 (commencing with Section 7900) to Title 1 of the Government Code of the State of California to implement Article XIII B of the California Constitution; and, WHEREAS, Section 7910 of the Government Code provides that each year the governing body of each local jurisdiction shall, by resolution, establish its appropriations limit for the following fiscal year pursuant to Article XIII B at a regularly-scheduled meeting or a noticed special meeting and that fifteen (15) days prior to such meeting, documentation used in the determination of the appropriations limit shall be available to the public; and, WHEREAS, Section 7902 (a) of the Government Code sets forth the method for determining the appropriations limit for each local jurisdiction for the 2014-15 fiscal year; and, WHEREAS, the Board of Directors wishes to establish the appropriations limit for fiscal year 2014-15 for the District. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1: That it is hereby found and determined that the documentation used in the determination of the appropriations limit for the Orange County Sanitation District, for fiscal year 2014-15, was available to the public in the Finance Department of said District at least fifteen (15) days prior to this date. OCSD 14-XX-1 Return W Mends Report Section 2: That the appropriations limit for fiscal year 2014-15 for the Orange County Sanitation District, as established in accordance with Section 7902(b) of the California Government Code is $91,302,000 which sum is within the maximum authorized spending limitation for fiscal year 2014-15. Section 3: That the Board of Directors of the Orange County Sanitation District, has determined that the percent change in California per capita personal income from the preceding year would be the cost of living factor to be used and the weighted average population change of the cities within the District would be the population factor to be used in calculating the Orange County Sanitation District's appropriations limit for the Fiscal Year 2014-15. Section 4: The determination of the appropriation limit is based upon the best and most complete information available at this time. The District reserves the right to review and re-establish a new and different limit in the event that it subsequently determines that a modification of the limitation amount is appropriate. PASSED AND ADOPTED at a regular meeting of the Board of Directors held June 25, 2014. Troy Edgar Chairman of the Board ATTEST: Maria E. Ayala Clerk of the Board OCSD 14-XX-2 Return b Mends Report STATE OF CALIFORNIA ) ss COUNTY OF ORANGE ) I, Maria E. Ayala, Clerk of the Board of Directors of the Orange County Sanitation District, do hereby certify that the foregoing Resolution No. OCSD 14-XX was passed and adopted at a regular meeting of said Board on the 25th day of June 2014, by the following vote, to wit: AYES: None. NOES: None. ABSTENTIONS: None. ABSENT: None. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of Orange County Sanitation District this 25th day of June, 2014. Maria E. Ayala Clerk of the Board of Directors Orange County Sanitation District OCSD 14-XX-3 ADMINISTRATION COMMITTEE Neeting Dare T1.1 IDir. 06/11/14 6/25/14 AGENDA REPORT Item Number Item Number a Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2014A GENERAL MANAGER'S RECOMMENDATION A. Adopt Resolution No. OCSD14-XX, authorizing the execution and delivery by the District of an Installment Purchase Agreement, a Trust Agreement, an Escrow Agreement and a Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount of not to exceed $225,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the offering and sale of such Revenue Obligations and authorizing the execution of necessary documents and related actions; and B. That the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate amount not to exceed $225,000,000. SUMMARY On December 20, 2007, the Sanitation District issued $300,000,000 of Certificates of Participation, Series 2007B (2007B COPs) to finance certain improvements to the Wastewater System. The 2007B COPS are fixed rate obligations. The outstanding amount of COP Series 2007B is currently $267.3 million. In April 2014, the Administration Committee and the Board authorized the General Manager to pursue a fixed rate refunding of a portion of the 2007B COPS. Approval of the recommended actions and the associated legal documents will enable staff to complete the refunding process. PRIOR COMMITTEE/BOARD ACTIONS September - 2013: Adopted Resolution No. OCSD 13-14, authorizing the execution and delivery by the Orange County Sanitation District of an Installment Purchase Agreement, a Trust Agreement and a Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Revenue Refunding Certificate Anticipation Notes, Series 2013A, Page 1 of 4 authorizing the execution and delivery of such Notes evidencing principal in an aggregate amount of not to exceed $135,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the offering and sale of such Notes and authorizing the execution of necessary documents and related actions. April - 2014: Authorized the General Manager to issue new fixed rate Certificates of Participation (COP), to be referred to as Wastewater Refunding Revenue Obligations, in an amount sufficient to refund up to $267.3 million of COP Series 2007B. ADDITIONAL INFORMATION The Sanitation District currently has ten series of debt issuances outstanding in the par amount of $1.23 billion. The following table lists each issuance, the outstanding amount, and the interest rate mode. Outstanding Interest Rate Par Amount i Mode eries 2013A CANS(4) $ 129,625,000 Fixed Rate (one-year) eries 2012B Refunding(2) 66,395,000 Fixed Rate eries 2012A Refunding(3) 100,645,000 Fixed Rate eries 2011A Refunding(2X3) 130,345,000 Fixed Rate eries 2010C(s) 157,000,000 Fixed Rate eries 20100) 80,000,000 Fixed Rate eries 2009A Refunding(3) 184,090,000 Fixed Rate eries 2008B Refunding(6) 25,585,000 Fixed Rate eries 200713(s) 267,255,000 Fixed Rate eries 2007A Refunding(3) 92,385,000 Fixed Rate Total : $1,233,325,000 (1) As of June 1,2014 (2) Refunded a portion of Series 2000 (3) Refunded a portion of Series 2003 (4) Series 2013A are fixed one-year certificate of anticipation notes(CANS),that refunded the Series 2012C CANS,that refunded the Series 20118 CANS,that refunded the 20108 CANS,that refunded the Series 20098 CANS,that refunded the 2008C CANS that were issued to refund the Series 2006 Daily Variable Rate that were supported by a weak liquidity facility bank. (5) New money debt issue (6) Series 2008E refunded the Series 1993 Synthetic Variable-to-Fixed Rate Debt issues that were supported by a weakening insurance provider. Series 1993 refunded a portion of the Series"B'COPs. Page 2 of 4 Legal Authorization and Approvals The Board of Directors and the Financing Corporation will each be required to adopt separate Resolutions to complete this refunding. A Financing Corporation is required by the structure of the Revenue Obligations and was formed in April 2000 solely to satisfy this need. The Board of Directors of the Corporation is the same as the Board of Directors of the Sanitation District and the Corporation meets after an adjournment of the OCSD Board. The OCSD Resolution authorizes the execution and delivery of certain legal documents and the execution and delivery of Wastewater Refunding Revenue Obligations, Series 2014A, evidencing principal in an aggregate amount of not to exceed $225,000,000 all as spelled out in the title as follows: "A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST AGREEMENT, AN ESCROW AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2014A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $225,000,000, APPROVING A NOTICE OF INTENTION TO SELL, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL NOTICE INVITING BIDS AND AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH REVENUE OBLIGATIONS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED ACTIONS." The Resolution of the Corporation is somewhat shorter and simpler. It authorizes three actions that are similarly enumerated in the title as follows: "A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION AUTHORIZING THE EXECUTION AND DELIVERY BY THE CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2014A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $225,000,000 AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED ACTIONS." Timeline Since the proposed refunding is a fixed-rate debt issuance, staff is proposing to issue the refunding through a competitive sale because it is the most expeditious way to Page 3 of 4 access the market and it is expected to provide the lowest interest cost for this given structure. ➢ Rating Agency discussions ➢ Board approval of legal and disclosure June documents ➢ Financing Corporation approval of legal and disclosure documents ➢ Publish Notice of Intention to Sell July ➢ Marketing and Sale through a Competitive Sale Process August ➢ Closing ➢ Begin debt administration All costs involved with the refunding, including costs for Public Resources Advisory Group, serving as Financial Advisor, and Fulbright & Jaworski, serving as Special Counsel and Disclosure Counsel, will be paid from the proceeds of the new refunding issue. CEQA N/A BUDGET/PURCHASING ORDINANCE COMPLIANCE N/A ATTACHMENTS The following attachment(s) are included in hard copy and may also be viewed on-line at the OCSD website(www.ocsd.coml with the complete agenda package: • Draft Resolution No. OCSD 14-XX • Draft Corporation Resolution No. xxxxxx • Draft Trust Agreement • Draft Installment Purchase Agreement • Draft Escrow Agreement • Draft Continuing Disclosure Agreement • Draft Preliminary Official Statement • Draft Official Notice Inviting Bids • Draft Notice of Intention to Sell Page 4 of 4 Return b Mends Report RESOLUTION NO. OCSD 14- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST AGREEMENT, AN ESCROW AGREEMENT, AND A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2014A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $225,000,000, APPROVING A NOTICE OF INTENTION TO SELL, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL NOTICE INVITING BIDS AND AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH REVENUE OBLIGATIONS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED ACTIONS WHEREAS, to refinance the acquisition, construction and installation of certain improvements to its wastewater system (the "Prior Project"), the Orange County Sanitation District (the "District") has heretofore purchased the Prior Project from the Orange County Sanitation District Financing Corporation (the "Corporation"), and the Corporation has heretofore sold the Prior Project to the District, for the installment payments (the "Prior Installment Payments") made by the District pursuant to the Installment Purchase Agreement, dated as of August 1, 2000 (the "Prior Installment Purchase Agreement"), each by and between the District and the Corporation; WHEREAS, to provide the funds necessary to finance the Prior Project, the District caused the execution and delivery of the Orange County Sanitation District Certificates of Participation, Series 2007E (the "Prior Certificates"), evidencing direct, undivided fractional interests in the Prior Installment Payments; WHEREAS, the District desires to refinance the Prior Project by paying and prepaying the remaining Prior Installment Payments, and the interest thereon to the date of prepayment, thereby causing the remaining Prior Certificates to be prepaid; WHEREAS, to provide the funds necessary to pay and prepay a portion of the remaining Prior Installment Payments, the District and the Corporation desire that the Corporation purchase the Prior Project from the District and the District sell the Prior Project to the Corporation, and that the District then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to the District, for the installment payments (the "Installment Payments") to be made by the District pursuant to an Installment Purchase Agreement by and between the District and the Corporation (such Installment Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Installment Purchase Agreement"); Q622386.3 WHEREAS, the Corporation intends to assign without recourse certain of its rights under and pursuant to the Installment Purchase Agreement to MUFG Union Bank, N.A., as trustee (the "Trustee"), pursuant to a Trust Agreement by and among the Trustee, the Corporation and the District (such Trust Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Trust Agreement"); WHEREAS, in consideration of such assignment and the execution and delivery of the Trust Agreement, the Trustee intends to execute and deliver the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the 'Revenue Obligations"), evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon; WHEREAS, the District desires to provide for the public sale of the Revenue Obligations; WHEREAS, a form of the Notice of Intention to Sell to be published in connection with the public offering and sale of the Revenue Obligations has been prepared (such Notice of Intention to Sell, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Notice of Intention to Sell"); WHEREAS, a form of the Official Notice Inviting Bids to be distributed in connection with the public offering and sale of the Revenue Obligations has been prepared (such Official Notice Inviting Bids, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Notice Inviting Bids"); WHEREAS, a form of the Preliminary Official Statement to be distributed in connection with the public offering of the Revenue Obligations has been prepared (such Preliminary Official Statement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Preliminary Official Statement'); WHEREAS, Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended ('Rule 15c2-12"), requires that the underwriter thereof must have reasonably determined that the District has undertaken in a written agreement or contract for the benefit of the holders of the Revenue Obligations to provide disclosure of certain financial information and certain material events on an ongoing basis; WHEREAS, to cause such requirement to be satisfied, the District desires to enter into a Continuing Disclosure Agreement with the Trustee (such Continuing Disclosure Agreement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Continuing Disclosure Agreement'); WHEREAS, to cause such requirement to be satisfied, the District desires to enter into an Escrow Agreement with MUFG Union Bank, N.A., as escrow agent (such Escrow Agreement in the form presented to this meeting, with such changes, insertions Q6223863 OCSD 14-XX-2 and omissions as are made pursuant to this Resolution, being referred to herein as the "Escrow Agreement'); WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Installment Purchase Agreement; (b) the Trust Agreement; (c) the Notice of Intention to Sell; (d) the Notice Inviting Bids; (e) the Preliminary Official Statement; (f) the Continuing Disclosure Agreement; and (g) the Escrow Agreement; WHEREAS, all acts, conditions and things required by the Constitution and laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the financing authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the District is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the terms herein provided; NOW, THEREFORE, the Board of Directors of the District DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1. All of the recitals herein contained are true and correct and the Board of Directors of the District (the 'Board") so finds. Section 2. The Installment Purchase Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Chair of the Board, and such other member of the Board as the Chair may designate, the General Manager of the District, the Director of Finance and Administrative Services of the District, and such other officers of the District as the Director of Finance and Administrative Services may designate (the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Installment Purchase Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Installment Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of Installment Payments in excess of $225,000,000, shall not result in a true interest cost for the Q6223863 OCSD 14-XX-3 Installment Payments in excess of 5.0% and shall not result in a final Installment Payment later than February 1, 2037. Section 3. The Trust Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Trust Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Trust Agreement by such Authorized Officer. Section 4. The execution and delivery of Revenue Obligations evidencing principal in an aggregate amount of not to exceed $225,000,000, payable in the years and in the amounts, and evidencing principal of and interest on the Installment Payments as specified in the Trust Agreement as finally executed, are hereby authorized and approved. Section 5. The prepayment of all or a portion of the remaining principal components of the Prior Installment Payments, and the interest components thereof to the dates of prepayment, and the Prior Certificates evidencing interests therein, as determined by any Authorized Officer, is hereby authorized and approved. Section 6. The form of Notice of Intention to Sell, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Notice of Intention to Sell in connection with the offering and sale of the Revenue Obligations is hereby approved. The Authorized Officers are each hereby authorized and directed, for and in the name and on behalf of the District, to cause the Notice of Intention to Sell to be published once in The Bond Buyer (or in such other financial publication generally circulated throughout the State of California or reasonably expected to be disseminated among prospective bidders for the Revenue Obligations as an Authorized Officer shall approve as being in the best interests of the District) at least five days prior to the date set for the opening of bids in the Notice Inviting Bids, with such changes, insertions and omissions therein as an Authorized Officer may require or approve, such requirement or approval to be conclusively evidenced by such publishing of the Notice of Intention to Sell. Section 7. The Notice Inviting Bids, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, be and the same is hereby approved, and the use of the Notice Inviting Bids in connection with the offering and sale of the Revenue Obligations is hereby authorized and approved. The terms and conditions of the offering and sale of the Revenue Obligations shall be as specified in the Notice Inviting Bids. Bids for the purchase of the Revenue Obligations shall be received at the time and place set forth in the Notice Inviting Bids. The Authorized Officers are each hereby authorized and directed, for and in the name Q6223863 OCSD 14-XX-4 and on behalf of the District, to accept the bid for the Revenue Obligations with the lowest true interest cost, or to reject all bids therefor, in accordance with the terms of the Notice Inviting Bids. Section 8. The Preliminary Official Statement, in substantially the form presented to this meeting and made a part hereof as though set forth in full herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Revenue Obligations is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the District that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 (except for the omission of certain information permitted by Rule 15c2-12 to be omitted). The Authorized Officers are each hereby authorized and directed to furnish, or cause to be furnished, to prospective bidders for the Revenue Obligations a reasonable number of copies of the Preliminary Official Statement. Section 9. The preparation and delivery of a final Official Statement (the "Official Statement'), and its use in connection with the offering and sale of the Revenue Obligations, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are, and each of them is, hereby authorized and directed to execute the final Official Statement and any amendment or supplement thereto, for and in the name of the District. Section 10. The Continuing Disclosure Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Continuing Disclosure Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer. Section 11. The Escrow Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the District, to execute and deliver the Escrow Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Escrow Agreement by such Authorized Officer. Section 12. The Authorized Officers are, and each of them hereby is, authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for Q6223863 OCSD 14-XX-5 carrying out the execution and delivery of the Revenue Obligations and the transactions contemplated by the notices, agreements and documents referenced in this Resolution. Section 13. All actions heretofore taken by the officers and employees of the District with respect to the execution, delivery and sale of the Revenue Obligations, or in connection with or related to any of the agreements or documents referenced in this Resolution, are hereby approved, confirmed and ratified. Section 14. This Resolution shall take effect immediately upon its adoption. PASSED AND ADOPTED at a regular meeting held on June 25, 2014. Troy Edgar Chairman of the Board ATTEST: Maria E. Ayala Clerk of the Board APPROVED: General Counsel Orange County Sanitation District Q6223863 OCSD 14-XX-6 STATE OF CALIFORNIA ) ss COUNTY OF ORANGE ) I, Maria E. Ayala, Clerk of the Board of Directors of the Orange County Sanitation District, do hereby certify that the foregoing Resolution No. OCSD 14-— was passed and adopted at a regular meeting of said Board on the 25t^ day of June, 2014, by the following vote, to wit: AYES: NOES: ABSTENTIONS: ABSENT: IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of Orange County Sanitation District this 251" day of June, 2014. Clerk of the Board of Directors Orange County Sanitation District 0622386.3 OCSD 14-XX-7 Return b Mends Report RESOLUTION NO. FC- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION AUTHORIZING THE EXECUTION AND DELIVERY BY THE CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2014A, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $225,000,000 AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND RELATED ACTIONS. WHEREAS, to refinance the acquisition, construction and installation of certain improvements to its wastewater system (the "Prior Project"), the Orange County Sanitation District (the "District") has heretofore purchased the Prior Project from the Orange County Sanitation District Financing Corporation (the "Corporation"), and the Corporation has heretofore sold the Prior Project to the District, for the installment payments (the "Prior Installment Payments") made by the District pursuant to the Installment Purchase Agreement, dated as of August 1, 2000 (the "Prior Installment Purchase Agreement"), by and between the District and the Corporation; WHEREAS, to provide the funds necessary to refinance the Prior Project, the District caused the execution and delivery of the Orange County Sanitation District Certificates of Participation, Series 2007B (the "Prior Certificates"), evidencing direct, undivided fractional interests in the related Prior Installment Payments; WHEREAS, the District desires to refinance the Prior Project by paying and prepaying the remaining Prior Installment Payments, and the interest thereon to the date of prepayment, thereby causing the remaining Prior Certificates to be prepaid; WHEREAS, to provide the funds necessary to pay and prepay the remaining Prior Installment Payments, the District and the Corporation desire that the Corporation purchase the Prior Project from the District and the District sell the Prior Project to the Corporation, and that the District then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to the District, for the installment payments (the "Installment Payments") to be made by the District pursuant to an Installment Purchase Agreement by and between the District and the Corporation (such Installment Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Installment Purchase Agreement"); Q6223%.3 WHEREAS, the Corporation intends to assign without recourse certain of its rights under and pursuant to the Installment Purchase Agreement to MUFG Union Bank, N.A., as trustee (the "Trustee"), pursuant to a Trust Agreement by and among the Trustee, the Corporation and the District (such Trust Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Trust Agreement"); WHEREAS, in consideration of such assignment and the execution and delivery of the Trust Agreement, the Trustee intends to execute and deliver the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations"), evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon; WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Installment Purchase Agreement; and (b) the Trust Agreement; WHEREAS, all acts, conditions and things required by the Constitution and laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the actions authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the Corporation is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such actions for the purpose, in the manner and upon the terms herein provided; NOW, THEREFORE, the Board of Directors of the Corporation DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1. All of the recitals herein contained are true and correct and the Board of Directors of the Corporation (the "Board") so finds. Section 2. The Installment Purchase Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. The President of the Corporation, the Vice-President of the Corporation, the Treasurer of the Corporation and the Secretary of the Corporation, and such other officers of the Corporation as the President may designate (the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the Corporation, to execute and deliver the Installment Purchase Agreement in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Installment Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of Installment Payments in excess of $225,000,000, shall not result in a true interest cost for the Installment Payments in excess of 5.0% and shall not result in a final Installment Payment later than February 1, 2037. 406233903 OCSD FC-XX-2 Section 3. The Trust Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Authorized Officers are, and each of them is, hereby authorized and directed, for and in the name of the Corporation, to execute and deliver the Trust Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Trust Agreement by such Authorized Officer. Section 4. The execution and delivery of Revenue Obligations evidencing principal in an aggregate amount of not to exceed $225,000,000, payable in the years and in the amounts, and evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon, as specified in the Trust Agreement as finally executed, are hereby authorized and approved. Section 5. The officers and agents of the Corporation are, and each of them hereby is, authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the execution and delivery of the Revenue Obligations and the transactions contemplated by the agreements or documents referenced in this Resolution. Section 6. All actions heretofore taken by the officers and agents of the Corporation with respect to the execution, delivery and sale of the Revenue Obligations, or in connection with or related to any of the agreements or documents referenced in this Resolution, are hereby approved, confirmed and ratified. Section 7. This Resolution shall take effect immediately upon its adoption. 406233903 OCSD FC-XX-3 PASSED AND ADOPTED at a meeting held on June 25, 2014. Troy Edgar President, Orange County Sanitation District Financing Corporation ATTEST: Maria E. Ayala Clerk of the Board, Orange County Sanitation District Financing Corporation APPROVED: Brad Hogin General Counsel, Orange County Sanitation District Financing Corporation 406233903 OCSD FC-XX-4 STATE OF CALIFORNIA ) ss COUNTY OF ORANGE ) I, Maria E. Ayala, Clerk of the Board of Directors of the Orange County Sanitation District Financing Corporation, do hereby certify that the foregoing Resolution No. FC- was passed and adopted at a regular meeting of said Board on the 25t" day of June, 2014, by the following vote, to wit: AYES: NOES: ABSTENTIONS: ABSENT: IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of Orange County Sanitation District Financing Corporation this 25" day of June, 2014. Clerk of the Board Orange County Sanitation District Financing Corporation 40622390.3 OCSD FC-XX-5 Return to Mende Report Fulbright&Jaworski LLP—Draft 06/03/14 TRUST AGREEMENT by and among MUFG UNION BANK,N.A., as Trustee, ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION and ORANGE COUNTY SANITATION DISTRICT Dated as of August 1,2014 Relating to $[PAR AMOUNT] Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2014A Q622396.3 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; EQUAL SECURITY Section1.01. Definitions........................................................................................................2 Section 1.02. Definitions in Installment Purchase Agreement..............................................9 Section1.03. Equal Security..................................................................................................9 ARTICLE H TERMS AND CONDITIONS OF REVENUE OBLIGATIONS Section 2.01. Preparation and Delivery of Revenue Obligations ..........................................9 Section 2.02. Denomination, Medium and Dating of Revenue Obligations .........................9 Section 2.03. Payment Dates of Revenue Obligations; Interest Computation.................... 10 Section 2.04. Form of Revenue Obligations........................................................................ 10 Section 2.05. Execution of Revenue Obligations and Replacement Certificates. The Revenue Obligations shall be executed by the Trustee by the manual signature of an authorized signatory of the Trustee....................................... 10 Section 2.06. Transfer and Payment of Revenue Obligations; Exchange of Revenue Obligations..................................................................................................... 11 Section 2.07. Revenue Obligation Registration Books........................................................ 11 Section 2.08. Temporary Revenue Obligations................................................................... 11 Section 2.09. Revenue Obligations Mutilated, Lost,Destroyed or Stolen.......................... 12 Section 2.10. Book-Entry System........................................................................................ 12 ARTICLE III PROCEEDS OF REVENUE OBLIGATIONS Section 3.01. Delivery of Revenue Obligations................................................................... 14 Section 3.02. Deposit of Proceeds of Revenue Obligations ................................................ 15 Section 3.03. Costs of Issuance Fund.................................................................................. 15 ARTICLE IV PREPAYMENT OF REVENUE OBLIGATIONS Section 4.01. Optional Prepayment..................................................................................... 15 Section4.02. Reserved......................................................................................................... 15 Section 4.03. Selection of Revenue Obligations for Optional Prepayment......................... 15 Section 4.04. Notice of Prepayment .................................................................................... 16 Section 4.05. Partial Prepayment of Revenue Obligations.................................................. 17 Section 4.06. Effect of Prepayment..................................................................................... 17 ARTICLE V ASSIGNMENT AND PLEDGE; FUNDS AND ACCOUNTS Section 5.01. Assignment and Pledge.................................................................................. 17 Section 5.02. Installment Payment Fund............................................................................. 18 406223/6.3 i TABLE OF CONTENTS (continued) Page Section5.03. Reserved......................................................................................................... 18 Section 5.04. Investment of Moneys.................................................................................... 18 Section 5.05. Brokerage Confirmations............................................................................... 19 ARTICLE VI COVENANTS Section 6.01. Compliance with Trust Agreement................................................................ 19 Section 6.02. Compliance with Installment Purchase Agreement.......................................20 Section 6.03. Compliance with Master Agreement.............................................................20 Section 6.04. Observance of Laws and Regulations............................................................20 Section6.05. Other Liens.....................................................................................................20 Section 6.06. Prosecution and Defense of Suits ..................................................................20 Section 6.07. Accounting Records and Statements.............................................................20 Section 6.08. Tax Covenants ...............................................................................................21 Section 6.09. Continuing Disclosure ...................................................................................24 Section 6.10. Further Assurances.........................................................................................24 ARTICLE VH DEFAULT AND LIMITATIONS OF LIABILITY Section 7.01. Action upon Event of Default........................................................................24 Section 7.02. Other Remedies of the Trustee ......................................................................25 Section7.03. Non-Waiver....................................................................................................25 Section 7.04. Remedies Not Exclusive................................................................................25 Section 7.05. Application of Amounts After Default..........................................................26 Section 7.06. Trustee May Enforce Claims Without Possession of Revenue Obligations.....................................................................................................26 Section 7.07. Limitation on Suits.........................................................................................27 Section 7.08. No Liability by the Corporation to the Owners.............................................27 Section 7.09. No Liability by the District to the Owners.....................................................27 Section 7.10. No Liability of the Trustee to the Owners.....................................................27 ARTICLE VI THE TRUSTEE Section 8.01. Employment of the Trustee; Duties...............................................................28 Section 8.02. Removal and Resignation of the Trustee.......................................................28 Section 8.03. Compensation said Indemnification of the Trustee........................................29 Section 8.04. Protection of the Trustee................................................................................30 ARTICLE IX AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT Section 9.01. Amendment or Supplement...........................................................................31 Section 9.02. Disqualified Revenue Obligations.................................................................32 40622376.3 ii TABLE OF CONTENTS (continued) Page Section 9.03. Endorsement or Replacement of Revenue Obligations After Amendment or Supplement...........................................................................32 Section 9.04. Amendment by Mutual Consent....................................................................32 ARTICLE X DEFEASANCE Section 10.01. Discharge of Revenue Obligations and Trust Agreement.............................33 Section 10.02. Unclaimed Moneys........................................................................................34 ARTICLE XI MISCELLANEOUS Section 11.01. Benefits of Trust Agreement..........................................................................34 Section 11.02. Successor Deemed Included in all References to Predecessor......................35 Section 11.03. Execution of Documents by Owners.............................................................35 Section 11.04. Waiver of Personal Liability..........................................................................35 Section 11.05. Acquisition of Revenue Obligations by District............................................35 Section 11.06. Content of Certificates...................................................................................35 Section 11.07. Funds and Accounts.......................................................................................36 Section 11.08. Article and Section Headings, Gender and References.................................36 Section 11.09. Partial Invalidity.............................................................................................37 Section 11.10. California Law...............................................................................................37 Section11.11. Notices...........................................................................................................37 Section 11.12. Effective Date ................................................................................................38 Section 11.13. Execution in Counterparts..............................................................................38 EXHIBIT A—FORM OF REVENUE OBLIGATION 406223/6.3 111 TRUST AGREEMENT THIS TRUST AGREEMENT (this "Trust Agreement'), dated as of August 1, 2014, is made by and among MUFG UNION BANK,N.A., a national banking association organized and existing under the laws of the United States of America, as trustee(the "Trustee"),the ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION, a nonprofit public benefit corporation organized and existing under the laws of the State of California (the "Corporation"), and the ORANGE COUNTY SANITATION DISTRICT, a county sanitation district organized and existing under the laws of the State of California(the "District'). WITNESSETH: WHEREAS, to refinance the acquisition, construction and installation of certain improvements to its wastewater system (the "Prior Project'), the District has heretofore purchased the Prior Project from the Corporation, and the Corporation has heretofore sold the Prior Project to the District, for the installment payments (the "Prior Installment Payments") made by the District pursuant to the Installment Purchase Agreement, dated as of August 1, 2000 (the"Prior Installment Purchase Agreement'),by and between the District and the Corporation; WHEREAS, to provide the funds necessary to refinance the Prior Project, the District caused the execution and delivery of the Orange County Sanitation District Certificates of Participation, Series 2007B (the "Prior Certificates"), evidencing direct, undivided fractional interests in the related Prior Installment Purchase Agreement and the related Prior Installment Payments; WHEREAS, the District desires to refinance a portion of the Prior Project (the "Project') by prepaying a portion of the remaining Prior Installment Payments, and the interest thereon to the date of prepayment, thereby causing a portion of the Prior Certificates to be retired; WHEREAS, to provide the funds necessary to pay and prepay the remaining Prior Installment Payments, the District and the Corporation desire that the Corporation purchase the Prior Project from the District and the District sell the Prior Project to the Corporation, and that the District then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to the District, for the installment payments (the "Installment Payments") to be made by the District pursuant to the Installment Purchase Agreement, dated the date hereof(the "Installment Purchase Agreement'); WHEREAS, the Corporation proposes to assign without recourse certain of its rights under and pursuant to the Installment Purchase Agreement to the Trustee; WHEREAS, in consideration of such assignment and the execution and delivery of this Trust Agreement, the Trustee has agreed to execute and deliver Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations"), which are certificates of participation, evidencing direct, undivided fractional interests in the Installment Purchase Agreement and the related Installment Payments,and the interest thereon; Q6223/6.3 WHEREAS, a portion of the proceeds of the Revenue Obligations will be used to prepay a portion of the Prior Installment Payments; and WHEREAS, 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 Trust 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 deliver this Trust Agreement; NOW, THEREFORE, in consideration of the promises and of the mutual agreements and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01. Definitions. Except as provided in Section 1.02 hereof or unless the context otherwise requires, the terms defined in this Section shall for all purposes hereof and of any amendment hereof or supplement hereto and of the Revenue Obligations and of any certificate, opinion, request or other document mentioned herein or therein have the meanings defined herein, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined herein: "Authorized Corporation Representative"means the President,the Vice President, the Treasurer and the Secretary of the Corporation, and any other Person authorized by the President of the Corporation to act on behalf of the Corporation under or with respect to this Trust Agreement. "Authorized Denominations"means $5,000 and integral multiples thereof. "Authorized District Representative" means the General Manager of the District, the Director of Finance and Administrative Services of the District, the Controller of the District and any other Person authorized by the Director of Finance and Administrative Services of the District to act on behalf of the District under or with respect to this Trust Agreement. "Beneficial Owners" means those individuals, partnerships, corporations or other entities for which the Participants have caused the Depository to hold Book-Entry Certificates. "Book-Entry Certificates" means the Revenue Obligations registered in the name of the nominee of DTC, or any successor securities depository for the Revenue Obligations, as the Owner thereof pursuant to the terms and provisions of Section 2.10 hereof. "Business Day" means a day other than (a) Saturday or Sunday, (b)a day on which banking institutions in the city in which the Principal Office is located are authorized or required by law to be closed, and (c)a day on which the New York Stock Exchange is authorized or obligated by law or executive order to be closed. Q6223/6.3 2 "Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to the Revenue Obligations. "Certificate Year" means each twelve-month period beginning on February 2 in each year and extending to the next succeeding February 1, both dates inclusive, except that the first Certificate Year shall begin on the Closing Date and end on February 1,2015. "Closing Date"means August. 2014. "Code" means the Internal Revenue Code of 1986. "Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of the date hereof, by and between the District and Digital Assurance Certification LLC, as originally executed and as it may from time to time be amended in accordance with the terms thereof. "Corporation' means the Orange County Sanitation District Financing Corporation, a nonprofit public benefit corporation organized and existing under the laws of the State. "Costs of Issuance" means all the costs of executing and delivering the Revenue Obligations, including, but not limited to, all printing and document preparation expenses in connection with this Trust Agreement, the Installment purchase Agreement, the Revenue Obligations and any preliminary official statement and final official statement pertaining to the Revenue Obligations, fees of a financial advisor, rating agency fees, market study fees, legal fees and expenses of counsel with respect to the execution and delivery of the Revenue Obligations, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the execution and delivery of the Revenue Obligations, to the extent such fees and expenses are approved by the District. "Costs of Issuance Fund" means the fund by that name established in accordance with Section 3.03 hereof. "Depository" means the securities depository acting as Depository pursuant to Section 2.10 hereof. "District" means the Orange County Sanitation District, a county sanitation district organized and existing under the laws of the State, and any successor thereto. "DTC"means The Depository Trust Company,New York,New York and its successors. "Escrow Agent"means MUFG Union Bank,N.A. and its successor or assign. "Escrow Agreement" means the Escrow Agreement, dated as of August 1, 2014, between the Escrow Agent and the District. "Escrow Fund" means the escrow fund established under the Escrow Agreement and held by the Escrow Agent. Q622396.3 3 "Event of Default" shall have the meaning set forth in Section 6.01 of the Installment Purchase Agreement. "Government Obligations" means any of the following which are noncallable by the issuer thereof except to the extent not permitted by the laws of the State as an investment for the moneys to be invested therein at the time of investment: (i) (a) direct general obligations of the United States of America, (b)obligations the payment of the principal of and interest on which are unconditionally guaranteed as to the full and timely payment by the United States of America, or (c) any fund or other pooling arrangement whose assets consist exclusively of the obligations listed in clause(a) or (b) of this clause(i) and which is rated at least `P-1" by Moody's; provided that, such obligations shall not include unit investment trusts or mutual fund obligations; (ii) advance refunded tax-exempt obligations that (a) are rated by Moody's and S&P, (b) are secured by obligations specified in clause(i), (c) me tax-exempt because they are secured by obligations specified in clause (i), and (d) have the same ratings as the obligations specified in clause (i); (iii) bonds, debentures or notes issued by any of the following federal agencies: Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation or Fannie Mae; provided, that such bonds, debentures or notes shall be the senior obligations of such agencies (including participation certificates) and have the same ratings by Moody's and S&P as the obligations specified in clause(i); and (iv) bonds, debentures or notes issued by any Federal agency hereafter created by an act of Congress, the payment of the principal of and interest on which are unconditionally guaranteed by the United States of America as to the full and timely payment; provided, that, such obligations shall not include unit investment trusts or mutual fund obligations. "Installment Payment Fund" means the fund by that name established in accordance with Section 5.02 hereof. "Installment Payments" means the Installment Payments required to be made by the District pursuant to Section 3.02 of the Installment Purchase Agreement. "Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of the date hereof, by and between the District and the Corporation, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. "Interest Account" means the account by that name within the Installment Payment Fund established in accordance with Section 5.02 hereof. "Interest Payment Date" means February 1 and August 1 of each year, commencing February 1,2015. Q6223/6.3 4 "Letter of Representations"means the letter of the District delivered to and accepted by the Depository on or prior to the delivery of the Revenue Obligations as Book-Entry Certificates setting forth the basis on which the Depository serves as depository for such Book-Entry Certificates, as originally executed or as it may be supplemented or revised or replaced by a letter to a substitute Depository. "Master Agreement" means the Master Agreement for District Obligations, dated as of August 1, 2000,by and between the District and the Corporation, as originally executed and as it may from time to time be amended or supplemented in accordance with the terms thereof. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer perform the function of a securities rating agency for any reason, the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the District. "Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.10 hereof. "Opinion of Counsel" means a written opinion of Fulbright& Jaworski LLP or any other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the District. "Outstanding," when used as of any particular time with reference to Revenue Obligations, means (subject to the provisions of Section 9.02 hereof) all Revenue Obligations except (a)Revenue Obligations previously canceled by the Trustee or delivered to the Trustee for cancellation, (b) Revenue Obligations paid or deemed to have been paid within the meaning of Section 10.01 hereof, and(c) Revenue Obligations in lieu of or in substitution for which other Revenue Obligations shall have been executed and delivered by the Trustee pursuant to Section 2.09 hereof. "Owner" means any Person who shall be the registered owner of any Outstanding Revenue Obligation as indicated in the registration books of the Trustee required to be maintained pursuant to Section 2.07 hereof. "Participants" means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Book-Entry Certificates as securities depository. "Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Agreement. Q6223/6.3 5 "Permitted Investments"means any of the following, except to the extent not permitted by the laws of the State as an investment for the moneys to be invested therein at the time of investment: (1) Government Obligations; (2) Bonds, debentures, notes, participation certificates or other evidences of indebtedness issued, or the principal of and interest on which are unconditionally guaranteed, by the Federal Intermediate Credit Bank, the Federal Home Loan Bank System, the Government National Mortgage Association or any other agency or instrumentality of or corporation wholly owned by the United States of America when such obligations are backed by the full faith and credit of the United States for the full and timely payment of principal and interest; (3) Obligations of any state of the United States or any political subdivision thereof, which at the time of investment are rated "Aa3" or higher by Moody's and "AA-" or higher by S&P; or which are rated by Moody's "VMIG 1" or better and by S&P "A-1+" or better with respect to commercial paper, or "VMIG 1" and "SP-111 , respectively, with respect to municipal notes; (4) Bank time deposits evidenced by certificates of deposit, deposit accounts, and bankers' acceptances, issued by any bank, trust company or national banking association insured by the Federal Deposit Insurance Corporation (including the Trustee); provided that (a) such bank, trust company or national banking association be rated "Aa3" or better by Moody's and "AA-" or better by S&P; and (b)the aggregate of such bank time deposits and bankers' acceptances issued by any bank, trust company or banking association does not exceed at any one time 10% of the aggregate of the capital stock, surplus and undivided profits of such bank, trust company or banking association and that such capital stock, surplus and undivided profits shall not be less than $15,000,000; (5) Repurchase agreements with any bank, trust company or national banking association insured by the Federal Deposit Insurance Corporation(including the Trustee), with subsidiaries (of a parent company), provided the obligations of the subsidiary under the agreement we unconditionally guaranteed by the parent, or with any government bond dealer recognized as a primary dealer by the Federal Reserve Bank of New York, which agreements are fully and continuously secured by a valid and perfected first priority security interest in obligations described in paragraph(1) or (2) of this definition, provided that either such bank, trust company or national banking association which (or senior debt or claims paying ability of the financial entity's guarantor) is rated, at the time of investment,"Aa3"or better by Moody's and"AA-" or better by S&P; (6) Repurchase agreements with maturities of not more than one year entered into with financial institutions such as banks or trust companies organized under state law or national banks or banking associations (including the Trustee), insurance companies or government bond dealers reporting to, trading with, and recognized as a primary dealer by, the Federal Reserve Bank of New York and a member of the Securities Investor Q6223/6.3 6 Protection Corporation or with a dealer or parent holding company that is rated, at the time of investment, or whose long-term debt obligations (or senior debt or claims paying ability of the financial entity's guarantor) are rated, at the time of investment, "Aa3" or better by Moody's and"AA-"or better by S&P,provided such repurchase agreements are in writing, secured by obligations described in paragraphs (1) and (2) of this definition having a fair market value, exclusive of accrued interest, at least equal to the amount invested in the repurchase agreements and in which the Trustee has a perfected first lien in, and retains possession of, such obligations free from all third party claims; (7) Investment agreements, forward purchase agreements and reserve fund put agreements with any corporation, including banking or financial institutions, or agreements entered into with subsidiaries (of a parent company), provided the obligations of the subsidiary under the agreement are unconditionally guaranteed by the parent, the corporate debt of which (or senior debt or claims paying ability of the financial entity's guarantor) is rated, at the time of investment, "Aa3" or better by Moody's and "AA-" or better by S&P; (8) Guaranteed investment contracts or similar funding agreements issued by insurance companies, provided that either the long term corporate debt of such insurance company, at the time of investment, is rated, at the time of investment, "Aa3" or better by Moody's and "AA-" or better by S&P or which agreements are fully and continuously secured by a valid and perfected first priority security interest in obligations described in paragraph(1) or (2) of this definition, or that the following conditions are met: (a)the market value of the collateral is maintained at levels acceptable to Moody's and S&P, (b)the Trustee or a third party acting solely as agent for the Trustee has possession of the collateral, (c)the Tmstee has a perfected first priority security interest in the collateral, (d)the collateral is free and clear of third-party liens, and (e)failure to maintain the requisite collateral level will require the Trustee to liquidate collateral; (9) Corporate commercial paper rated"P-1"or better by Moody's and"A-1+" or better by S&P at the time of investment; (10) Taxable government money market portfolios which are rated"AAAm"or "AAAm-G" by S&P and "P-l"by Moody's (including funds for which the Trustee or an affiliate provides investment advice or similar services); and (11) Deposits with the Local Agency Investment Fund of the State, as may otherwise be permitted by law. "Person" means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Prepayment Account"means the account by that name within the Installment Payment Fund established in accordance with Section 5.02 hereof. "Principal Account" means the account by that name within the Installment Payment Fund established in accordance with Section 5.02 hereof. Q622376.3 7 "Principal Office" means the Trustee's principal corporate trust office in Los Angeles, California. "Principal Payment Date"means a date on which an Installment Payment evidenced by the Revenue Obligations becomes due and payable. "Prior Certificates" means the District's Certificates of Participation, Series 2007B. "Prior Trust Agreement" means the Trust Agreement, dated as of December 1, 2007, by and among the Prior Trustee, the Corporation and the District, as amended and supplemented, pursuant to which the Prior Certificates were executed and delivered. "Prior Trustee" means MUFG Union Bank, N.A., as trustee under the Prior Trust Agreement. "Project" has the meaning ascribed thereto in the recitals hereto. "Record Date"means, with respect to the interest payable on any Interest Payment Date, the 15th day of the calendar month immediately preceding such Interest Payment Date, whether or not such day is a Business Day. "Revenue Obligations" means the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A, executed and delivered by the Trustee pursuant hereto, which are certificates of participation, evidencing direct, undivided fractional interests in the Installment Purchase Agreement and the related Installment Payments, and the interest thereon. "S&P" means Standard & Poor's Ratings Services, a Standard & Poor's Financial Services LLC business, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the District. "State"means the State of California. "Trust Agreement" means this Trust Agreement, dated as of August 1, 2014, by and among the Trustee, the Corporation and the District, as originally executed and delivered and as it may from time to time be amended or supplemented in accordance with the provisions hereof. "Trustee" means MUFG Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States of America, or any other bank or trust company which may at any time be substituted in its place as provided in Section 8.02 hereof. "Written Certificate"and"Written Request"mean(a)with respect to the Corporation, a written certificate or written request, respectively, signed in the name of the Corporation by an Authorized Corporation Representative, and (b)with respect to the District, a written certificate or written request, respectively, signed in the name of the District by an Authorized District Representative. Any such certificate or request may, but need not, be combined in a single Q6223/6.3 8 instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.02. Definitions in Installment Purchase Agreement. Except as otherwise herein defined and unless the context otherwise requires, the terms defined in the Installment Purchase Agreement shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein have the meanings defined therein, such definitions to be equally applicable to both the singular and plural forms of any of the terms defined therein. With respect to any defined term which is given a different meaning under this Trust Agreement than under the Installment Purchase Agreement, as used herein it shall have the meaning given herein. Section 1.03. Equal Security. In consideration of the acceptance of the Revenue Obligations by the Owners, this Trust Agreement shall be deemed to be and shall constitute a contract between the Trustee and the Owners to secure the full and final payment of the interest and principal evidenced by the Revenue Obligations which may be executed and delivered hereunder, subject to each of the agreements, conditions, covenants and terms contained herein; and all agreements, conditions, covenants and terms contained herein required to be observed or performed by or on behalf of the Trustee shall be for the equal and proportionate benefit, protection and security of all Owners without distinction, preference or priority as to security or otherwise of any Revenue Obligations over any other Revenue Obligations by reason of the number or date thereof or the time of execution or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. ARTICLE II TERMS AND CONDITIONS OF REVENUE OBLIGATIONS Section 2.01. Preparation and Delivery of Revenue Obligations. The Trustee is hereby authorized, upon the Written Request of the District, to execute and deliver the Revenue Obligations in the aggregate principal amount of $[PAR AMOUNT] evidencing the aggregate principal amount of the Installment Payments and each evidencing a direct, fractional undivided interest in the Installment Payments, and the interest thereon. The Installment Payments evidenced by each Revenue Obligation shall constitute the principal evidenced thereby and the interest on such Installment Payments shall constitute the interest evidenced thereby. The Revenue Obligations shall be numbered,with or without prefixes, as directed by the Trustee. Section 2.02. Denomination. Medium and Dating of Revenue Obligations. The Revenue Obligations shall be designated "Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A" and shall be prepared in the form of fully registered Revenue Obligations, without coupons, in Authorized Denominations and shall be payable in lawful money of the United States of America. The Revenue Obligations shall be dated as of the Closing Date. Each Revenue Obligation shall evidence interest from the Interest Payment Date next preceding its date of execution to which interest has been paid in full, unless such date of execution shall be after a Record Date and on or prior to the following Interest Payment Date, in which case such Revenue Q622376.3 9 Obligation shall evidence interest from such Interest Payment Date, or unless such date of execution shall be on or prior to January 15, 2015, in which case such Revenue Obligation shall represent interest from the Closing Date. Notwithstanding, the foregoing, if, as shown by the records of the Trustee, interest evidenced by the Revenue Obligations shall be in default, each Revenue Obligation shall evidence interest from the last Interest Payment Date to which such interest has been paid in full or duly provided for. Section 2.03. Payment Dates of Revenue Obligations: Interest Computation. (a)Method and Place of Payment. The principal evidenced by the Revenue Obligations shall become due and payable, subject to prior prepayment, on February 1 of the years, in the amounts,and shall evidence interest accruing at the rates per annum set forth below: Principal Payment Date Principal Interest (February 1) Component Rate Except as otherwise provided in the Letter of Representations, payments of interest evidenced by the Revenue Obligations shall be made to the Owners thereof(as determined at the close of business on the Record Date next preceding the related Interest Payment Date)by check or draft of the Trustee mailed to the address of each such Owner as it appears on the registration books maintained by the Trustee pursuant to Section 2.07 hereof, or to such other address as may be furnished in writing to the Trustee by each such Owner. Except as otherwise provided in the Letter of Representations, payment of principal and prepayment premium, if any, evidenced by the Revenue Obligations, on their stated Principal Payment Dates or on prepayment in whole or in part prior thereto, shall be made only upon presentation and surrender of the Revenue Obligations at the Principal Office. (b) Computation oflnterest. The interest evidenced by the Revenue Obligations shall be payable on each Interest Payment Date to and including their respective Principal Payment Dates or prepayment prior thereto, and shall represent the sum of the interest on the Installment Payments coming due on the Interest Payment Dates in each year. The principal evidenced by the Revenue Obligations shall be payable on their respective Principal Payment Dates in each year and shall represent the Installment Payments coming due on the Principal Payment Dates in each year. Interest evidenced by the Revenue Obligations shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Q622376.3 10 Section 2.04. Form of Revenue Obligations. The Revenue Obligations shall be in substantially the form of Exhibit A hereto, with necessary or appropriate insertions, omissions and variations as permitted or required hereby. Section 2.05. Execution of Revenue Obligations and Replacement Certificates. The Revenue Obligations shall be executed by the Trustee by the manual signature of an authorized signatory of the Trustee. The Trustee shall deliver replacement Revenue Obligations in the manner and as contemplated by this Article. Such replacement Revenue Obligations shall be executed as herein provided and shall be in Authorized Denominations. Section 2.06. Transfer and Payment of Revenue Obligations; Exchange of Revenue Obligations. Each Revenue Obligation is transferable by the Owner thereof, in person or by his attorney duly authorized in writing, at the Principal Office, on the registration books maintained by the Trustee pursuant to the provisions of Section 2.07 hereof,upon surrender of such Revenue Obligation for cancellation accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee. The Trustee may treat the Owner of any Revenue Obligation as the absolute owner of such Revenue Obligation for all purposes, whether or not the principal or interest evidenced by such Revenue Obligation shall be overdue, and the Tmstee shall not be affected by any knowledge or notice to the contrary; and payment of the interest and principal evidenced by such Revenue Obligation shall be made only to such Owner, which payments shall be valid and effectual to satisfy and discharge the liability evidenced by such Revenue Obligation to the extent of the sum or sums so paid. Whenever any Revenue Obligation shall be surrendered for transfer, the Trustee shall execute and deliver a new Revenue Obligation or Revenue Obligations evidencing principal in the same aggregate amount and having the same stated Principal Payment Date. The Trustee shall require the payment by any Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Each Revenue Obligation may be exchanged at the Principal Office for Revenue Obligations evidencing principal in a like aggregate principal amount having the same stated Principal Payment Date in such Authorized Denominations as the Owner thereof may request. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. Section 2.07. Revenue Obligation Registration Books. The Trustee shall keep at its Principal Office sufficient books for the registration and transfer of the Revenue Obligations, which books shall be available for inspection and copying by the District at reasonable hours and under reasonable conditions; and upon presentation for such purpose the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer the Revenue Obligations on such books as hereinabove provided. Section 2.08. Temporary Revenue Obligations. The Revenue Obligations may be initially delivered in temporary form exchangeable for definitive Revenue Obligations when ready for delivery, which temporary Revenue Obligations shall be printed, lithographed or typewritten, shall be of such denominations as may be determined by the Trustee, shall be in fully registered form and shall contain such reference to any of the provisions hereof as may be Q622376.3 11 appropriate. Every temporary Revenue Obligation shall be executed and delivered by the Trustee upon the same conditions and terms and in substantially the same manner as definitive Revenue Obligations. If the Trustee executes and delivers temporary Revenue Obligations, it shall prepare and execute definitive Revenue Obligations without delay, and thereupon the temporary Revenue Obligations may be surrendered at the Principal Office in exchange for such definitive Revenue Obligations, and until so exchanged such temporary Revenue Obligations shall be entitled to the same benefits hereunder as definitive Revenue Obligations executed and delivered hereunder. Section 2.09. Revenue Obligations Mutilated, Lost. Destroyed or Stolen. If any Revenue Obligation shall become mutilated, the Trustee, at the expense of the Owner thereof, shall execute and deliver a new Revenue Obligation evidencing a like principal amount and having the same stated Principal Payment Date and number in exchange and substitution for the Revenue Obligation so mutilated, but only upon surrender to the Trustee of the Revenue Obligation so mutilated. Every mutilated Revenue Obligation so surrendered to the Trustee shall be canceled by it. If any Revenue Obligation shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and if such evidence is satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense of the Owner thereof, shall execute and deliver a new Revenue Obligation evidencing a like principal amount and having the same stated Principal Payment Date, numbered as the Trustee shall determine, in lieu of and in substitution for the Revenue Obligation so lost, destroyed or stolen. The Trustee may require payment of a sum not exceeding the actual cost of preparing each new Revenue Obligation executed and delivered by it under this Section and of the expenses which may be incurred by it under this Section. Any Revenue Obligation executed and delivered under the provisions of this Section in lieu of any Revenue Obligation alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits hereof with all other Revenue Obligations executed and delivered hereunder, and the Trustee shall not be required to treat both the original Revenue Obligation and any replacement Revenue Obligation as being Outstanding for the purpose of determining the amount of Revenue Obligations which may be executed and delivered hereunder or for the purpose of determining any percentage of Revenue Obligations Outstanding hereunder, but both the original and replacement Revenue Obligation shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of executing and delivering a new Revenue Obligation for a Revenue Obligation which has been lost, destroyed or stolen and which evidences principal that is then payable, the Trustee may make payment of such Revenue Obligation to the Owner thereof if so instructed by the District. Section 2.10. Book-Entry System. (a) The Revenue Obligations shall be initially executed and delivered as Book-Entry Certificates, and the Revenue Obligations for each stated Principal Payment Date shall be in the form of a separate single fully registered Revenue Obligation (which may be typewritten). Upon initial execution and delivery, the ownership of each Revenue Obligation shall be registered in the registration books maintained by the Trustee in the name of the Nominee, as nominee of the Depository. Payment of principal or interest evidenced by any Book-Entry Certificate registered in the name of the Nominee shall be made on the applicable Interest Payment Date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Q622396.3 12 Such payments shall be made to the Nominee at the address which is, on the Record Date, shown for the Nominee in the registration books maintained by the Trustee. (b) With respect to Book-Entry Certificates, the District, the Corporation and the Trustee shall have no responsibility or obligation to any Participant or to any Person on behalf of which such a Participant holds an interest in such Book-Entry Certificates. Without limiting the immediately preceding sentence, the District, the Corporation and the Trustee shall have no responsibility or obligation with respect to (i)the accuracy of the records of the Depository, the Nominee or any Participant with respect to any ownership interest in Book-Entry Certificates, (ii)the delivery to any Participant or any other Person, other than an Owner as shown in the registration books maintained by the Trustee, of any notice with respect to Book-Entry Certificates, including any notice of prepayment, (iii)the selection by the Depository and its Participants of the beneficial interests in Book-Entry Certificates to be prepaid in the event Revenue Obligations are prepaid in part, (iv) the payment to any Participant or any other Person, other than an Owner as shown in the registration books maintained by the Trustee, of any amount with respect to principal, premium, if any, or interest evidenced by Book-Entry Certificates, or(v)any consent given or other action taken by the Depository as Owner. (c) The District, the Corporation and the Trustee may treat and consider the Person in whose name each Book-Entry Certificate is registered in the registration books maintained by the Trustee as the absolute Owner of such Book-Entry Certificate for the purpose of payment of principal, prepayment premium, if any, and interest evidenced by such Revenue Obligation, for the purpose of selecting any Revenue Obligations, or portions thereof, to be prepaid, for the purpose of giving notices of prepayment and other matters with respect to such Revenue Obligation, for the purpose of registering transfers with respect to such Revenue Obligation, for the purpose of obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and the District, the Corporation and the Trustee shall not be affected by any notice to the contrary. (d) Reserved. (e) The Trustee shall pay all principal, premium, if any, and interest evidenced by the Revenue Obligations to the respective Owner, as shown in the registration books maintained by the Trustee, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the obligations with respect to payment of principal, premium, if any, and interest evidenced by the Revenue Obligations to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the registration books maintained by the Trustee, shall receive a Revenue Obligation evidencing principal, premium, if any, and interest evidenced by the Revenue Obligations. Upon delivery by the Depository to the Owners, the Trustee and the District of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Trust Agreement shall refer to such nominee of the Depository. (1) To qualify the Book-Entry Certificates for the Depository's book-entry system, the District shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the Q622396.3 13 Corporation,the District or the Trustee any obligation whatsoever with respect to Persons having interests in such Book-Entry Certificates other than the Owners, as shown on the registration books maintained by the Trustee. Such Letter of Representations may provide the time, form, content and manner of transmission, of notices to the Depository. In addition to the execution and delivery of a Letter of Representations by the District, the District, the Corporation and the Trustee shall take such other actions, not inconsistent with this Trust Agreement, as are reasonably necessary to qualify Book-Entry Certificates for the Depository's book-entry program. (g) If the District determines that it is in the best interests of the Beneficial Owners that they be able to obtain certificated Revenue Obligations and that such Revenue Obligations should therefore be made available and notifies the Depository and the Trustee of such determination, the Depository will notify the Participants of the availability through the Depository of certificated Revenue Obligations. In such event, the Trustee shall transfer and exchange certificated Revenue Obligations as requested by the Depository and any other Owners in appropriate amounts. In the event (i) the Depository determines not to continue to act as securities depository for Book-Entry Certificates, or(it)the Depository shall no longer so act and gives notice to the Trustee of such determination, then the District shall discontinue the Book- Entry system with the Depository. If the District determines to replace the Depository with another qualified securities depository, the District shall prepare or direct the preparation of a new single, separate, fully registered Revenue Obligation for each stated Principal Payment Date of such Book-Entry Certificates, registered in the name of such successor or substitute qualified securities depository or its nominee. If the District fails to identify another qualified securities depository to replace the Depository, then the Revenue Obligations shall no longer be restricted to being registered in the registration books maintained by the Trustee in the time of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Revenue Obligations shall designate, in accordance with the provisions of Sections 2.06 and 2.09 hereof. Whenever the Depository requests the District to do so, the District will cooperate with the Depository in taking appropriate action after reasonable notice (i)to make available one or more separate certificates evidencing the Book-Entry Certificates to any Participant having Book-Entry Certificates credited to its account with the Depository, and (ii) to arrange for another securities depository to maintain custody of certificates evidencing the Book-Entry Certificates. (h) Notwithstanding any other provision of this Trust Agreement to the contrary, if DTC is the sole Owner of the Revenue Obligations, so long as any Book-Entry Certificate is registered in the name of the Nominee, all payments of principal, premium, if any, and interest evidenced by such Revenue Obligation and all notices with respect to such Revenue Obligation shall be made and given, respectively, as provided in the Letter of Representations or as otherwise instructed by the Depository. (i) In connection with any notice or other communication to be provided to Owners pursuant to the Trust Agreement by the District, the Corporation or the Trustee, with respect to any consent or other action to be taken by Owners, the Trustee shall establish a record date for such consent or other action and give the Depository notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. Notice to the Depository shall be given only when DTC is the sole Owner of the Revenue Obligations. 40622376.3 14 ARTICLE III PROCEEDS OF REVENUE OBLIGATIONS Section 3.01. Delivery of Revenue Obligations. The Trustee is hereby authorized to execute the Revenue Obligations and deliver the Revenue Obligations to the original purchaser thereof upon receipt of a Written Request of the District and upon receipt of the net proceeds of sale thereof. Section 3.02. Deposit of Proceeds of Revenue Obligations. The net proceeds received by the Trustee from the sale of the Revenue Obligations in the amount of $ (which amount includes the security deposit for the Revenue Obligations in the amount of$ on deposit with the Trustee) shall be deposited or transferred by the Trustee as follows: (a) the Trustee shall deposit in the Costs of Issuance Fund the amount of$ , and (b) the Trustee shall transfer to the Escrow Agent for deposit in the Escrow Fund established under the Escrow Agreement the amount of$ from the proceeds of the Revenue Obligations, to apply, together with other available monies released from the Prior Trust Agreement, to the payment and prepayment of a portion of the installment payments related to the Prior Certificates as provided in the Escrow Agreement. Section 3.03. Costs of Issuance Fund. The Trustee shall establish and maintain a separate special fund to be held by the Trustee known as the Costs of Issuance Fund. There shall be deposited in the Costs of Issuance Fund on the Closing Date the amount required to be deposited therein pursuant to Section 3.02 hereof. The Trustee shall disburse moneys from the Costs of Issuance Fund on such dates and in such amounts as are necessary to pay Costs of Issuance, in each case upon the Written Request of the District stating the Person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred and that such payment is a proper charge against the Costs of Issuance Fund. On the date that is six months after the Closing Date, the Trustee shall transfer any amounts then remaining in the Costs of Issuance Fund to the Installment Payment Fund. Upon such transfer, the Costs of Issuance Fund shall be closed. ARTICLE IV PREPAYMENT OF REVENUE OBLIGATIONS Section 4.01. Optional Prepayment. The Revenue Obligations with stated Principal Payment Dates prior to February 1, 20[24] are not subject to optional prepayment prior to their stated Principal Payment Dates. The Revenue Obligations with stated Principal Payment Dates on or after February 1, 20[25] are subject to optional prepayment prior to their stated Principal Payment Dates, on any date on or after February 1, 20[24], in whole or in part, in Authorized Denominations, from and to the extent of prepaid Installment Payments paid pursuant to Section 4.01 of the Installment Purchase Agreement or from any other source of available funds, any such prepayment to be at a price equal to the principal evidenced by the Revenue Q622396.3 15 Obligations to be prepaid, plus accrued interest evidenced thereby to the date fixed for prepayment,without premium. Section 4.02. Reserved. Section 4.03. Selection of Revenue Obligations for Optional Prepayment. Whenever less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to Section 4.01 hereof, with respect to optional prepayment of Revenue Obligations, the Trustee shall select the Revenue Obligations to be prepaid among Revenue Obligations with different Principal Payment Dates as directed in a Written Request of the District. Whenever less than all the Outstanding Revenue Obligations with the same stated Principal Payment Date are to be prepaid on any one date pursuant to Section 4.01 hereof, the Trustee shall select the Revenue Obligations with such Principal Payment Date to be prepaid as directed in a Written Request of the District, or at the discretion of the District by lot in any manner that the Trustee deems fair and appropriate, which decision shall be final and binding upon the District and the Owners. The Trustee shall promptly notify the District in writing of the numbers of the Revenue Obligations so selected for prepayment on such date. For purposes of such selection, any Revenue Obligation may be prepaid in part in Authorized Denominations. Section 4.04. Notice of Prepayment. When prepayment of Revenue Obligations is authorized pursuant to Section 4.01, the Trustee shall give notice, at the expense of the District, of the prepayment of the Revenue Obligations. The notice of prepayment shall specify (a)the Revenue Obligations or designated portions thereof(in the case of prepayment of the Revenue Obligations in part but not in whole) which are to be prepaid, (b) the date of prepayment, (c) the place or places where the prepayment will be made, including the name and address of any paying agent, (d)the prepayment price, (e) the CUSIP numbers assigned to the Revenue Obligations to be prepaid, (f)the numbers of the Revenue Obligations to be prepaid in whole or in part and, in the case of any Revenue Obligation to be prepaid in part only, the principal evidenced by such Revenue Obligation to be prepaid, and (g) the interest rate and stated Principal Payment Date of each Revenue Obligation to be prepaid in whole or in part. Such notice of prepayment shall further state that on the specified date there shall become due and payable upon each Revenue Obligation or portion thereof being prepaid the prepayment price and that from and after such date interest evidenced thereby shall cease to accrue and be payable. With respect to any notice of prepayment of Revenue Obligations pursuant to Section 4.01 hereof, unless at the time such notice is given the Revenue Obligations to be prepaid shall be deemed to have been paid within the meaning of Section 10.01 hereof, such notice shall state that such prepayment is conditional upon receipt by the Trustee, on or prior to the date fixed for such prepayment, of moneys sufficient to pay for the prepayment price of the Revenue Obligations to be prepaid, and that if such moneys shall not have been so received said notice shall be of no force and effect and the District shall not be required to prepay such Revenue Obligations. If a notice of prepayment of Revenue Obligations contains such a condition and such moneys are not so received, the prepayment of Revenue Obligations as described in the conditional notice of prepayment shall not be made and the Trustee shall, within a reasonable time after the date on which such prepayment was to occur, give notice to the persons and in the manner in which the notice of prepayment was given,that such moneys were not so received and that there shall be no prepayment of Revenue Obligations pursuant to such notice of prepayment. Q622396.3 16 The Trustee shall, at least 20 but not more than 60 days prior to any prepayment date, give notice of prepayment to the respective Owners of Revenue Obligations designated for prepayment by first-class mail, postage prepaid, at their addresses appearing on the registration books maintained by the Trustee as of the close of business on the day before such notice of prepayment is given. The actual receipt by the Owner of any notice of such prepayment shall not be a condition precedent to prepayment, and neither failure to receive such notice nor any defect therein shall affect the validity of the proceedings for the prepayment of such Revenue Obligations or the cessation of interest evidenced thereby on the date fixed for prepayment. A certificate by the Trustee that notice of prepayment has been given to Owners as herein provided shall be conclusive as against all parties, and no Owner whose Revenue Obligation is called for prepayment may object thereto or object to the cessation of interest evidenced thereby on the Fixed prepayment date by any claim or showing that said Owner failed to actually receive such notice of prepayment. Section 4.05. Partial Prepayment of Revenue Obligations. Upon surrender of any Revenue Obligation prepaid in part only, the Trustee shall execute and deliver to the Owner thereof a new Revenue Obligation or Revenue Obligations evidencing the unprepaid principal with respect to the Revenue Obligation surrendered. Section 4.06. Effect of Prepayment. If notice of prepayment has been duly given as aforesaid and moneys for the payment of the prepayment price of the Revenue Obligations to be prepaid are held by the Trustee, then on the prepayment date designated in such notice, the Revenue Obligations so called for prepayment shall become payable at the prepayment price specified in such notice; and from and after the date so designated, interest evidenced by the Revenue Obligations so called for prepayment shall cease to accrue, such Revenue Obligations shall cease to be entitled to any benefit or security hereunder and the Owners of such Revenue Obligations shall have no rights in respect thereof except to receive payment of the prepayment price thereof The Trustee shall, upon surrender for payment of any of the Revenue Obligations to be prepaid, pay such Revenue Obligations at the prepayment price thereof, and such moneys shall be pledged to such payment. All Revenue Obligations prepaid pursuant to the provisions of this Article shall be canceled by the Trustee and shall not be redelivered. ARTICLE V ASSIGNMENT AND PLEDGE; FUNDS AND ACCOUNTS Section 5.01. Assignment and Pledee. The Corporation hereby transfers, conveys and assigns to the Trustee, for the benefit of the Owners, all of the Corporation's rights, title and interest in and to the Installment Purchase Agreement (excepting its rights to indemnification thereunder), including the right to receive Installment Payments, and the interest thereon, from the District and the right to exercise any remedies provided therein in the event of a default by the District thereunder. The Trustee hereby accepts said transfer, conveyance and assignment, solely in its capacity as Trustee, for the benefit of the Owners, subject to the provisions of this Trust Agreement. All Installment Payments, and the interest thereon, shall be paid directly by Q622396.3 17 the District to the Trustee, and if received by the Corporation at any time shall be deposited by the Corporation with the Trustee immediately upon the receipt thereof. To secure the respective rights of the Owners to the payments required to be made thereto as provided herein, the Corporation and the District hereby irrevocably pledge to the Trustee, for the benefit of the Owners, all of their right, title and interest, if any, in and to all amounts on deposit from time to time in the funds and accounts established hereunder. This pledge shall constitute a first lien on the amounts on deposit in such funds and accounts. Section 5.02. Installment Payment Fund. (a)The Trustee shall establish and maintain the Installment Payment Fund until all required Installment Payments, and the interest thereon, we paid in full pursuant to the Installment Purchase Agreement and until the first date upon which the Revenue Obligations are no longer Outstanding. The Trustee shall deposit in the Installment Payment Fund all Installment Payments, and the interest thereon, paid by the District and received by the Trustee. The moneys in the Installment Payment Fund shall be held in trust by the Trustee for the benefit of the Owners and shall be used and disbursed only for the purposes and uses herein authorized. (b) The Trustee shall transfer the amounts on deposit in the Installment Payment Fund, at the times and in the manner hereinafter provided, to the following respective accounts within the Installment Payment Fund, each of which the Trustee hereby agrees to establish and maintain until all required Installment Payments, and the interest thereon, are paid in full pursuant to the Installment Purchase Agreement and until the first date upon which the Revenue Obligations are no longer Outstanding. The moneys in each of such accounts shall be held in trust by the Trustee for the benefit of the Owners and shall be used and disbursed only for the purposes and uses herein authorized. (i) Interest Account. The Trustee, on each Interest Payment Date, shall deposit in the Interest Account that amount of moneys representing the interest on the Installment Payments coming due on such Interest Payment Date. Moneys in the Interest Account shall be used by the Trustee for the purpose of paying the interest evidenced by the Revenue Obligations when due and payable. (ii) Principal Account. The Trustee, on each Principal Payment Date, shall deposit in the Principal Account that amount of moneys representing the Installment Payments coming due on such Principal Payment Date. Moneys in the Principal Account shall be used by the Trustee for the purpose of paying the principal evidenced by the Revenue Obligations when due and payable. (iii) Prepayment Account. The Trustee, on the prepayment date specified in the Written Request of the District filed with the Trustee at the time that any prepaid Installment Payment is paid to the Trustee pursuant to the Installment Purchase Agreement, shall deposit in the Prepayment Account that amount of moneys representing such prepaid Installment Payment, the accrued interest thereon to the prepayment date and any premium payable with respect thereto. The Trustee shall deposit in the Prepayment Account any other amounts made available by the District that the District, pursuant to a Written Request of the District, instructs the Trustee to apply to the Q622396.3 18 prepayment of Revenue Obligations pursuant to Section 4.01 hereof. Moneys in the Prepayment Account shall be used by the Trustee for the purpose of paying the interest, premium, if any, and principal evidenced by the Revenue Obligations to be prepaid pursuant to Section 4.01 hereof. Section 5.03. Reserved. Section 5.04. Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Trust Agreement shall be invested by the Trustee solely in Permitted Investments, as directed by the District pursuant to a Written Request of the District at least two (2) Business Days prior to the making of such investment. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Trust Agreement. Absent timely written direction from the District, the Trustee shall invest any funds held by it in Permitted Investments described in clause (10) of the definition thereof. Permitted Investments that are registerable securities shall be registered in the name of the Trustee. All interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Trust Agreement shall be retained therein. Permitted Investments acquired as an investment of moneys in any fund or account established under this Trust Agreement shall be credited to such fund or account For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each January 15 and July 15. The Trustee or an affiliate may act as principal or agent in the making or disposing of any investment. The Trustee shall sell or present for redemption any Permitted Investment whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such Permitted Investment is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. The Trustee is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or with any one or more of its affiliates, whether or not such affiliate is acting as an agent of the Trustee or for any third Person or dealing as principal for its own account. Section 5.05. Brokeraee Confirmations. The Trustee shall furnish the District periodic cash transaction statements which include detail for all investment transactions effected by the Trustee or brokers selected by the District Upon the District's election and request, the Trustee shall provide the District online access to such statements. The District waives the right to receive brokerage confirmations of securities transactions effected by the Tmstee as they occur, to the extent permitted by law. The District further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker Q622396.3 19 ARTICLE VI COVENANTS Section 6.01. Compliance with Trust Agreement. The Trustee will not execute or deliver any Revenue Obligations in any manner other than in accordance with the provisions hereof, and the Corporation and the District will not suffer or permit any default by them to occur hereunder, but will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms hereof required to be complied with, kept, observed and performed by them. Section 6.02. Compliance with Installment Purchase Agreement. The Corporation and the District will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Installment Purchase Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, will enforce the Installment Purchase Agreement against the other party thereto in accordance with its terms. Section 6.03. Compliance with Master Agreement. The Corporation and the District will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Master Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, will enforce the Master Agreement against the other party thereto in accordance with its terms. Section 6.04. Observance of Laws and Regulations. The Corporation and the District will faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on them by contract, or prescribed by any law of the United States of America or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by them, including their right to exist and carry on their respective businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired. Section 6.05. Other Liens. None of the Trustee, the Corporation or the District shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds or accounts created hereunder, other than the pledge and lien hereof. Section 6.06. Prosecution and Defense of Suits. The District will defend against every action, suit or other proceeding at any time brought against the Trustee or any Owner upon any claim arising out of the receipt, deposit or disbursement of any of the Installment Payments, or the interest thereon, or involving the rights of the Trustee or any Owner hereunder; provided, however, that the Trustee or any Owner at its or his election may appear in and defend any such action, suit or other proceeding. Section 6.07. Accounting Records and Statements. The Trustee will keep proper accounting records in which complete and correct entries shall be made of all transactions made by the Trustee relating to the receipt, deposit and disbursement of the Installment Payments, and Q622376.3 20 the interest thereon, and such accounting records shall be available for inspection by the Corporation and the District at reasonable hours and under reasonable conditions. The Trustee shall not be obligated to provide an accounting for any fund or account that (a)has a balance of $0.00 and (b)has not had any activity since the last reporting date. The Trustee will, upon written request, make copies of the foregoing available to any Owner (at the expense of such Owner). Section 6.08. Tax Covenants. (a) Special Definitions. When used in this Section, the following terms shall have the following meanings: "Bond Counsel" means Fulbright& Jaworski LLP or any other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the District. "Computation Date" has the meaning set forth in section 1.148-1(b) of the Tax Regulations. "Computation Period" means, initially, that period commencing on the date of the execution and delivery of the Revenue Obligations and concluding on the initial Computation Date and,thereafter, each period commencing on the day next following a Computation Date and concluding on the immediately succeeding Computation Date. "Gross Proceeds" of any issue of governmental obligations means any proceeds as defined in section 1.148-1(b) of the Tax Regulations (referring to sales, investment and transferred proceeds) of that issue, and any replacement proceeds as defined in section 1.148- 1(c)of the Tax Regulations, of that issue. "Investment"has the meaning set forth in section 1.148-1(b)of the Tax Regulations. "Nonpurpose Investment"means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of an issue are invested and that is not acquired to carry out the governmental purposes of that issue. "Opinion of Bond Counsel" means a written opinion of Fulbrigbt&Jaworski LLP or any other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the District. "Prior Issue" shall refer to the Prior Certificates (but in the case of any of the foregoing executed and delivered for multiple purposes, only to the portion thereof allocable pursuant to section 1.148-9(h)(4) of the Tax Regulations to other than refunding purposes). "Proceeds," with respect to an issue of governmental obligations, has the meaning set forth in has the meaning set forth in section 1.148-1(b) of the Tax Regulations (referring to sales, investment and transferred proceeds,but not replacement proceeds). "Rebate Amount"has the meaning set forth in section 1.148-1(b) of the Tax Regulations. Q6223/6.3 21 "Tax Regulations" means the United States Treasury Regulations promulgated pursuant to sections 103 and 141 through 150 of the Code. "Yield" of (i) any Investment has the meaning set forth in section 1.148-5 of the Tax Regulations and (ii) in respect of the Revenue Obligations has the meaning set forth in section 1.148-4 of the Tax Regulations. (a) Exclusion of Interest from Gross Income. The District will take all actions necessary to establish and maintain the exclusion pursuant to section 103(a) of the Code of interest on the Revenue Obligations from the gross income of the owners thereof for federal income tax purposes, and will not use, permit the use of, or omit to use Gross Proceeds of the Revenue Obligations or any other amounts (or any property the acquisition, construction or improvement of which is to be refinanced directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, would cause the interest on any Revenue Obligation to fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Trustee receives a written Opinion of Bond Counsel to the effect that failure to comply with such covenant will not adversely affect the exclusion pursuant to section 103(a) of the Code of interest on any Revenue Obligation from the gross income of the owner thereof, the District shall comply with this covenant and each of the specific covenants in this Section. (b) No Private Use or Private Payments. Except as would not cause any Revenue Obligation to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the District shall at all times prior to the payment and cancellation of the last of the Revenue Obligations to be retired: (i) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Revenue Obligations and not use or permit the use of such Gross Proceeds (including all contractual arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds or the Gross Proceeds of the Prior Issue in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (ii) does not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds of the Revenue Obligations or of the Prior Issue, or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of general application within the jurisdiction of the District or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (c) No Private Loan. Except as would not cause any Revenue Obligation to become a"private activity bond"within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the District shall not use of Gross Proceeds of the Revenue Obligations to Q622376.3 22 make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be `loaned" to a person or entity if. (i) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (ii) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (iii) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan. For purposes of this covenant, the District will treat any transaction constituting a loan of Gross Proceeds of the Prior Issue as resulting in a loan of Gross Proceeds of the Revenue Obligations. (d) Not to Invest at Higher Yield. Except as would not cause any Revenue Obligation to become an "arbitrage bond"within the meaning of section 148 of the Code and the Tax Regulations and rulings thereunder, the District will not, at any time prior to the final cancellation of the last Revenue Obligation to be retired, directly or indirectly invest Gross Proceeds of the Revenue Obligations in any Investment, if as a result of that investment the yield of any Investment acquired with Gross Proceeds of the Revenue Obligations, whether then held or previously disposed of, would materially exceed the yield of the Revenue Obligations within the meaning of said section 148. (e) Not Federally Guaranteed. Except to the extent such action or failure to act would not pursuant to section 149(b) of the Code and the Tax Regulations and rulings thereunder, adversely affect the exclusion pursuant to section 103(a) of interest on the Revenue Obligations from the gross income of the owners thereof for federal income tax purposes, the District will not take or omit to take any action that would cause any Revenue Obligation to be "federally guaranteed" within the meaning of section 149(b) of the Code and the Tax Regulations and rulings thereunder. (f) Information Report. The District will timely file any information necessary to the exclusion pursuant to section 103(a) of the Code of interest on the Revenue Obligations required by section 149(e) of the Code with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary of the Treasury may prescribe. (g) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, the District will not at any time prior to the final cancellation of the last of the Revenue Obligations to be retired, enter into any transaction that reduces the amount required to be paid to the United States pursuant to section 148(f) of the Code because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the yield on the Revenue Obligations not been relevant to either party. (h) Revenue Obligations Satisfy Section 149(a). The District represents that neither the Prior Issue nor the Revenue Obligations are or will become "hedge bonds" within the meaning of section 149(g) of the Code. Without limitation of the foregoing, with respect to the Prior Issue, (i)(A) on the date of issuance of that issue the District reasonably expected (based upon its own knowledge and upon representations made by other governmental persons upon the Q622376.3 23 issuance of those obligations) that within the three-year period commencing on such date no less than 85% of the spendable proceeds of that issue would be expended for the governmental purposes thereof and (B) the District believes and represents that at no time has more than 50% of the proceeds of that issue been invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more, and with respect to the application of Proceeds of the Revenue Obligations other than for refunding purposes, (ii)(A) the District will not deliver the Revenue Obligations unless on the date of the issuance of the Revenue Obligations it reasonably expects that within the three-year period commencing on such date of issuance at least 85% of such spendable proceeds of the Revenue Obligations will be expended for the governmental purpose of the Revenue Obligations and(B) at no time will more than 50% of such spendable proceeds of the Revenue Obligations be invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more. (i) Elections. The District hereby directs and authorizes any Authorized Representative to make elections permitted or required pursuant to the provisions of the Code or the Tax Regulations, as such Authorized Representative (after consultation with Bond Counsel) deems necessary or appropriate in connection with the Revenue Obligations, in the Tax Certificate (as defined below)or similar or other appropriate certificate, form or document. 0) Tax Certificate. The District agrees to execute and deliver in connection with the execution and delivery of the Revenue Obligations a Tax Certificate as to Arbitrage and the Provisions of Sections 141-150 of the Internal Revenue Code of 1986, or similar document containing additional representations and covenants pertaining to the exclusion of interest with respect to the Revenue Obligations from the gross income of the owners thereof for federal income tax purposes (the "Tax Certificate"), which representations and covenants are incorporated as though expressly set forth herein. Section 6.09. Continuing Disclosure. The District will comply with and carry out all of the provisions of the Continuing Disclosure Agreement applicable to it. Notwithstanding any other provision of this Trust Agreement, failure of the District to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, the Trustee at the request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Revenue Obligations and upon being indemnified to its reasonable satisfaction, shall, or any Owner or Beneficial Owner of Revenue Obligations may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. The Trustee is authorized and directed to execute the acceptance and acknowledgement of the Continuing Disclosure Agreement. Section 6.10. Further Assurances. The District will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to carry out the purposes and intentions of this Trust Agreement and for preserving and protecting the rights and interests of the Owners. Q622376.3 24 ARTICLE VII DEFAULT AND LIMITATIONS OF LIABILITY Section 7.01. Action upon Event of Default. An Event of Default under the Installment Purchase Agreement shall constitute an Event of Default hereunder and an Event of Default under the Master Agreement shall constitute an Event of Default hereunder. The Trustee may give notice, as assignee of the Corporation, of an Event of Default under the Installment Purchase Agreement to the District, and shall do so if directed to do so by the Owners of not less than 5%of the aggregate principal evidenced by Revenue Obligations then Outstanding. In each and every case during the continuance of an Event of Default, the Trustee may and, at the direction of the Owners of not less than a majority of the aggregate principal evidenced by Revenue Obligations then Outstanding, shall, upon notice in writing to the District and the Corporation (a)exercise any of the remedies granted to the Corporation under the Installment Purchase Agreement, (b) exercise any of the remedies granted to the Trustee under the Master Agreement, and (c)take whatever action at law or in equity may appear necessary or desirable to enforce its rights pursuant to this Trust Agreement, the Installment Purchase Agreement or the Master Agreement or to protect and enforce any of the rights vested in the Trustee or the Owners by this Trust Agreement, the Revenue Obligations, the Installment Purchase Agreement or the Master Agreement, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.02 hereof. Section 7.02. Other Remedies of the Trustee. Subject to the provisions of Section 7.01 hereof, the Trustee shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Corporation or the District or any member, director, officer or employee thereof, and to compel the Corporation or the District or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee; or (c) by suit in equity upon the happening of any Event of Default hereunder to require the Corporation and the District to account as the trustee of an express trust. Section 7.03. Non-Waiver. A waiver of any default or breach of duty or contract by the Trustee or the Owners 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 Trustee or the Owners to exercise any right or remedy accruing upon any default or breach of duty or contract 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 Trustee or the Owners by law or by this Article may be enforced and exercised from time to time and as often as the Trustee shall deem expedient. Q622376.3 25 If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse determination,the Trustee, such Owner,the Corporation and the District shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. Section 7.04. Remedies Not Exclusive. Subject to the provisions of Section 7.01 hereof, no remedy herein conferred upon or reserved to the Trustee 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 any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other appropriate right or remedy. Section 7.05. Application of Amounts After Default. All damages or other payments received by the Trustee for the enforcement of any rights and powers of the Trustee under this Article shall be deposited into the Installment Payment Fund and as soon as practicable and thereafter applied: (a) to the payment of all amounts due the Trustee under Section 8.03 hereof; (b) unless the unpaid Installment Payments, and the interest thereon, shall have become, and shall remain, immediately due and payable pursuant to the Master Agreement: (i) to the payment of all amounts then due for interest evidenced by the Revenue Obligations, in respect of which, or for the benefit of which, money has been collected (other than Revenue Obligations which have become payable prior to such Event of Default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of interest evidenced by such Revenue Obligations due and payable; and (ii) to the payment of all amounts then due for principal evidenced by the Revenue Obligations, in respect of which, or for the benefit of which, money has been collected (other than Revenue Obligations which have become payable prior to such Event of Default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of principal evidenced by such Revenue Obligations due and payable. (c) if the unpaid Installment Payments, and the interest thereon, shall have become, and shall remain, immediately due and payable pursuant to the Master Agreement, to the payment of all amounts then due for principal and interest evidenced by the Revenue Obligations and, if the amount available therefor shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Revenue Obligation over any other Revenue Obligation, to the persons entitled thereto without any discrimination or preference. Q622376.3 26 Section 7.06. Trustee May Enforce Claims Without Possession of Revenue Obligations. All rights of action and claims under this Trust Agreement or the Revenue Obligations may be prosecuted and enforced by the Trustee without the possession of any of the Revenue Obligations or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Owners of the Revenue Obligations in respect of which such judgment has been recovered. Section 7.07. Limitation on Suits. No Owner shall have any right to institute any proceeding,judicial or otherwise,with respect to this Trust Agreement, or for the appointment of a receiver or trustee, or for any other remedy bereunder, unless (a) such Owner shall have previously given written notice to the Trustee of a continuing Event of Default hereunder, (b) the Owners of not less than a majority of the aggregate principal evidenced by Revenue Obligations then Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder, (c) such Owner or Owners shall have afforded to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such proceedings, and (e)no direction inconsistent with such written request shall have been given to the Trustee during such 60-day period by the Owners of a majority of the aggregate principal evidenced by Revenue Obligations then Outstanding; it being understood and intended that no one or more Owners of Revenue Obligations shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Trust Agreement to affect, disturb or prejudice the rights of any other Owner of Revenue Obligations, or to obtain or seek to obtain priority or preference over any other Owner or to enforce any right under this Trust Agreement, except in the manner herein provided and for the equal and ratable benefit of all the Owners of Revenue Obligations. Section 7.08. No Liability by the Corporation to the Owners. Except as expressly provided herein, the Corporation shall not have any obligation or liability to the Owners with respect to the payment when due of the Installment Payments, and the interest thereon, by the District, or with respect to the performance by the District of the other agreements and covenants required to be performed by it contained in the Installment Purchase Agreement, the Master Agreement or herein, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein. Section 7.09. No Liability by the District to the Owners. Except for the payment when due of the Installment Payments, and the interest thereon, and the performance of the other agreements and covenants required to be performed by it contained in the Installment Purchase Agreement,the Master Agreement or herein, the District shall not have any obligation or liability to the Owners with respect to this Trust Agreement or the preparation, execution, delivery or transfer of the Revenue Obligations or the disbursement of the Installment Payments, and the interest thereon, by the Trustee to the Owners, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained herein. Q622376.3 27 Section 7.10. No Liability of the Trustee to the Owners. Except as expressly provided herein, the Trustee shall not have any obligation or liability to the Owners with respect to the payment when due of the Installment Payments, and the interest thereon, by the District, or with respect to the performance by the Corporation or the District of the other agreements and covenants required to be performed by them, respectively contained in the Installment Purchase Agreement or herein. ARTICLE VIH THE TRUSTEE Section 8.01. Employment of the Trustee: Duties. The Corporation and the District hereby appoint and employ the Trustee to receive, deposit and disburse the Installment Payments, and the interest thereon, to prepare, execute, deliver and transfer the Revenue Obligations and to perform the other functions contained herein, all in the manner provided herein and subject to the conditions and terms hereof. By executing and delivering this Trust Agreement, the Trustee accepts the appointment and employment hereinabove referred to and accepts the rights and obligations of the Trustee provided herein, subject to the conditions and terms hereof. Other than when an Event of Default hereunder has occurred and is continuing,the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Trust Agreement, and no implied covenants or obligations shall be read into this Trust Agreement against the Trustee. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Section 8.02. Removal and Resignation of the Trustee. The Corporation and the District may, by an instrument in writing, remove the Trustee initially a party hereto and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if at any time (a)requested to do so by an instrument or concurrent instruments in writing signed by the Owners of a majority of the aggregate principal evidenced by the Revenue Obligations at the time Outstanding (or their attorneys duly authorized in writing), or (b)the Trustee shall cease to be eligible in accordance with the following sentence, and shall appoint a successor Trustee. The Trustee shall be a bank having trust powers or a trust company in good standing in or incorporated under the laws of the United States or any state thereof, having (or if such bank or trust company is a member of a bank holding company system, its parent bank holding company shall have) a combined capital and surplus of at least $75,000,000, and be subject to supervision or examination by federal or state banking authorities. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee may at any time resign by giving written notice of such resignation to the Corporation and the District and by giving notice, by first class mail, postage prepaid, of such resignation to the Owners at their addresses appearing on the registration books maintained by Q622376.3 28 the Trustee. Upon receiving such notice of resignation, the Corporation and the District shall promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the event the District and the Corporation do not appoint a successor Trustee within 30 days following receipt of such notice of resignation, the resigning Trustee may, at the expense of the District, petition the appropriate court having jurisdiction to appoint a successor Trustee. Any resignation or removal of a Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. Any successor Trustee appointed under this Trust Agreement shall signify its acceptance of such appointment by executing and delivering to the District and the Corporation and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein;but,nevertheless, at the written request of the District or of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Trust Agreement and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Any corporation, association or agency into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, provided that such entity meets the combined capital and surplus requirements of this Section, ipso facto, shall be and become successor trustee under this Trust Agreement and vested with all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 8.03. Compensation and Indemnification of the Trustee. The District shall from time to time, subject to any written agreement then in effect with the Trustee, pay the Trustee reasonable compensation for all its services rendered hereunder and reimburse the Trustee for all its reasonable advances and expenditures (which shall not include "overhead expenses" except as such expenses are included as a component of the Trustee's stated annual fees or disclosed transaction fees) hereunder, including but not limited to advances to and reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys retained by the Trustee, employed by it in the exercise and performance of its rights and obligations hereunder; provided, however, that the Trustee shall not have any lien for such compensation or reimbursement against any moneys held by it in any of the funds or accounts established hereunder. The Trustee may take whatever legal actions are lawfully available to it directly against the Corporation or the District. Except as otherwise expressly provided herein, no provision of this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability 40622376.3 29 in the performance of any of its duties hereunder or in the exercise of any of its rights or powers hereunder. The District, to the extent permitted by law, agrees to indemnify and save the Trustee, its directors, officers, employees and agents harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder or any other document related to this Trust Agreement, including but not limited to costs and expenses incurred in defending against any claim or liability,which are not due to its negligence or willful misconduct. Section 5.04. Protection of the Trustee. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any affidavit, bond, certificate, consent, notice, request, requisition, resolution, statement, waiver or other paper or document which it shall in good faith believe to be genuine and to have been adopted, executed or delivered by the proper party or pursuant to any of the provisions hereof, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument, but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Owners of the Revenue Obligations pursuant to this Trust Agreement, unless such Owners shall have offered to the Trustee security or indemnity, reasonably satisfactory to the Trustee, against the reasonable costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may consult with counsel, who may be counsel to the Corporation or the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect to any action taken or suffered by it hereunder in good faith in accordance therewith. The Trustee shall not be responsible for the sufficiency of the Revenue Obligations or the Installment Purchase Agreement, or of the assignment made to it hereunder, or for statements made in the preliminary or final official statement relating to the Revenue Obligations. The Trustee shall not be required to take notice or be deemed to have notice of any default or Event of Default hereunder, except failure of any of the payments to be made to the Trustee required to be made hereunder or under the Installment Purchase Agreement, unless the Trustee shall be specifically notified in writing of such default or Event of Default by the District, the Corporation or the Owners of not less than 5% of the aggregate principal evidenced by the Revenue Obligations then Outstanding. Whenever in the administration of its rights and obligations hereunder the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter(unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the District or a Written Certificate of the Corporation, and such certificate shall be full warrant to the Trustee for any action taken or suffered under the provisions hereof upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it deems reasonable. Q6223/6.3 30 The Trustee may buy, sell, own, hold and deal in any of the Revenue Obligations and may join in any action which any Owner may be entitled to take with like effect as if the Trustee were not a party hereto. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Corporation or the District, and may act as agent, depository or trustee for any committee or body of Owners or of owners of obligations of the Corporation or the District as freely as if it were not the Trustee hereunder. The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers hereof and perform any rights and obligations required of it hereunder by or through agents, attorneys or receivers, and shall be entitled to advice of counsel concerning all matters of trust and its rights and obligations hereunder, and the Trustee shall not be answerable for the negligence or misconduct of any such agent, attorney or receiver selected by it with reasonable care; provided, however, that in the event of any negligence or misconduct of any such attorney, agent or receiver, the Trustee shall diligently pursue all remedies of the Trustee against such agent, attorney or receiver. The Trustee shall not be liable for any error of judgment made by it in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or for anything whatsoever in connection with the funds established hereunder, except only for its own willful misconduct, negligence or breach of an obligation hereunder. The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which the Corporation or the District is a party and which, in the opinion of the Trustee and its counsel, affects the Revenue Obligations or the security therefor, and shall do so if requested in writing by the Owners of at least 5% of the aggregate principal evidenced by Revenue Obligations then Outstanding, provided the Trustee shall have no duty to take such action unless it has been indemnified to its reasonable satisfaction against all risk or liability arising from such action. ARTICLE IX AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT Section 9.01. Amendment or Suuolement. This Trust Agreement and the rights and obligations of the Corporation, the District, the Owners and the Trustee hereunder may be amended or supplemented at any time by an amendment hereof or supplement hereto which shall become binding when the prior written consents of the Owners of a majority of the aggregate principal evidenced by the Revenue Obligations then Outstanding, exclusive of Revenue Obligations disqualified as provided in Section 9.02 hereof, are filed with the Trustee. No such amendment or supplement shall (i) extend the stated Principal Payment Date of any Revenue Obligation or reduce the rate of interest evidenced thereby or extend the time of payment of such interest or reduce the amount of principal evidenced thereby or change the prepayment terms and provisions or the provisions regarding delivery of notice of prepayment without the prior written consent of the Owner of each Revenue Obligation so affected, (ii)reduce the percentage of Owners whose consent is required for the execution of any amendment hereof or supplement hereto without the prior written consent of the Owners of all Revenue Obligations then Outstanding, (iii)modify any of the rights or obligations of the Trustee without the prior written Q6223/6.3 31 consent of the Trustee, or (iv)amend this Section without the prior written consent of the Owners of all Revenue Obligations then Outstanding. (a) This Trust Agreement and the rights and obligations of the Corporation, the District, the Owners and the Trustee hereunder may also be amended or supplemented at any time by an amendment hereof or supplement hereto which shall become binding upon execution, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the Corporation or the District to be observed or performed herein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Corporation or the District, or to surrender any right or power reserved herein to or conferred herein on the Corporation or the District; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or in regard to questions arising hereunder which the Corporation or the District may deem desirable or necessary and not inconsistent herewith; or (iii) for any other reason, provided such amendment or supplement does not adversely affect the rights or interests of the Owners. Section 9.02. Disaualifted Revenue Obligations. Revenue Obligations owned or held by or for the account of the District (but excluding Revenue Obligations held in any pension or retirement fund of the District) shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding Revenue Obligations provided in this Article, and shall not be entitled to consent to or take any other action provided in this Article, and the Trustee may adopt appropriate regulations to require each Owner, before his consent provided for herein shall be deemed effective, to reveal if the Revenue Obligations as to which such consent is given are disqualified as provided in this Section. Section 9.03. Endorsement or Reolacement of Revenue Obligations After Amendment or Supplement. After the effective date of any action taken as hereinabove provided in this Article, the Trustee may determine that the Revenue Obligations may bear a notation by endorsement in form approved by the Trustee as to such action, and in that case upon demand of the Owner of any Outstanding Revenue Obligation and presentation of such Revenue Obligation for such purpose at the Principal Office a suitable notation as to such action shall be made on such Revenue Obligation. If the Trustee shall receive an Opinion of Counsel advising that new Revenue Obligations modified to conform to such action are necessary, modified Revenue Obligations shall be prepared, and in that case upon demand of the Owner of any Outstanding Revenue Obligations such new Revenue Obligations shall be exchanged at the Principal Office without cost to each Owner for Revenue Obligations then Outstanding upon surrender of such Outstanding Revenue Obligations. Q622376.3 32 Section 9.04. Amendment by Mutual Consent. The provisions of this Article shall not prevent any Owner from accepting any amendment as to the particular Revenue Obligations owned by such Owner,provided that due notation thereof is made on such Revenue Obligations. ARTICLE X DEFEASANCE Section 10.01. Discharge of Revenue Obligations and Trust Agreement. (a)If the Trustee shall pay or cause to be paid or there shall otherwise be paid (i)to the Owners of all Outstanding Revenue Obligations the interest and principal evidenced thereby at the times and in the manner stipulated herein and therein, and (ii)all other amounts due hereunder and under the Installment Purchase Agreement, then such Owners shall cease to be entitled to the pledge of and lien on the amounts on deposit in the funds and accounts established hereunder, as provided herein, and all agreements and covenants of the Corporation,the District, and the Trustee to such Owners hereunder shall thereupon cease, terminate and become void and shall be discharged and satisfied. (b) Any Outstanding Revenue Obligation shall be deemed to have been paid within the meaning and with the effect expressed in this Section when the whole amount of the principal, premium, if any, and interest evidenced by such Revenue Obligation shall have been paid or when (i)in case said Revenue Obligation or portion thereof has been selected for prepayment in accordance with Section 4.03 hereof prior to its stated Principal Payment Date, the District shall have given to the Trustee irrevocable instructions to give, in accordance with the provisions of Section 4.03 hereof, notice of prepayment of such Revenue Obligation, or portion thereof, (ii) there shall be on deposit with the Trustee, moneys, or Government Obligations, or any combination thereof, the principal of and the interest on which when due, and without any reinvestment thereof,will provide moneys which shall be sufficient to pay when due the principal, premium, if any, and interest evidenced by such Revenue Obligation and due and to become due on or prior to the prepayment date or its stated Principal Payment Date, as the case may be, and (iii)in the event the stated Principal Payment Date of such Revenue Obligation will not occur, and said Revenue Obligation is not to be prepaid, within the next succeeding 60 days, the District shall have given the Trustee irrevocable instructions to give notice, as soon as practicable in the same manner as a notice of prepayment given pursuant to Section 4.03 hereof, to the Owner of such Revenue Obligation, or portion thereof, stating that the deposit of moneys or Government Obligations required by clause (ii) of this subsection has been made with the Trustee and that said Revenue Obligation, or portion thereof, is deemed to have been paid in accordance with this Section and stating such Principal Payment Date or prepayment date upon which moneys are to be available for the payment of the principal, premium, if any, and interest evidenced by said Revenue Obligation, or portion thereof. Neither the moneys nor the Government Obligations deposited with the Trustee pursuant to this Section nor principal or interest payments on any such Government Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal, premium, if any, and interest evidenced by said Revenue Obligation, or portions thereof If payment of less than all of the Revenue Obligations is to be provided for in the manner and with the effect expressed in this Section, the Trustee or the District, as Q622376.3 33 applicable, shall select such Revenue Obligations, or portions thereof, in the manner specified in Section 4.03 hereof for selection for prepayment of less than all of the Revenue Obligations, in the principal amounts designated to the Trustee by the District. (c) After the payment of all the interest, prepayment premium, if any, and principal evidenced by all Outstanding Revenue Obligations and all other amounts due hereunder and under the Installment Purchase Agreement as provided in this Section, the Trustee shall execute and deliver to the Corporation and the District all such instruments as may be necessary or desirable to evidence the discharge and satisfaction of this Trust Agreement, the Trustee shall pay over or deliver to the District all moneys or securities held by it pursuant hereto which are not required for the payment of the interest, prepayment premium, if any, and principal evidenced by such Revenue Obligations and all other amounts due hereunder and under the Installment Purchase Agreement. (d) Prior to any defeasance becoming effective under this Article, the District shall cause to be delivered (i)an executed copy of a report, addressed to the Trustee and the District, in form and in substance acceptable to the District, of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Government Obligations and cash, if any, satisfy the requirements of clause (ii) of subsection(b) of this Section (a "Verification"), (ii) a copy of the escrow deposit agreement entered into in connection with such defeasance, which escrow deposit agreement shall provide that no substitution of Government Obligations shall be permitted except with other Government Obligations and upon delivery of a new Verification and no reinvestment of Govenunent Obligations shall be permitted except as contemplated by the original Verification or upon delivery of a new Verification, and(iii) a copy of an Opinion of Counsel, dated the date of such defeasance and addressed to the Trustee and the District, in form and in substance acceptable to the District, to the effect that such Revenue Obligations have been paid within the meaning and with the effect expressed in this Trust Agreement, and all agreements and covenants of the Corporation, the District and the Trustee to the Owners of such Revenue Obligations under this Trust Agreement have ceased, terminated and become void and have been discharged and satisfied. Section 10.02. Unclaimed Moneys. Any moneys held by the Trustee in trust for the payment and discharge of the interest or principal evidenced by any of the Revenue Obligations which remain unclaimed for two years after the date when such interest or principal evidenced by such Revenue Obligations have become payable, if such moneys were held by the Trustee at such date, or for two years after the date of deposit of such moneys if deposited with the Trustee after the date when the interest and principal evidenced by such Revenue Obligations have become payable, shall be repaid by the Trustee to the District as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the District for the payment of the interest and principal evidenced by such Revenue Obligations. Q622376.3 34 ARTICLE XI MISCELLANEOUS Section 11.01. Benefits of Trust Agreement. Nothing contained herein, expressed or implied, is intended to give to any Person other than the Corporation, the District, the Trustee and the Owners any claim, remedy or right under or pursuant hereto, and any agreement, condition, covenant or term required herein to be observed or performed by or on behalf of the Corporation or the District shall be for the sole and exclusive benefit of the Trustee and the Owners. Section 11.02. Successor Deemed Included in all References to Predecessor. Whenever the Corporation, the District or the Trustee, or any officer thereof, is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Corporation, the District or the Trustee, or such officer, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Corporation, the District or the Trustee, or any officer thereof, shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.03. Execution of Documents by Owners. Any declaration, request or other instrument which is permitted or required herein to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or his attorney of any declaration, request or other instrument or of any writing appointing such attomey may be proved by the certificate of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state or territory in which he purports to act that the Person signing such declaration, request or other instrument or writing acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer, or by such other proof as the Trustee may accept which it may deem sufficient. The ownership of any Revenue Obligations and the amount, payment date, number and date of owning the same may be proved by the registration books maintained by the Trustee pursuant to the provisions of Section 2.07 hereof. Any declaration, request or other instrument in writing of the Owner of any Revenue Obligation shall bind all future Owners of such Revenue Obligation with respect to anything done or suffered to be done by the Corporation, the District or the Trustee in good faith and in accordance therewith. Section 11.04. Waiver of Personal Liability. Notwithstanding anything contained herein to the contrary, no member, officer or employee of the District or the Corporation shall be individually or personally liable for the payment of any moneys, including without limitation, the interest or principal evidenced by the Revenue Obligations, but nothing contained herein shall relieve any member, officer or employee of the District or the Corporation from the performance Q622376.3 35 of any official duty provided by any applicable provisions of law, by the Installment Purchase Agreement or hereby. Section 11.05. Acquisition of Revenue Obligations by District. All Revenue Obligations acquired by the District, whether by purchase or gift or otherwise, shall be surrendered to the Trustee for cancellation. Section 11.06. Content of Certificates. Every Written Certificate of the District and every Written Certificate of the Corporation with respect to compliance with any agreement, condition, covenant or term contained herein shall include (a) a statement that the Person making or giving such certificate has read such agreement, condition, covenant or term and the definitions herein relating thereto, (b)a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certificate are based, (c) a statement that, in the opinion of the signer, the signer has made or caused to be made such examination or investigation as is necessary to enable the signer to express an informed opinion as to whether or not such agreement, condition, covenant or term has been complied with, and (d)a statement as to whether, in the opinion of the signer, such agreement, condition, covenant or tern has been complied with. Any Written Certificate of the District and any Written Certificate of the Corporation may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless the Person making or giving such certificate knows that the Opinion of Counsel with respect to the matters upon which each Person's certificate may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should have known that the same was erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, upon information which is in the possession of the District or the Corporation upon a representation by an officer or officers of the District or the Corporation, as the case may be, unless the counsel executing such Opinion of Counsel knows that the representation with respect to the matters upon which such counsel's opinion may be based, as aforesaid, is erroneous, or in the exercise of reasonable care should have known that the same was erroneous. Section 11.07. Funds and Accounts. Any fund or account required to be established and maintained herein by the Trustee may be established and maintained in the accounting records of the Trustee either as an account or a fund, and may, for the purposes of such accounting records, any audits thereof and any reports or statements with respect thereto, be treated either as an account or a fund, but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with sound accounting practice and with due regard for the protection of the security of the Revenue Obligations and the rights of the Owners. The Trustee may establish such funds and accounts as it deems necessary to perform its obligations hereunder. Trustee may commingle any of the moneys held by it hereunder for investment purposes only; provided, however, that the Trustee shall account separately for the moneys in each fund or account established pursuant to this Trust Agreement. Section 11.05. Article and Section Headings. Gender and References. The singular form of any word used herein, including the terms defined in Section 1.01 hereof, shall include Q622396.3 36 the plural, and vice versa, unless the context otherwise requires. The use herein of a pronoun of any gender shall include correlative words of the other genders. 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. All references herein to "Articles," "Sections," subsections or clauses are to the corresponding Articles, Sections, subsections or clauses hereof, and the words "hereby," "herein," "hereof," "hereto," "herewith," "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section, subsection or clause thereof. Section 11.09. Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Corporation, the District or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Revenue Obligations, and the Owners shall retain all the benefit,protection and security afforded to them under any applicable provisions of law. The Corporation, the District and the Trustee hereby declare that they would have executed this Trust Agreement, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution and delivery of the Revenue Obligations pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any Person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 11.10. California Law. This Trust Agreement shall be governed by and construed in accordance with the laws of the State. Section 11.11. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the District: Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708 Attention: Director of Finance and Administrative Services If to the Corporation: Orange County Sanitation District Financing Corporation c/o Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708 Attention: Treasurer Q6223/6.3 37 If to the Trustee: MUFG Union Bank,N.A. 633 West Fifth Street 24th Floor Los Angeles, California 90071 Attention: Corporate Trust Services Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication bereunder shall be deemed delivered to the party to whom it is addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic communication, e.g. facsimile or telecopier, upon the sender's receipt of an appropriate written acknowledgment, (c)if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, (d)if given by overnight courier,with courier charges prepaid, 24 hours after delivery to said overnight courier, or (e)if given by any other means, upon delivery at the address specified in this Section. Section 11.12. Effective Date. This Trust Agreement shall become effective upon its execution and delivery. Section 11.13. Execution in Counterparts. This Trust Agreement may be simultaneously 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.] Q622376.3 38 IN WITNESS WHEREOF,the parties hereto have caused this Trust Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first written above. ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION By: Treasurer ORANGE COUNTY SANITATION DISTRICT By: Chair of the Board of Directors (SEAL) Attest: By: Clerk of the Board of Directors MUFG UNION BANK,N.A., as Trustee By: Authorized Officer Q6223/6.3 39 EXHIBIT A FORM OF REVENUE OBLIGATION No. R— •*•$•*• Unless this Revenue Obligation is presented by an authorized representative of The Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and any Revenue Obligation executed and delivered is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the Registered Owner hereof, Cede&Co.,has an interest herein. ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATION SERIES 2014A Such revenue obligations are certificates of participation evidencing direct,undivided fractional interests in the Installment Purchase Agreement,dated as of August 1,2014,by and between the Orange County Sanitation District and the Orange County Sanitation District Financing Corporation and the related Installment Payments,and the interest thereon. PRINCIPAL PAYMENT DATE INTEREST RATE DATED DATE CUSIP February 1, August. 2014 REGISTERED OWNER: Cede&Co. PRINCIPAL AMOUNT: DOLLARS THIS IS TO CERTIFY that the Registered Owner of this Revenue Obligation (this "Revenue Obligation"), as identified above, is the owner of a direct, fractional undivided interest in certain installment payments ("Installment Payments"), and the interest thereon,payable under and pursuant to the Installment Purchase Agreement, dated as of August 1, 2014 (the "Installment Purchase Agreement'), by and between the Orange County Sanitation District (the "District'), a county sanitation district organized and existing under the laws of the State of California, and the Orange County Sanitation District Financing Corporation (the "Corporation"), a nonprofit public benefit corporation organized and existing under the laws of the State of California. Certain of the rights of the Corporation under the Installment Purchase Agreement, including the right to receive the Installment Payments, and the interest thereon, have been assigned without recourse by the Corporation to MUFG Union Bank,N.A., a national banking association duly organized and existing under the laws of the United States of America, as trustee (the "Trustee") under the Trust Agreement, dated as of August 1, 2014 (the "Trust Agreement'),by and among the Trustee, the District and the Corporation. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Trust Agreement. 40622376.3 A-1 The District has executed and delivered the Master Agreement for District Obligations, dated as of August 1, 2000 (the "Master Agreement'), by and between the District and the Corporation, pursuant to which the District establishes and declares the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon, will be incurred and secured. This Revenue Obligation is one of the duly authorized Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations") evidencing principal in the aggregate amount of $[PAR AMOUNT], executed pursuant to the terms of the Trust Agreement. The Revenue Obligations evidence direct, fractional undivided interests in the Installment Payments, and the interest thereon, payable under the Installment Purchase Agreement. The Revenue Obligations are executed and delivered to refinance certain improvements to the wastewater collection, treatment and disposal facilities of the District (the "Wastewater System") and to pay the costs of issuance incurred in connection therewith and to pay certain other related costs. The Installment Payments, and the interest thereon, are to be paid by the District pursuant to the Installment Purchase Agreement in consideration for the purchase of certain improvements to the Wastewater System and for the other agreements and obligations undertaken by the Corporation under the Installment Purchase Agreement and the Trust Agreement. The income and revenue received by the District from the operation of the Wastewater System remaining after the payment of maintenance and operation or ownership costs of the Wastewater System (as more fully described in the Installment Purchase Agreement, the "Net Revenues") are, pursuant to the Master Agreement, pledged to the payment of the Senior Obligations and Reimbursement Obligations with respect to Senior Obligations (as such terms are defined in the Master Agreement). The Installment Purchase Agreement constitutes a Senior Obligation and, as such, shall be subject to the provisions of the Master Agreement, and shall be afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. The Installment Purchase Agreement is payable on a parity with the other existing Senior Obligations. The District may at any time incur Senior Obligations in addition to existing Senior Obligations and the Installment Purchase Agreement payable from Net Revenues as provided in the Master Agreement on a parity with all other Senior Obligations theretofore incurred,but only subject to the conditions and upon compliance with the procedures set forth in the Master Agreement. The District is not required to advance any moneys derived from any source of income other than Net Revenues and the other funds provided in the Installment Purchase Agreement for the payment of the Installment Payments, and the interest thereon, and other payments required to be made by it under the Installment Purchase Agreement, or for the performance of any agreements or covenants required to be performed by it contained therein. The obligation of the District to pay the Installment Payments, and the interest thereon, and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District 40622376.3 A-2 payable, in the manner provided in the Installment Purchase Agreement, solely from such Net Revenues and other funds provided for therein, and does not constitute a debt of the District or of the State of California, or of any political subdivision thereof, in contravention of any constitutional or statutory debt limitation or restriction. Reference is hereby made to the Master Agreement, the Installment Purchase Agreement and to the Trust Agreement and any and all amendments thereof and supplements thereto for a description of the terms under which the District's obligation to pay the Installment Payments, and the interest thereon, is incurred, the Revenue Obligations are executed and delivered, the provisions with regard to the nature and extent of the Net Revenues, and the rights of the Owners of the Revenue Obligations. All of the terms of the Master Agreement, the Installment Purchase Agreement and the Trust Agreement are hereby incorporated herein. The Trust Agreement constitutes a contract among the District, the Corporation and the Trustee for the benefit of the Owners of the Revenue Obligations, to all the provisions of which the Owner of this Revenue Obligation,by acceptance hereof, agrees and consents. The Registered Owner of this Revenue Obligation is entitled to receive, subject to the terms of the Trust Agreement and any right of prepayment as provided herein or therein, on the Principal Payment Date set forth above, upon presentation and surrender of this Revenue Obligation at the principal corporate trust office of the Trustee in Los Angeles, California (the `Principal Office"),the Principal Amount specified above, evidencing the Owner's interest in the Installment Payments coming due on the Principal Payment Date, and to receive on February I and August 1 of each year, commencing on February 1, 2015 (each an "Interest Payment Date"), interest accrued thereon at the Interest Rate specified above, computed on the basis of a 360-day year consisting of twelve 30-day months, until said Principal Amount is paid in full, evidencing the Registered Owner's interest in the interest evidenced by the Installment Payments coming due on each of said dates. This Revenue Obligation shall evidence interest from the Interest Payment Date next preceding its date of execution to which interest has been paid in full, unless such date of execution shall be after the 15th day of the month next preceding an Interest Payment Date, whether or not such day is a business day (each such date, a "Record Date"), and on or prior to the following Interest Payment Date, in which case this Revenue Obligation shall evidence interest from such Interest Payment Date, or unless such date of execution shall be on or prior to the first Record Date, in which case this Revenue Obligation shall evidence interest from the Dated Date specified above. Notwithstanding the foregoing, if, as shown by the records of the Trustee, interest evidenced by the Revenue Obligations shall be in default, this Revenue Obligation shall evidence interest from the last Interest Payment Date to which interest has been paid in full or duly provided for. Payments of interest evidenced by the Revenue Obligations shall be made to the Owners thereof(as determined at the close of business on the Record Date next preceding the related Interest Payment Date) by check or draft of the Trustee mailed to the address of each such Owner as it appears on the registration books maintained by the Trustee pursuant to the Trust Agreement, or to such other address as may be famished in writing to the Trustee by such Owner. Payment of principal and prepayment premium, if any, evidenced by the Revenue Obligations, on their stated principal payment dates or on prepayment in whole or in part prior 40622376.3 A-3 thereto, shall be made only upon presentation and surrender of the Revenue Obligations at the Principal Office. All such amounts are payable in lawful money of the United States of America. The Revenue Obligations are authorized to be executed and delivered in the form of fully registered certificates in denominations of$5,000 or any integral multiple thereof("Autorized Denominations"). This Revenue Obligation may be transferred or exchanged by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Principal Office,but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement. The Trustee shall not be required to transfer or exchange any Revenue Obligation during the period commencing on the date five days before the date of selection of Revenue Obligations for prepayment and ending on the date of mailing of notice of such prepayment, nor shall the Trustee be required to transfer or exchange any Revenue Obligation or portion thereof selected for prepayment from and after the date of mailing the notice of prepayment thereof. The Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, whether or not the principal or interest evidenced by this Revenue Obligation shall be overdue, and the Trustee shall not be affected by any knowledge or notice to the contrary; and payment of the principal and interest evidenced by this Revenue Obligation shall be made only to such Registered Owner, which payments shall be valid and effectual to satisfy and discharge the liability evidenced by this Revenue Obligation to the extent of the sum or sums so paid. The Revenue Obligations are subject to prepayment prior to their stated Principal Payment Dates in accordance with the Trust Agreement. To the extent and in the manner permitted by the terms of the Trust Agreement, the Trust Agreement and the rights and obligations of the Corporation, the District, the Owners and the Trustee under the Trust Agreement may be amended or supplemented at any time by an amendment or supplement thereto which shall become binding when the prior written consents of the Owners of a majority of the aggregate principal evidenced by the Revenue Obligations then outstanding, exclusive of Revenue Obligations disqualified as provided under the Trust Agreement, are filed with the Trustee. No such supplement or amendment shall (a)extend the stated Principal Payment Date of any Revenue Obligation or reduce the rate of interest evidenced thereby or extend the time of payment of such interest or reduce the amount of principal evidenced thereby or change the prepayment terms and provisions or the provisions regarding delivery of notice of prepayment without the prior written consent of the Owner of each Revenue Obligation so affected, (b)reduce the percentage of Owners whose consent is required for the execution of any amendment of or supplement to the Trust Agreement without the prior written consent of the Owners of all Revenue Obligations then outstanding, (c)modify any of the rights or obligations of the Trustee without the prior written consent of the Trustee, or (d)amend the amendment provisions of the Trust Agreement without the prior written consent of the Owners of all Revenue Obligations then outstanding. 40622376.3 A-4 To the extent and in the manner permitted by the terms of the Trust Agreement, the Trust Agreement and the rights and obligations of the Corporation, the District, the Owners and the Trustee under the Trust Agreement may also be amended or supplemented at any time by an amendment or supplement thereto which shall become binding upon execution, without the written consents of any Owners,but only to the extent permitted by law and only(a)to add to the agreements, conditions, covenants and terns required by the Corporation or the District to be observed or performed under the Trust Agreement other agreements, conditions, covenants and terms thereafter to be observed or performed by the Corporation or the District, or to surrender any right or power reserved therein to or conferred therein on the Corporation or the District, and which in either case shall not adversely affect the rights or interests of the Owners, (b)to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained in the Trust Agreement or in regard to questions arising thereunder which the Corporation or the District may deem desirable or necessary and not inconsistent therewith or (c) for any other reason, provided such amendment or supplement does not adversely affect the rights or interests of the Owners. THE DISTRICT HAS CERTIFIED that all acts, conditions and things required by the statutes of the State of California and by the Trust Agreement to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Revenue Obligation do exist, have happened and have been performed in regular and due time, form and manner as required by law, and that the Trustee is duly authorized to execute and deliver this Revenue Obligation. IN WITNESS WHEREOF, this Revenue Obligation has been executed by the manual signature of an authorized signatory of the Trustee as of the date set forth below. Date: August_, 2014 MUFG UNION BANK,N.A., as Trustee By: Authorized Officer 40622376.3 A-$ ASSIGNMENT For value received, the undersigned do(es) hereby sell, assign and transfer unto the within-mentioned Revenue Obligation and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the books of the Trustee with full power of substitution in the premises. Dated: Note: The signature(s)on this Assignment must correspond with the narne(s) as written on the face of the within registered Revenue Obligation in every particular, without alteration or enlargement or any change whatsoever. Tax I.D. #: Signature Guaranteed: Now: Sigrothre(s)must be guaranteed by an eligible Note: The signature(s)on this Assignment must correspond guarantor. with the name(s)as written on the face of the within Revenue Obligation in every particular without alteration or enlargement or any change whatsoever. 40622376.3 A-6 Return to Mende Report Fulbright& Jaworski LLP—Draft 06/03/14 INSTALLMENT PURCHASE AGREEMENT by and between ORANGE COUNTY SANITATION DISTRICT and ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION Dated as of August 1, 2014 Relating to $[PAR AMOUNT] Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2014A Q622381.3 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS.................................................................................................2 Section 1.01. Definitions............................................................................................2 Section 1.02. Definitions in Master Agreement and Trust Agreement......................3 ARTICLE II PURCHASE OF PROJECT BY,AND SALE THEREOF TO,THE CORPORATION; PAYMENT OF PURCHASE PRICE...............................4 Section 2.01. Acquisition of the Project....................................................................4 Section 2.02. Payment of Purchase Price...................................................................4 ARTICLE IH PURCHASE OF PROJECT BY,AND SALE THEREOF TO,THE DISTRICT; INSTALLMENT PAYMENTS...................................................4 Section 3.01. Purchase and Sale of Project................................................................4 Section 3.02. Installment Payments...........................................................................4 Section3.03. Reserved...............................................................................................6 Section 3.04. Obligation Absolute.............................................................................6 Section 3.05. Nature of Agreement............................................................................6 ARTICLE IV PREPAYMENT OF INSTALLMENT PAYMENTS.....................................6 Section 4.01. Prepayment of Installment Payments...................................................6 Section4.02. Notice...................................................................................................7 Section 4.03. Discharge of Obligations.....................................................................7 ARTICLE COVENANTS .................................................................................................7 Section 5.01. Compliance with Master Agreement...................................................7 Section 5.02. Compliance with Installment Purchase Agreement.............................7 Section 5.03. Protection of Security and Rights........................................................7 Section 5.04. hidemnification of Corporation........................................................... 8 Section 5.05. Further Assurances............................................................................... 8 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION............................................................................................. 8 Section 6.01. Events of Default................................................................................. 8 Section 6.02. Remedies on Default............................................................................9 Section6.03. Non-Waiver..........................................................................................9 Section 6.04. Remedies Not Exclusive......................................................................9 ARTICLE VII AMENDMENTS ........................................................................................... 10 Section 7.01. Amendments...................................................................................... 10 40622381.3 _i_ TABLE OF CONTENTS (continued) Page ARTICLE VIII MISCELLANEOUS...................................................................................... 11 Section 8.01. Liability of District Limited............................................................... 11 Section 8.02. Limitation of Rigbts........................................................................... 11 Section8.03. Assignment ........................................................................................ 11 Section8.04. Notices............................................................................................... 11 Section 8.05. Successor Is Deemed Included in all References to Predecessor...... 12 Section 8.06. Waiver of Personal Liability.............................................................. 12 Section 8.07. Article and Section Headings, Gender and References..................... 12 Section 8.08. Partial Invalidity................................................................................. 12 Section 8.09. Governing Law.................................................................................. 13 Section 8.10. Execution in Counterparts.................................................................. 13 EXHIBIT A DESCRIPTION OF PROJECT........................................................A-1 40622381.3 -11- INSTALLMENT PURCHASE AGREEMENT THIS INSTALLMENT PURCHASE AGREEMENT (this "Installment Purchase Agreement'), dated as of August 1, 2014, is by and between the ORANGE COUNTY SANITATION DISTRICT, a county sanitation district organized and existing under the laws of the State of California (the "District'), and the ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION, a nonprofit public benefit corporation organized and existing under the laws of the State of California(the"Corporation"). WITNESSETH: WHEREAS, to refinance the acquisition, construction and installation of certain improvements to its wastewater system (the `Prior Project'), the District has heretofore purchased the Prior Project from the Corporation, and the Corporation has heretofore sold the Prior Project to the District, for the installment payments (the `Prior Installment Payments") made by the District pursuant to the Installment Purchase Agreement, dated as of August 1, 2000 (the`Prior Installment Purchase Agreement'),by and between the District and the Corporation; WHEREAS, to provide the funds necessary to refinance the Prior Project, the District caused the execution and delivery of the Orange County Sanitation District Certificates of Participation, Series 2007B (the "Prior Certificates"), evidencing direct, undivided fractional interests in the related Prior Installment Payments; WHEREAS,the District desires to refinance a portion of the Prior Project(the "Project') by prepaying a portion of the remaining Prior Installment Payments, and the interest thereon to the dates of prepayment, thereby causing a portion of the remaining Prior Certificates to be prepaid; WHEREAS, to provide the funds necessary to pay and prepay the remaining Prior Installment Payments, the District and the Corporation desire that the Corporation purchase the Prior Project from the District and the District sell the Prior Project to the Corporation, and that the District then purchase the Prior Project from the Corporation and the Corporation sell the Prior Project to the District, for the installment payments (the "Installment Payments") to be made by the District pursuant to this Installment Purchase Agreement; WHEREAS, pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000,by and between the District and the Corporation,the District has established and declared the conditions and terms upon which obligations such as this Installment Purchase Agreement, and the Installment Payments, and the interest thereon, are to be incurred and secured; WHEREAS, the Corporation proposes to assign without recourse certain of its rights under and pursuant to this Installment Purchase Agreement to MUFG Union Bank, N.A., as trustee(the"Trustee"); Q622381.3 WHEREAS, in consideration of such assignment and the execution and delivery of the Trust Agreement, dated as of the date hereof, by and among the Trustee, the Corporation and the District, the Trustee has agreed to execute and deliver the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations"), evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon,payable hereunder; WHEREAS, a portion of the proceeds of the Revenue Obligations will be used to prepay certain of the Prior Installment Payments; and WHEREAS, 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 Installment Purchase 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 Installment Purchase Agreement; NOW, THEREFORE, in consideration of the covenants and provisions herein set forth and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged,the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. Except as provided in Section 1.02 hereof or unless the context otherwise requires, the terms defined in this Section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein or therein have the meanings defined herein, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined herein: "Business Day" means a day other than (a) Saturday or Sunday, (b) a day on which banking institutions in the city in which the Principal Office is located are authorized or required by law to be closed, and (c) a day on which the New York Stock Exchange is authorized or obligated by law or executive order to be closed. "Closing Date"means August_, 2014. "Corporation" means the Orange County Sanitation District Financing Corporation, a nonprofit public benefit corporation organized and existing under the laws of the State, and any successor thereto. "District" means the Orange County Sanitation District, a county sanitation district organized and existing under and by virtue of the laws of the State, and any successor thereto. "Event of Default"means an event described in Section 6.01 hereof. "Installment Payments" means the Installment Payments required to be made by the District pursuant to Section 3.02 hereof. Q622381.3 2 "Installment Payment Dates"means each February 1, commencing February 1,20 . "Installment Purchase Agreement" means this Installment Purchase Agreement, dated as of August 1, 2014, by and between the District and the Corporation, as originally executed and as it may from time to time be amended or supplemented in accordance with the terms hereof. "Interest Payment Date" means February 1 and August 1 of each year, commencing February 1,2015. "Master Agreement" means the Master Agreement for District Obligations, dated as of August 1, 2000, by and between the District and the Corporation, as originally executed and as it may from time to time be amended or supplemented in accordance with the terms thereof. "Person" means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Principal Office" means the Trustee's principal corporate trust office in Los Angeles, California. "Project" means the improvements to the Wastewater System, as described in Exhibit A hereto. "Revenue Obligations" means the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A, executed and delivered by the Trustee, which are certificates of participation, evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon, executed and delivered under and pursuant to the Trust Agreement. "Trust Agreement" means the Trust Agreement, dated as of August 1, 2014, by and among the Trustee, the Corporation and the District, as originally executed and as it may from time to time be amended or supplemented in accordance with its terns. "Trustee" means MUFG Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States of America, or any other bank or trust company which may at any time be substituted in its place as provided in the Trust Agreement. Section 1.02. Definitions in Master Agreement and Trust Agreement. Except as otherwise herein defined and unless the context otherwise requires, the terms defined in the Master Agreement or the Trust Agreement shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein have the meanings defined therein, such definitions to be equally applicable to both the singular and plural forms of any of the terms defined therein. With respect to any defined term which is given a different meaning under this Installment Purchase Agreement than under the Master Agreement or the Trust Agreement, as used herein it shall have the meaning given herein. Q6223s1s 3 ARTICLE II PURCHASE OF PROJECT BY,AND SALE THEREOF TO,THE CORPORATION; PAYMENT OF PURCHASE PRICE Section 2.01. Acquisition of the Protect. The District represents and warrants that it is the sole and exclusive owner of the Project. The Corporation hereby purchases from the District, and the District hereby sells to the Corporation, a portion of the Project equal to $ as described in Exhibit A hereto in accordance with the provisions of this Installment Purchase Agreement. All right, title and interest in and to such portion of the Project shall immediately vest in the Corporation on the Closing Date without further action on the part of the Corporation or the District. Section 2.02. Payment of Purchase Price. On the Closing Date, the Corporation shall pay to the District, as the purchase price of the applicable portion of the Project specified in Section 2.01, the amount of$ , which amount shall be paid from the proceeds of the Revenue Obligations. ARTICLE IU PURCHASE OF PROJECT BY,AND SALE THEREOF TO,THE DISTRICT; INSTALLMENT PAYMENTS Section 3.01. Purchase and Sale of Protect. The District hereby purchases from the Corporation, and the Corporation hereby sells to the District, the Project in accordance with the provisions of this Installment Purchase Agreement. All right, title and interest in and to the Project shall immediately vest in the District on the Closing Date without further action on the part of the District or the Corporation. Section 3.02. Installment Payments. The District shall, subject to any rights of prepayment provided in Article W hereof, pay to the Corporation, solely from Net Revenues and from no other sources, the purchase price of the Project in Installment Payments, with interest thereon, as provided herein. The Installment Payments and the interest thereon shall be payable on the Business Day immediately preceding each of the Installment Payment Dates in the amounts and at the interest rates per annum set forth in the following schedule: Q622381.3 4 Interest on Payment Installment Installment Interest Date Payment Payment Total Rate 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 The Installment Payments shall accrue interest from the Closing Date, at the rates set forth above, payable on the Interest Payment Dates in each year. Such interest shall accrue on the basis of a 360-day year consisting of twelve 30-day months. Each Installment Payment, and each payment of interest thereon, shall be deposited with the Trustee, as assignee of the Corporation, no later than the Business Day next preceding the Installment Payment Date or Interest Payment Date on which such Installment Payment or payment of interest is due, in lawful money of the United States of America, in immediately available funds. If and to the extent that, on any such date, there are amounts on deposit in the Installment Payment Fund established under the Trust Agreement, or in any of the accounts therein, which amounts are not being held for the payment of specific Revenue Obligations, such amounts shall be credited against the Installment Payment, or payment of interest thereon, as applicable, due on such date. Section 3.03. Reserved. Section 3.04. Oblisation Absolute. The obligation of the District to make the Installment Payments, and payments of interest thereon, and other payments required to be made by it under this Article, solely from Net Revenues, is absolute and unconditional, and until such time as the Installment Payments, payments of interest thereon, and such other payments shall have been paid in full (or provision for the payment thereof shall have been made pursuant to 40622381.3 5 Article IV), the District shall not discontinue or suspend any Installment Payments, or payments of interest thereon, or other payments required to be made by it hereunder when due, whether or not the Project or any part thereof is operating or operable or has been completed, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such Installment Payments, payments of interest thereon, and other payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. Section 3.05. Nature of Aereement. This Installment Purchase Agreement constitutes a Senior Obligation and, as such, shall be subject to the provisions of the Master Agreement and shall be afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. ARTICLE IV PREPAYMENT OF INSTALLMENT PAYMENTS Section 4.01. Prepayment of Installment Payments. (a) The Installment Payments shall be subject to prepayment prior to their respective Installment Payment Dates as provided in Article IV of the Trust Agreement. (b) The District may prepay, from any source of available funds, all or any portion of the Installment Payments by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in Article X of the Trust Agreement sufficient to pay such Installment Payments, and the interest thereon, when due or to pay such Installment Payments, and the interest thereon, through a specified date on which the District has a right to prepay such Installment Payments pursuant to subsection(a) of this Section, and to prepay such Installment Payments on such prepayment date, at a prepayment price determined in accordance with subsection(a)of this Section. (c) If less than all of the Installment Payments are prepaid then, as of the date of such prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the schedule of Installment Payments shall be recalculated to take such prepayment into account. Section 4.02. Notice. The District shall give written notice to the Trustee specifying the date on which the prepayment will be made prior to making any prepayment pursuant to this Article, which date shall be not less than 25 nor more than 60 days from the date such notice is given to the Trustee,unless such time period shall be waived by the Trustee. Section 4.03. Discharee of Obligations. If all Installment Payments, and the interest thereon, shall be paid as and when due in accordance with the terms hereof, or prepaid in accordance with Section 4.01 hereof, and if all Revenue Obligations shall be fully paid, or provision therefor made in accordance with Article X of the Trust Agreement, and the Trust Agreement shall be discharged by its terms, then all agreements, covenants and other obligations Q622381.3 6 of the District hereunder shall thereupon cease, terminate and become void and be discharged and satisfied. ARTICLE V COVENANTS Section 5.01. Compliance with Master Agreement. The District will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Master Agreement required to be observed and performed by it and will not cause, suffer or permit any default to occur thereunder. Section 5.02. Compliance with Installment Purchase Agreement. The District will punctually pay the Installment Payments, and interest thereon, and other payments required to be made by it hereunder in strict conformity with the terms hereof, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained herein required to be observed and performed by it, will not cause, suffer or permit any default to occur hereunder and will not terminate this Installment Purchase Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, 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 or any failure of the Corporation to observe or perform any agreement, condition, covenant or term contained herein required to be observed and performed by it, whether express or implied, or any duty, liability or obligation arising out of or connected herewith or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Corporation 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, lock outs, lack of transportation facilities, fire, explosion, or acts or regulations of governmental authorities. Section 5.03. Protection of Security and Rights. The District will preserve and protect the security hereof and the rights of the Trustee, as assignee of the Corporation, to the Installment Payments, and interest thereon, and other payments required to be made by the District hereunder and will warrant and defend such rights against all claims and demands of all Persons. Section 5.04. Indemnification of Corporation. To the extent permitted by law, the District hereby agrees to indemnify and hold the Corporation and its members and officers harmless against any and all liabilities which might arise out of or are related to the Project, this Installment Purchase Agreement or the Revenue Obligations, and the District further agrees to defend the Corporation and its members and officers in any action arising out of or related to the Project,this Installment Purchase Agreement or the Revenue Obligations. Section 5.05. Further Assurances. The District will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming unto the Corporation, or unto the Trustee, as assignee of the Corporation, the Q622381.3 7 rights and benefits provided herein to the Corporation, or to the Trustee, as assignee of the Corporation. ARTICLE VI EVENTS OF DEFAULT AND REMEDIES OF THE CORPORATION Section 6.01. Events of Default. The following shall be Events of Default under this Installment Purchase Agreement, and "Event of Default' shall mean any one or more of the following events: (a) if default shall be made by the District in the due and punctual payment of or on account of any Senior Obligation as the same shall become due and payable', (b) if default shall be made by the District in the performance of any of the agreements or covenants required herein, in the Trust Agreement or in the Master Agreement to be performed by it (other than as specified in (a) above), and such default shall have continued for a period of 30 days after the District shall have been given notice in writing of such default by the Corporation or the Trustee; provided, however, that the party or parties giving such notice may agree in writing to a reasonable extension of such period prior to the expiration of such 30 day period and, provided further, that if the District shall proceed to take curative action which, if begun and prosecuted with due diligence, cannot be completed within such a period of 30 days, then such period shall be increased without such written extension to such extent as shall be necessary to enable the District to diligently complete such curative action and such default shall not become an Event of Default for so long as shall be necessary to diligently complete such curative action; or (c) if the District shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property. Section 6.02. Remedies on Default. Upon the occurrence of an Event of Default, the Trustee,as assignee of the Corporation, shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District and to compel the District to perform and carry out its duties under applicable law and the agreements and covenants required to be performed herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee, as assignee of the Corporation; (c) by suit in equity to require the District to account as the trustee of an express trust; and to have a receiver or receivers appointed for the Wastewater System and of the issues, 40622381.3 8 earnings, income, products and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer. Section 6.03. Non-Waiver. Nothing in this Article or in any other provision hereof shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the Installment Payments, and the interest thereon, to the Trustee, as assignee of the Corporation, at the respective due dates from the Net Revenues and the other funds herein committed for such payment, or shall affect or impair the right of the Trustee, as assignee of the Corporation, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied herein. A waiver of any default or breach of duty or contract by the Trustee, as assignee of the Corporation, 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 Trustee, as assignee of the Corporation,to exercise any right or remedy accruing upon any default or breach of duty or contract 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 Trustee, as assignee of the Corporation,by applicable law or by this Article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee, as assignee of the Corporation. If any action,proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Trustee, as assignee of the Corporation, the District and the Trustee, as assignee of the Corporation, shall be restored to their former positions, rights and remedies as if such action,proceeding or suit had not been brought or taken. Section 6.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee, as assignee of the Corporation, 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. ARTICLE VII AMENDMENTS Section 7.01. Amendments. (a) This Installment Purchase Agreement and the rights and obligations of the District, the Corporation and the Trustee, as assignee of the Corporation, may be amended or modified from time to time and at any time by a written amendment hereto executed by the District, the Corporation and the Trustee, as assignee of the Corporation, with the written consent of the Owners of a majority of the aggregate principal evidenced by Revenue Obligations then Outstanding. No such amendment shall (i) extend the payment date of any Installment Payment or reduce the amount of any Installment Payment, or the interest rate applicable thereto, without the prior written consent of the Owner of each affected Revenue Obligation, or(ii)reduce the percentage of Owners of the Revenue Obligations whose consent is required to effect any such amendment or modification, without the prior written consent of the Owners of all Revenue Obligations then Outstanding. Q622381.3 9 (b) This Installment Purchase Agreement and the rights and obligations of the District, the Corporation and the Trustee, as assignee of the Corporation, may be amended or modified from time to time and at any time by a written amendment hereto executed by the District, the Corporation and the Trustee, as assignee of the Corporation, without the written consents of any Owners of the Revenue Obligations, but only to the extent permitted by law and only for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the District, the Corporation or the Trustee, as assignee of the Corporation, to be observed or performed herein other agreements, conditions, covenants and terns thereafter to be observed or performed by the District, the Corporation or the Trustee, as assignee of the Corporation, or to surrender any right or power reserved herein to or conferred herein on the District,the Corporation or the Trustee,as assignee of the Corporation; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or in regard to questions arising hereunder which the District, the Corporation or the Trustee, as assignee of the Corporation, may deem desirable or necessary and not inconsistent herewith; and (iii) to make such other changes herein or modifications hereto as the District, the Corporation or the Trustee, as assignee of the Corporation, may deem desirable or necessary, and which shall not materially adversely affect the interests of the Owners of the Revenue Obligations. ARTICLE VIII MISCELLANEOUS Section 8.01. Liability of District Limited. Notwithstanding anything contained herein to the contrary,the District shall not be required to advance any moneys derived from any source of income other than Net Revenues and the other funds provided herein for the payment of the Installment Payments, and the interest thereon, and other payments required to be made by it hereunder, or for the performance of any agreements or covenants required to be performed by it contained herein. The District may, however, but in no event shall be obligated to, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose. The obligation of the District to pay the Installment Payments, and the interest thereon, and other payments required to be made by it hereunder is a special obligation of the District payable, in the manner provided herein, solely from Net Revenues and other funds provided for herein, and does not constitute a debt of the District or of the State, or of any political subdivision thereof, in contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and credit nor the taxing power of the District or the State, or any political subdivision thereof, is pledged to the payment of the Installment Payments, or the interest thereon, or other payments required to be made hereunder. Q622381.3 10 Section 8.02. Limitation of Rights. Nothing in this Installment Purchase Agreement expressed or implied is intended or shall be construed to give to any Person other than the District, the Corporation and the Trustee, as assignee of the Corporation, any legal or equitable right, remedy or claim under or in respect of this Installment Purchase Agreement or any covenant, condition or provision therein or herein contained, and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the District, the Corporation and the Trustee, as assignee of the Corporation. Section 8.03. Assignment. The District and the Corporation hereby acknowledge the transfer, conveyance and assignment by the Corporation to the Trustee of all of the Corporation's rights, title and interest in and to this Installment Purchase Agreement (excepting its rights to indemnification hereunder), including the right to receive Installment Payments, and the interest thereon,from the District,pursuant to the Trust Agreement Section 8.04. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the District: Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708 Attention: Director of Finance and Administrative Services If to the Corporation: Orange County Sanitation District Financing Corporation c/o Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708 Attention: Treasurer If to the Trustee: MUFG Union Bank,N.A. 120 South San Pedro Street, Suite 400 Los Angeles, California 90012 Attention: Corporate Trust Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if personally served or delivered, upon delivery, (b) if given by electronic communication, whether by facsimile or telecopier, upon the sender's receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any other means,upon delivery at the address specified in this Section. Section 8.05. Successor Is Deemed Included in all References to Predecessor. Whenever the District or the Corporation is named or referred to herein, such reference shall be Q622381.3 11 deemed to include the successor to the powers, duties and functions that are presently vested in the District or the Corporation, and all agreements and covenants required hereby to be performed by or on behalf of the District or the Corporation shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 8.06. Waiver of Personal Liability. No official, officer or employee of the District shall be individually or personally liable for the payment of the Installment Payments, or the interest thereon, or other payments required to be made by the District hereunder, but nothing contained herein shall relieve any official, officer or employee of the District from the performance of any official duty provided by any applicable provisions of law or hereby. Section 8.07. 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, and words of any gender shall be deemed and construed to include all genders. All references herein to "Articles," "Sections" and other subsections or clauses are to the corresponding articles, sections, subsections or clauses hereof; and the words "hereby,""herein," "hereof," "hereto," "herewith' and other words of similar import refer to this Installment Purchase Agreement as a whole and not to any particular Article, Section, subdivision or clause hereof. Section 8.08. 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 District or the Corporation 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 and portions thereof and shall in no way affect the validity hereof. Section 8.09. Governing Law. This Installment Purchase Agreement shall be construed and governed and construed in accordance with the laws of the State. Section 8.10. Execution in Counterparts. This Installment Purchase 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. Q622381.3 12 IN WITNESS WHEREOF,the parties hereto have executed this Installment Purchase Agreement by their officers thereunto duly authorized as of the day and year first written above. ORANGE COUNTY SANITATION DISTRICT By: Chair of the Board of Directors (SEAL) Attest: By: Clerk of the Board of Directors ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION By: Treasurer Q622381.3 13 EXHIBIT A DESCRIPTION OF PROJECT [to be revised] The Project is consists of the acquisition, construction and installation of certain improvements to the Wastewater System, including the acquisition, construction and installation of improvements to the District's collection system, two wastewater treatment plants, and Ocean Outfall systems, including the following Project components: Magnolia Trunk Sewer Trickling Filters at Plant 2 Ellis Avenue Pump Station Sludge Digester at Plant 1 Rocky Point Pump Station Sludge Dewatering at Plant 1 and 2 Bitter Point Pump Station Rehabilitation of Solids Storage Bitter Point Force Main Rehabilitation Silos C & D at Plant 2 Euclid Relief Improvements -Headworks at Plant 2 Digester Rehabilitation at Plant 2 Primary Treatment System Rehabilitation at Plant 2 Cable Tray Improvements at Plant 1 and 2 New Secondary Treatment System at Plant 1 Rehabilitation of Odor Control Facilities A portion of the Project in the amount of$ shall be sold and purchased as described in Article II of this Installment Purchase Agreement. Q622381.3 A-1 Return to Mende Report Fulbright& 4aworshi LLP—Draft 06/03/14 ESCROW AGREEMENT by and between ORANGE COUNTY SANITATION DISTRICT and MUFG UNION BANK N.A., as Escrow Agent and Prior Trustee Dated as of August 1, 2014 Orange County Sanitation District Certificates of Participation Series 2007B 406225333 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement'), dated as of August 1, 2014, is by and between the ORANGE COUNTY SANITATION DISTRICT, a county sanitation district organized and existing under the laws of the State of California (the "District'), and MUFG UNION BANK, N.A., a national banking association organized and existing under the laws of the United States of America, as escrow agent (the "Escrow Agent") and as trustee under the Prior Trust Agreement referenced below(the"Prior Trustee"). WITNESSETH: WHEREAS, to finance the acquisition, construction and installation of certain improvements to its wastewater system (the "Prior Project'), the District has heretofore purchased the Prior Project from the Orange County Sanitation District Financing Corporation (the "Corporation"), and the Corporation has heretofore sold the Prior Project to the District, for the installment payments (the "Prior Installment Payments") to be made by the District pursuant to the Installment Purchase Agreement, dated as of December 1, 2007 (the "Prior Installment Purchase Agreement'),by and between the District and the Corporation; WHEREAS, to provide the funds necessary to finance the Prior Project, the District caused the execution and delivery of the Orange County Sanitation District Certificates of Participation, Series 2007B (the "Prior Certificates"), evidencing direct, undivided fractional interests in the related Prior Installment Payments, pursuant to the Trust Agreement, dated as of December 1, 2014 (the "Prior Trust Agreement'), by and among the Prior Trustee, as successor to Union Bank of California,N.A.,the Corporation and the District; WHEREAS, the District has determined to refinance the Prior Project by paying and prepaying a portion of the remaining principal components of the Prior Installment Payments (the "Refunded Installment Payments"), and the interest components thereof to the date of prepayment, thereby causing a portion of the currently outstanding Prior Certificates to be prepaid(the"Refunded Certificates"); WHEREAS, to provide the funds necessary to pay and prepay the Refunded Installment Payments, the District has caused to be executed and delivered the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations"), evidencing principal in the aggregate amount of$ , pursuant to the Trust Agreement, dated as of August 1, 2014, by and among MUFG Union Bank,N.A., as trustee, the Corporation and the District; WHEREAS, in accordance with the Prior Trust Agreement, the prepayment of the Refunded Installment Payments will be applied to the payment of principal and interest evidenced by the Refunded Certificates to and including February 1, 2017 (the `Prepayment Date") and to the prepayment of the outstanding Refunded Certificates on the Prepayment Date at a prepayment price equal to the principal amount thereof plus accrued interest thereon,without premium(the `Prepayment Price"),pursuant to this Escrow Agreement; 406225333 NOW THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: Section 1. Definitions. Unless otherwise defined herein, capitalized terns used herein shall have the meanings ascribed to such terns in the Prior Trust Agreement. Section 2. The Escrow Fund. (a) There is hereby established a fund (the "Escrow Fund") to be held as an irrevocably pledged escrow by the Escrow Agent, which the Escrow Agent shall keep separate and apart from all other funds of the District and the Escrow Agent and to be applied solely as provided in this Escrow Agreement. Pending application as provided in this Escrow Agreement, amounts on deposit in the Escrow Fund are hereby pledged solely to the payment of the principal and interest evidenced by the Refunded Certificates to and including the Prepayment Date and the payment of the Prepayment Price on the Prepayment Date, which amounts shall be held in trust by the Escrow Agent for the Owners of the Refunded Certificates. (b) The Prior Trustee is hereby instructed to [release] [liquidate] $ [of the investments] held in the Reserve Fund established under Section 5.03 of the Prior Trust Agreement(the "Prior Reserve") for deposit in the Escrow Fund. As reflected in the report of the nationally recognized firm of independent certified public accountants delivered in connection herewith, upon the execution and delivery of the Revenue Obligations,there shall be deposited in the Escrow Fund $ received from the proceeds of the sale of the Revenue Obligations and $ from the Prior Reserve and the subaccounts held in the Installment Payment Fund for the Refunded Certificates in the amount of$ for a total of$ (c) The District has determined or caused to be determined that upon the deposit of moneys pursuant to Section 2(b) hereof, the moneys on deposit in the Escrow Fund will be invested in the Government Obligations specified in Schedule I hereto which, together with the uninvested cash specified in said Schedule I shall be sufficient to make the payments required by Section 4 hereof. Section 3. Use of Moneys in Escrow Fund. (a) The Escrow Agent hereby acknowledges deposit of the moneys described in Section 2(b) hereof and agrees to invest such moneys credited to the Escrow Fund in the Government Obligations specified in Schedule I hereto. (b) The Owners of the Refunded Certificates shall have a first and exclusive lien on the moneys and Government Obligations credited to the Escrow Fund until such moneys and Government Obligations are used and applied as provided in this Escrow Agreement and the Prior Trust Agreement to pay principal and interest evidenced by the Refunded Certificates to and including the Prepayment Date and to prepay in full then outstanding Refunded Certificates on the Prepayment Date. (c) The Escrow Agent shall not be held liable for investment losses resulting from compliance with the provisions of this Escrow Agreement. 406225333 3 Section 4. Payment of Refunded Certificates. From the uninvested money and proceeds of maturing Government Obligations held in the Escrow Fund, the Escrow Agent shall apply such amounts to the payment of the principal and interest evidenced by the Refunded Certificates to and including the Prepayment Date and to the payment of the Prepayment Price of the Refunded Certificates on the Prepayment Date, all as set forth in Schedule II hereto. To the extent that the amount on deposit in the Escrow Fund on the Prepayment Date is in excess of the amount necessary to make the required payments with respect to the Refunded Certificates, such excess shall be transferred to the Trustee for deposit in the Installment Payment Fund established under the Prior Trust Agreement. Section 5. Irrevocable Instructions to Mail Notices. The District hereby irrevocably instructs the Prior Trustee to give notice [within two business days of delivery of the Revenue Obligations] of defeasance of the Refunded Certificates to the Owners thereof and to Assured Guaranty Municipal Corp., as successor to Financial Security Assurance Inc., substantially in the form set forth in Exhibit A hereto. The District hereby designates the Refunded Certificates for prepayment on the Prepayment Date and hereby irrevocably instructs the Prior Trustee, to give, in accordance with the provisions of Section 4.04 of the Prior Trust Agreement, notice of prepayment of such Refunded Certificates to the Owners thereof, substantially in the form set forth in Exhibit B hereto. Section 6. Performance of Duties; Acknowledgement with Respect to Irrevocable Instructions. The Escrow Agent hereby agrees to perform the duties set forth herein and agrees that the irrevocable instructions to the Escrow Agent herein provided are in a form satisfactory to it. Section 7. Substitution of Government Obligations. (a) Upon the written direction of the District, subject to the conditions and limitations set forth in paragraph (c) below, the Escrow Agent shall sell, transfer and request the redemption of or otherwise dispose of the initial Government Obligations held in and credited to the Escrow Fund; provided that, subject to paragraph (c) below, there are substituted therefor and delivered to the Escrow Agent other Government Obligations as hereinafter provided. (b) Upon the written direction of the District, subject to the conditions and limitations set forth in paragraph (c) below, the Escrow Agent shall reinvest cash balances in the Escrow Fund in Government Obligations; provided, that any such securities purchased pursuant to this paragraph (b) shall mature (1) on the next Interest Payment Date for any of the Refunded Certificates or(2) as on such other date or dates necessary to meet the requirements of Section 4 hereof, as certified by a nationally recognized firm of independent certified public accountants. (c) The District, by this Escrow Agreement, hereby covenants and agrees that it will not request the Escrow Agent to exercise any of the powers described in paragraph (a) or (b) above in any manner, which if such exercise of powers had been reasonably expected on the date of delivery of the Refunded Certificates, would cause any of the Refunded Certificates to be arbitrage bonds within the meaning of section 103(c) of the Internal Revenue Code of 1986 (the "Code"), and the regulations thereunder in effect on the date of such request and applicable to obligations issued on the date of such Refunded Certificates. Any purchase of substitute securities by the Escrow Agent shall be accomplished in accordance with paragraph (a) above to 406225333 4 the extent such purchases are to be made with the proceeds derived from the sale, transfer, redemption or other disposition of the Government Obligations. Such sale, transfer, redemption or other disposition of the Government Obligations and such substitution may be effected only by a simultaneous transaction and only if(i)a nationally recognized firm of independent certified public accountants shall certify that (a) such substitute securities, together with the Government Obligations and cash which will continue to be held in the Escrow Fund, will mature in such principal amounts and earn interest in such amounts and at such times so that sufficient moneys will be available from such maturing principal and interest to pay, as the same become due, all principal,premium and interest payable with respect to the Refunded Certificates which have not previously been paid, and (b) the amounts and dates of the anticipated payments by the Escrow Agent of the principal, premium and interest payable with respect to the Refunded Certificates will not be diminished or postponed thereby, (ii) the Escrow Agent shall have received an opinion of nationally recognized bond counsel to the effect that the sale, transfer, redemption or other disposition and substitution of the Government Obligations does not cause interest on either the Revenue Obligations or the Refunded Certificates to be subject to federal income taxation under relevant provisions of the Code and the regulations thereunder in effect on the date of such sale, transfer, redemption or other disposition and substitution and applicable to obligations issued on the date of execution and delivery of the Revenue Obligations. Section 8. Escrow Agent's Authority to Make Investments. Except as expressly provided in Sections 3 and 7 hereof, the Escrow Agent shall have no power or duty to invest any funds held under this Escrow Agreement. The Escrow Agent shall have no power or duty to transfer or otherwise dispose of the moneys held hereunder except as provided herein. Section 9. Indemnity. To the extent permitted by law, the District hereby assumes liability for, and hereby agrees to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees, expenses and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time in any way relating to or arising out of the execution, delivery and performance of this Escrow Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the moneys deposited therein, and any payment, transfer or other application of moneys by the Escrow Agent in accordance with the provisions of this Escrow Agreement; provided, however, that the District shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the negligence or willful misconduct of the Escrow Agent's respective successors, assigns, agents and employees or the material breach by the Escrow Agent of the terms of this Escrow Agreement. In no event shall the District or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section. The indemnities contained in this Section shall survive the termination of this Escrow Agreement. Section 10. Responsibilities of Escrow Agent. The Escrow Agent makes no representation as to the sufficiency of the funds deposited in accordance with Section 2(b) and invested pursuant to Section 3(a) and earnings thereof, if any, to accomplish the prepayment of the Refunded Certificates pursuant to the Prior Trust Agreement or to the validity of this Escrow Agreement as to the District and, except as otherwise provided herein, the Escrow Agent shall 406225333 5 incur no liability in respect thereof. The Escrow Agent shall not be liable in connection with the performance of its duties under this Escrow Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Escrow Agreement. The Escrow Agent may consult with counsel, who may or may not be counsel to the District, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Escrow Agreement, such matter (except the matters set forth herein as specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of counsel of recognized standing in the field of law relating to municipal bonds) may be deemed to be conclusively established by a written certification of the District. The Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties, covenants or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent may resign by giving written notice to the District, and upon receipt of such notice the District shall promptly appoint a successor Escrow Agent. If the District does not appoint a successor Escrow Agent within thirty (30) days of receipt of such notice, the resigning Escrow Agent may petition a court of competent jurisdiction for the appointment of a successor Escrow Agent, which court may thereupon, upon such notice as it shall deem proper, appoint a successor Escrow Agent. Upon acceptance of appointment by a successor Escrow Agent, the resigning Escrow Agent shall transfer all amounts held by it in the Escrow Fund to such successor Escrow Agent and be discharged of any further obligation or responsibility hereunder. Section 11. Amendments. The District and the Escrow Agent may (but only with the consent of the Owners of all of the Refunded Certificates) amend this Escrow Agreement or enter into agreements supplemental to this Escrow Agreement. Section 12. Term. This Escrow Agreement shall commence upon its execution and delivery and shall terminate on the date upon which the Refunded Certificates have been paid in accordance with this Escrow Agreement. Section 13. Compensation. The District shall from time to time pay or cause to be paid to the Escrow Agent the agreed upon compensation for its services to be rendered hereunder, and reimburse the Escrow Agent for all of its reasonable advances in the exercise and performance of its duties hereunder; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered or expenses incurred by the Escrow Agent under this Escrow Agreement or otherwise. Section 14. Severability. If any one or more of the covenants or agreements provided in this Escrow Agreement on the part of the District or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or 406225333 6 agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Escrow Agreement. Section 15. Counterparts. This Escrow Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as an original but all of which shall constitute and be but one and the same instrument. Section 16. Governing Law. This Escrow Agreement shall be construed under the laws of the State of California. 406225333 7 IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date first above written. MUFG UNION BANK,N.A., as Escrow Agent and Prior Trustee By: Authorized Officer ORANGE COUNTY SANITATION DISTRICT By: Lorenzo Tyner,Director of Finance and Administrative Services 406225333 SCHEDULE I INITIAL GOVERNMENT OBLIGATIONS IN ESCROW FUND [See attached.] 40622533.3 I-1 Return to Mende Report SCHEDULED PAYMENT REQUIREMENTS OF THE REFUNDED CERTIFICATES ISee attached.] 406225333 II-1 EXHIBIT A NOTICE OF DEFEASANCE ORANGE COUNTY SANITATION DISTRICT CERTIFICATES OF PARTICIPATION SERIES 2007B Principal Payment Date CUSIP (February 1) Interest Rate Principal Outstanding Number* NOTICE IS HEREBY GIVEN that on August _, 2014, the Orange County Sanitation District (the "District') caused there to be deposited with MUFG Union Bank, N.A., as escrow agent (the "Escrow Agent"), pursuant to an Escrow Agreement, dated as of August 1, 20149 by and between the District and the Escrow Agent, proceeds of its Wastewater Refunding Revenue Obligations, Series 2014A, together with other available monies, which will be sufficient (i) to pay the principal and interest evidenced by the District's Certificates of Participation, Series 2007B (the "Refunded Certificates")to and including February 1, 2017 (the`Prepayment Date") and (ii) to pay all of the principal evidenced by the Refunded Certificates, plus accrued interest evidenced thereby to the Prepayment Date, without premium (the "Prepayment Price"), on the Prepayment Date. Thus, on the Prepayment Date there will become due and payable with respect to each of the Refunded Certificates the Prepayment Price thereof, and from and after such Prepayment Date, the interest evidenced thereby shall cease to accrue and be payable. The Escrow Agent is obligated to pay or cause to be paid to the Owners of the Refunded Certificates all sums due thereon, but only from moneys deposited with the Escrow Agent as described in this paragraph. Neither the District nor the Escrow Agent shall have any responsibility for any defect in the CUSIP numbers that appear in this defeasance notice. The CUSIP numbers have been assigned by an independent service for convenience of reference, and neither the District nor the Escrow Agent shall not be liable for any inaccuracy in such number. Dated: 2014 By: MUFG Union Bank,N.A., as Trustee on behalf of the Orange County Sanitation District 406225333 A-1 EXHIBIT B NOTICE OF PREPAYMENT ORANGE COUNTY SANITATION DISTRICT CERTIFICATES OF PARTICIPATION SERIES 2007B Principal Payment Date CUSIP (February 1) Interest Rate Principal Outstanding Number* NOTICE IS HEREBY GIVEN that the Orange County Sanitation District Certificates of Participation, Series 2007B, in the maturities and principal amounts specified above (the "Refunded Certificates") are hereby subject to prepayment on February 1, 2017 (the "Prepayment Date") at a price equal to the principal evidenced by the Refunded Certificates,plus accrued interest evidenced thereby to the Prepayment Date, without premium (the "Prepayment Price"). On the Prepayment Date there will become due and payable with respect to each of the Refunded Certificates the Prepayment Price thereof, and from and after such Prepayment Date, the interest evidenced thereby shall cease to accrue and be payable. The Refunded Certificates shall be surrendered at the address of MUFG Union Bank,N.A., as Trustee, set forth below. Dated: 20 By: MUFG Union Bank,N.A., as Trustee on behalf of the Orange County Sanitation District Notice * The District and Trustee shall not be responsible for the use of the CURD numbers selected, nor is any representation made as to their correctness indicated in the notice or as printed on any certificate. They are included solely for the convenience of the Securityholders. 406225333 B-I APPENDIX B THE COUNTY OF ORANGE—ECONOMIC AND DEMOGRAPHIC INFORMATION The County is bordered on the north by Los Angeles County, on the east by Riverside County,on the southeast by San Diego County and on the west and southwest by the Pacific Ocean. Approximately 42 miles of ocean shoreline provide beaches,marinas and other recreational areas for use by residents and visitors. The climate in the County is mild,with an average annual rainfall of 13 inches. Population The County is the third most populous county in the State and the sixth most populous in the nation. TABLE B-1 COUNTY OF ORANGE,STATE OF CALIFORNIA AND UNITED STATES POPULATION GROWTH(o State of United States Year Orange Court California of America 2004 2,956,461 35,558,419 293,045,739 2005 2,957,404 35,795,255 295,753,151 2006 2,952,610 35,979,208 298,593,212 2007 2,957,307 36,226,122 301,579,895 2008 2,988,541 35,580,371 304,374,846 2009 3,023,265 36,961,664 307,006,550 2010 3,017,089 37,318,481 308,745,538 2011 3,043,964 37,578,616 311,800,000 2012 3,090,132 38,041,430 313,914,040 2013 3,114,363 38,332,521 316,128,839 As of�h year,except 2010 data as of April 1,2010. Source: United States Statistics—Population Estimates Program,Population Division, U.S. Census Bureau. Public Schools(Elementary and Secondary) Public instruction in the County is provided by twelve elementary school districts, three high school districts and twelve unified (combined elementary and high school) districts. For the 2012-13 academic year, the Ingest district in the County,the Santa Ana Unified School District,reported a student enrollment of 57,410. Public school enrollment for the academic calendar years 2008-09 through 2012-13 is presented in Table B-2. Enrollment data for 2013-14 has not yet been released. TABLE B-2 COUNTY OF ORANGE PUBLIC SCHOOL ENROLLMENT 2008-09 2009-10 2010-11 2011-12 2012-13 Total Enrollment 504,136 502,239 502,895 502,205 501,801 Source: California Department of Education,Data Quest Report, 405769N.4 B-1 Colleges and Universities The County has a number of top-rated, college-level educational institutions, including the University of California at Irvine and California State University at Fullerton, several private colleges, universities and law schools and four community college districts. Employment The following table summarizes the historical numbers of workers in the County over the period 2009 through 2013 by industry. TABLE B-3 COUNTY OF ORANGE INDUSTRY EMPLOYMENT AND LABOR FORCE-ANNUAL AVERAGE"' 2009 2010 2011 2012 2013 Farm 3,800 3,800 3,000 2,700 2,700 Natural Resources and Mining 500 500 500 500 500 Construction 74,200 67,100 70,800 71,300 80,700 Manufacturing 154,800 150,400 156,300 157,800 157,300 Wholesale Trade 79,400 77,600 77,000 76,700 79,800 Retail Trade 142,300 140,100 141,300 142,200 146,400 Transportation,Warehousing Utilities 27,800 26,700 27,400 27,700 27,300 Information 27,300 24,800 24,000 24,200 25,500 Financial Activities 105,100 103,500 107,500 108,100 111,000 Professional and Business Services 240,200 243,500 250,100 255,900 268,600 Educational and Health Services 152,100 155,500 162,300 163,400 183,100 Leisure and Hospitality 169,100 168,600 177,900 180,500 185,800 Other Services 47,600 42,200 43,700 44,300 46,000 Government 156,600 152,300 148,300 147,800 147,500 Total(" 1,375,900 1,357,400 1,390,000 1,403,000 1,462,200 Totalories. These categories do not represent all employment categories. Source: California Employment Development Department. 405769M.4 B-2 Major Employers The following table lists the major employers in the County for 2013. TABLE B-4 COUNTY OF ORANGE MAJOR EMPLOYERS 2013 Number of Employees Employer Name (Fall and Part-Time) Walt Disney Company 25,000 University of California,Irvine 22,253 County of Orange 17,500 St.Joseph Health System 12,062 Boeing Company 6,890 Kaiser Permanente 6,040 Bank of America Corp. 6,000 Memorial Care Health System 5,635 Target Corp. 5,400 Hoag Memorial Hospital Presbyterian 4,986 Source: Orange County Business Journal, 2013 for all employers other than the County, number of County employees,provided by the County Budget Office(number offilled positions). 40516904.4 B-3 Labor Force,Employment and Unemployment Table B-5 summarizes the labor force, employment and unemployment figures over the period 2009 through 2013 for the County and the State. TABLE B-5 COUNTY OF ORANGE AND STATE OF CALIFORNIA LABOR FORCE,EMPLOYMENT AND UNEMPLOYMENT YEARLY AVERAGE Year and Area Labor Force Employment Unemployment Unemplovment Rate 2009 Orange County 1,589,600 1,448,800 140,700 8.9% California 18,215,700 16,151,100 2,064,600 11.3 2010 Orange County 1,592,500 1,441,500 151,000 9.5 California 18,330,500 16,063,500 2,267,000 12.4 2011 Orange County 1,596,200 1,456,800 139,400 8.7 California 18,407,900 16,249,600 2,168,300 11.8 2012 Orange County 1,613,600 1,491,600 122,000 7.6 California 18,519,900 16,589,700 1,929,300 10.4 2013 Orange County 1,610,900 1,510,600 100,400 6.2 California 18,596,800 16,933,300 1,633,300 8.9 Source: California Employment Development Department. 40576904.4 B-4 Personal Income and other Demographic Information Table B-6 summarizes the personal income, per capita personal income, median family income, public school enrollment and unemployment rate for the County of Orange. TABLE B-6 COUNTY OF ORANGE DEMOGRAPHIC INFORMATION^') Total Personal Per Capita Median Public Fiscal Income Personal Family School Unemployment Year (in millions) Income Income Enrollmenttn Rate 2006-07 $1,572,271 $43,402 $59,928 503,955 3.9% 2007-08 1,604,113 43,852 61,017 503,225 5.3 2008-09 1,564,389 42,325 71,73521 504,136 8.9 2009-10 Not Available Not Available Not Available 502,239 9.5 2010-11 Not Available Not Available Not Available 502,895 8.8 2011-12 Not Available Not Available Not Available 502,205 7.6 2012-13 Not Available Not Available Not Available p The Ora�anitation District serves approximately 81%of the County population in approximately 479 Square miles,or approximately 60%of the County of Orange's area. (3)U.S.Census Bureau. (n)California Department of Education,Educational Demographics Unit. Source: State of California,Employment Development Department,unless otherwise noted. 40516904.4 B-5 Taxable Sales Table B-7 summarizes the annual volume of taxable transactions in the County from 2007 and 2008. TABLE B-7 COUNTY OF ORANGE TAXABLE TRANSACTIONS 2007 and 2008tt1 (in Thousands) Tvoe of Business 2007 2008 Apparel stores group $ 2,217,996 $ 2,340,116 General merchandise group 5,856,810 5,493,287 Food stores group 1,815,201 1,745,903 Eating and drinking groups 5,296,863 5,245,480 Household group 2,079,957 1,900,543 Building material group 2,798,938 2,370,154 Automotive group 7,366,864 5,804,517 Service stations 4,102,725 4,626,596 All other retail stares group 7A52.8731'1 6.242.035p1 RETAIL STORES TOTALS $38,988,227 $35,768,595 Business and Personal Services 2,968,831 2,828,005 All Other Outlets 15.336.413 15,010229 TOTAL ALL OUTLETS $57,293,471 $53,606,829 Figur2010,es 2011 and 2012 are set forth in Table B-8 due to changes in the categorization of the types of business. Source: California State Board ofEgualization. 40576904.4 B-6 Table B-8 summarizes the accrued volume of taxable transactions in the County in 2009 through 2012. Annual figures for 2013 are unavailable. Note that commencing in 2009, the categorization of the types of business was changed from previous years. TABLE B-8 COUNTY OF ORANGE TAXABLE TRANSACTIONS 2009 through 2012tr1 (in Thousands) Type of Business 2009 2010 2011 2012 Motor vehicles and parts dealers $ 4,902,480 $ 5,244,266 $ 5,777,582 $ 6,551,466 Furniture and home furnishings stores 850,889 869,868 909,455 965,018 Electronics and appliance stores 1,978,869 2,058,383 2,319,992 2,536,415 Bldg.maul.and garden equipment and supplies 2,039,686 2,112,467 2,267,363 2,351,574 Food and beverage stores 1,894,642 1,911,192 1,990,893 2,056,803 Health and personal care stores 784,067 824,719 894,003 948,220 Gas stations 3,383,678 3,801,651 4,826,228 5,063,762 Clothing and clothing accessories stores 2,742,626 2,923,680 3,164,857 3,510,757 Sporting goods,hobby,book and music stores 1,074,579 1,075,996 1,101,159 1,133,702 General merchandise stores 4,376,154 4,527,201 4,771,143 5,026,911 Miscellaneous store retailers 1,625,880 1,611,739 1,656,162 1,738,855 Nonstore retailers 484,692 481,563 459,841 635,707 Food services and drinking places 5,024,379 5,109,383 5,449,117 5,853.267 TOTAL RETAIL AND FOOD SERVICES $31,162,619 $32,552,107 $35,587,795 $38,372,456 All Other Outlets 14,550,164 15,115,073 16,143.344 16,858.156 TOTAL ALL OUTLETS $45,712,784 $47,667,179 $51,731,139 $55,230,612 2013 gmfies unavailable. Source: California State Board ofEgualization. Building Permits The total valuation of building permits issued in the County reached $4.1 billion in 2013. Table B-9 provides a summary of residential building permit valuations and the number of new dwelling units authorized in the County during the period 2008 through 2013. 405169a4.4 B-7 TABLE B-9 COUNTY OF ORANGE BUILDING PERMIT ACTIVITY 2008 through 2013 ($in Thousands) 2009 2010 2011 2012 2013 Valuation: Residential $ 855,193 $1,029,407 $1,238,932 $1,554,904 $2,596,543 Non-Residential 952,480 1,151,929 1,299,352 1,271,035 1,578,467 Total $1,807,673 $2,181,336 $2,538,284 $2,825,939 $4,175,010 New Housine Units: Single Family 1,376 1,553 1,890 2,438 3,889 Multiple Family 824 1 538 2 928 3 725 6 564 Total 2,200 3,091 4,818 6,163 10,453 Source: Consoucdon Indiva y Research Board; CHFI CIRB for 2012 and 2013. Water Supply Maintaining the County's water supply is the responsibility of the Orange County Water District ("OCWD"), manager of the County's groundwater basin, and the Municipal Water District of Orange County ("MWDOC"), the County's largest manager of imported water. More than 60% of the County's water is from local groundwater sources; the rest is imported. The County's natural underground reservoir is sufficient to carry it through temporary shortfall periods, but local supplies alone cannot sustain the present population. Recreation and Tourism The County is a tourist center in Southern California because of the broad spectmm of amusement parks and leisure, recreational and entertainment activities that it offers. These tourist attractions are complimented by the year-round mild climate. Along the County's Pacific Coast shoreline are five state beaches and parks, five municipal beaches and five County beaches. There are two small-craft docking facilities in Newport Harbor, a third located at Sunset Beach and a fourth at Dana Point. Other major recreational and amusement facilities include Disneyland, Disney's California Adventure,Knott's Berry Farm and the Spanish Mission of San Juan Capistrano. Also located within the County are the Anaheim Convention Center, Edison International Field of Anaheim, Honda Center, Orange County Performing Arts Center, Verizon Wireless Amphitheater and the Art Colony at Laguna Beach with its annual art festival. The Anaheim Convention Center is located adjacent to Disneyland. It is situated on 53 acres and is one of the largest convention centers on the West Coast. Table B-10 summarizes the number of conventions held in the County,as well as attendance for the period 2008 through 2012. "5169N.d B-8 TABLE B-10 COUNTY OF ORANGE CONVENTION ACTIVITY Year Conventions Attendance 2008 766 1,224,586 2009 584 1,292,179 2010 576 1,171,626 2011 476 973,071 2012 488 1,230,812 2013 489 1,085,643 Source.: Anaheint/Orange County Visitor and Convention Bureau. Transportation The County has access to excellent roads,rail,air and sea transportation. The Santa Ana Freeway (Interstate 5)provides direct access to downtown Los Angeles and connects with the San Diego Freeway (Interstate 405) southeast of the City of Santa Ana, providing a direct link with San Diego. The Garden Grove Freeway (State 22) and the Riverside Freeway (State 91) provide east-west transportation, linking the San Diego Freeway, Santa Ana Freeway and the Newport Freeway(State 55). The Newport Freeway provides access to certain beach communities. Drivers in the County have access to two toll road systems of the Transportation Corridor Agencies. The San Joaquin Toll Road (73) runs from Costa Mesa to San Juan Capistrano connecting to the 405 and 5 interstate freeways. The Eastern and Foothill Toll Roads (241, 261 and 133) connect the County to the 91 freeway in the north and the 5 freeway, City of Irvine other South County cities,as well as Laguna Canyon Road. The Transportation Corridor Agencies are planning to extend 241 to connect to the 5 freeway near San Clemente. Rail freight service is provided by the Burlington Northern Santa Fe Railway and the Union Pacific Railroad Company. Amtrak provides passenger service to San Diego to the south, Riverside and San Bernardino Counties to the east, and Los Angeles and Santa Barbara to the north. Metro Link provides passenger service to San Bernardino and Riverside counties to the east,the City of Oceanside to the south and Los Angeles County to the north. Bus service is provided by Greyhound Bus Lines. The Orange County Transportation Authority provides bus service between most cities in the County. Most interstate common carrier truck lines operating in California serve the County. The John Wayne Airport, owned and operated by the County, is the only commercial service airport in the County. It is approximately thirty-five miles south of Los Angeles, between the cities of Coast Mesa, Irvine, Newport Beach and Santa Ana. Major airlines, including Alaska, Aloha, America West, American, Continental, Delta, Frontier, Northwest, Southwest and United fly from the airport to major cities throughout the country. In 2010, more than 8 million passengers were served. In 1993, the Defense Base Realignment and Closure Commission directed the closure of Marine Corps Air Station (MCAS) El Toro ("El Toro" or "the base") effective July 1999. The County was designated the Local Redevelopment Authority(`T,RA") for development of a Community Reuse Plan to guide future development of the former MCAS El Toro. In 1994, Orange County voters narrowly approved Measure A which zoned the property for use as an international airport. This touched off a multi-year legal and political battle that ended when 58%of Orange County voters approved Measure W, the Orange County Central Park and Nature Preserve Initiative, on March 5, 2002. Measure W repeals 40576904.4 B-9 Measure A and amends the County General Plan to prohibit aviation uses and limit future development for the unincorporated portion of El Toro to park, open space, nature preserve and education and compatible uses. The day after Measure W was approved, the Department of the Navy issued a press release stating that disposal of the former Base would be accomplished by means of a public auction. The City of Irvine responded by developing the Great Park Plan for El Toro. The City of Irvine was approved by the Local Agency formation Commission("LAFCO")to annex to the City the property that comprises the former MCAS El Toro. In light of the passage of Measure W,the County has discontinued all work related to the planning or development of a commercial airport at El Toro. Natural Disasters; Seismic Activity Natural disasters, including floods, fires and earthquakes, have been experienced in the County. Seismic records spanning the past half century and historic records dating from the 1700s through the early 1900s indicate that the County is a seismically active area. The State Office of Emergency Services indicates that significant tremors are likely to occur in several fault zones during the next 50 to 100 years, including a tremor of 7.0 on the Richter scale within the Newport-Inglewood fault system. The chance of a Richter 7.0 earthquake occurring is estimated to be I to 2% in any year. For this reason, local building codes require that structures be designed to withstand the expected accelerations for the area without collapsing or suffering severe structural damage. Maps published by the State Department of Conservation indicate that portions of the County may be subject to the risk of earthquake-induced landslides or liquefaction. 40516904.4 B-10 Return to Aaeada Report Fulbright&Jaworsld LLP—Draft of 06/03/14 PRELIMINARY OFFICIAL STATEMENT DATED JULY_,2014 NEW ISSUE—BOOK-ENTRY-ONLY RATINGS: S&P: " Fitch: (See"RATINGS"herein) In the opinion of Fulbright&Jaworski LIP, Los Angeles, California, Special Counsel, under exisfing statutes, regulations, rulings and court decisions, and assuming compliance with the tax covenants described herein, the interest component of each Installment Payment, and the allocable portion thereof disMbutable in respect of any Revenue Obligation, is excluded pursuant to section 103(a)of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item of fax preference for purposes of the federal alternative minimum fax.It is also the opinion of Special Counsel that under eristing law the interest component of each Installment Payment, and the allocable portion thereof distributable in respect of any Revenue Obligation, is exempt from personal income taxes of the State of California. See, however, "TAXMATTERS"herein. [District Logo] $[Par Amount]* [DAC Logo] ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2014A Dated: Date of Delivery Due: as shown on the inside cover The $[Par Amount] Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations") we certificates of participation that evidence direct, fractional undivided interests of the Owners thereof in certain Installment payments(the"Installment Payments"),and the interest thereon, to be made by the Orange County Sanitation District (the "District) pursuant to the Installment Purchase Agreement, dated as of August 1, 2014 (the`Installment Purchase Agreement'), by and between the District and the Orange County Sanitation District Financing Corporation (the "Corporation"). Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the "Master Agreement'),by and between the District and the Corporation,the District has established conditions and terms upon which obligations such as the Installment Payments,and the interest thereon,will be incurred and seemed. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues(as more fully described in the Master Agreement, the "Net Revenues") as provided in the Installment Purchase Agreement, consisting primarily of all income and revenue received by the District from the operation or ownership of the Wastewater System of the District (the "Wastewater System') remaining after payment of Maintenance and Operation Costs, as further described in "SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS"herein. The Installment Purchase Agreement provides that the obligation of the District ro pay the Installment Payments, and payments of interest thereon, and certain other payments required to be made in accordance with the Installment Purchase Agreement, solely from Net Revenues, is absolute and unconditional. See "SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS"herein. The proceeds of the Revenue Obligations will be used to(i)prepay and retire a portion of the District's Certificates of Participation, Series 2007B, currently outstanding in the aggregate principal amount of $ and (ii)pay the costs incurred in connection with the execution and delivery of the Revenue Obligations. See`REFUNDING PLAN"herein. Interest evidenced by the Revenue Obligations will be payable semiannually on February 1 and August 1 of each year,commencing on February 1,2015. See"THE REVENUE OBLIGATIONS"herein. The Revenue Obligations initially will be delivered only in book-entry form and will be registered in the name of Cede&Co., as nominee of The Depository Trust Company, New York,New York("DTC"), which will act as securities depository for the Revenue Obligations. Individual purchases of the Revenue Obligations will be ' Preliminary,subject to change. made in book-entry form only. Purchasers of Revenue Obligations will not receive physical certificates representing their ownership interests in the Revenue Obligations purchased. The Revenue Obligations will be delivered in denominations of$5,000 and any integral multiple thereof Payments of principal and interest evidenced by the Revenue Obligations are payable directly to DTC by MUFG Union Bank,N.A.,as trustee(the "Trustee"). Upon receipt of payments of such principal and interest, DTC will in turn distribute such payments to the beneficial owners of the Revenue Obligations. See APPENDIX E—`BOOK-ENTRY SYSTEM"herein. THE OBLIGATION OF THE DISTRICT TO PAY THE INSTALLMENT PAYMENTS, AND THE INTEREST THEREON, AND OTHER PAYMENTS REQUIRED TO BE MADE BY IT UNDER THE INSTALLMENT PURCHASE AGREEMENT IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE, IN THE MANNER PROVIDED IN THE INSTALLMENT PURCHASE AGREEMENT, SOLELY FROM NET REVENUES AND OTHER FUNDS PROVIDED FOR IN THE INSTALLMENT PURCHASE AGREEMENT, AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT OR OF THE STATE OF CALIFORNIA, OR OF ANY POLITICAL SUBDIVISION THEREOF, IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE INSTALLMENT PAYMENTS, OR THE INTEREST THEREON, OR OTHER PAYMENTS REQUIRED TO BE MADE UNDER THE INSTALLMENT PURCHASE AGREEMENT. SEE`SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS"HEREIN. This cover page contains information intended for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. BIDS FOR THE PURCHASE OF THE REVENUE OBLIGATIONS WILL BE RECEIVED BY THE DISTRICT UNTIL I1:00 A.M.NEW YORK TIME ON JULY 8,2014 UNLESS POSTPONED OR CANCELLED AS SET FORTH IN THE OFFICIAL NOTICE INVITING BIDS. The Revenue Obligations are offered when, as and if executed and delivered and received by , as the Initial Purchaser, subject to the approval of Fulbright&Jaworski LLP, Los Angeles, California, a member of Norton Rose Fulbright, Special Counsel and Disclosure Counsel to the District, and certain other conditions. Certain legal matters will be passed upon for the District and the Corporation by Woodruff, Spradlin &Smart, a Professional Corporation, Costa Mesa, California. Public Resources Advisory Group, Los Angeles, California, has served as financial advisor to the District in connection with the execution and delivery of the Revenue Obligations. It is anticipated that the Revenue Obligations in definitive form will be available for delivery through the book-entry facilities of DTC on or about August 2014, Dated: July—,2014 MATURITY SCHEDULE Principal Interest CUSW February 1 Amount Rate Yield Price (Base No. f CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard &Poor's Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. None of the District,the Initial Purchaser or the Financial Advisor is responsible for the selection or correctness of the CUSIP numbers set forth herein. [MAP] ORANGE COUNTY SANITATION DISTRICT Board of Directors Troy Edgar (Chair) Los Alamitos Tom Beamish—(Vice Chair)—La Habra Lucille KringAnaheim Teresa Smith—Orange Brett Murdock—Brea Scott Nelson—Placentia Fred Smith—Buena Park David Benavides Santa Ana Prakash NaminCypress Michael Levitt—Seal Beach Steve Nagel—Fountain Valley David Shawver—Stanton Gregory Sebourn Fullerton John Nielsen—Tustin Steve Jones—Garden Grove Brad Reese— Filla Park Joe Carchio—Huntington Beach Gene Hernandez—Yorba Linda Steven Choi—Irvine James M.Ferryman Costa Mesa Sanitary District Peter Kim—La Palma John Withers—Irvine Ranch Water District Keith Curry—Newport Beach Tyler Diep—Midway City Sanitary District Janet Nguyen Member of the Orange County Board of Supervisors Executive Manaeement of the District James Herberg, General Manager Robert P. Ghirelli,D.Env.,Assistant General Manager Lorenzo Tyner,Director of Finance and Administrative Services Ed Torres,Director of Operations and Maintenance Nick Arhontes,Director of Facilities Support Services Robert Thompson,Director of Engineering Jeff Reed,Director of Human Resources Soecial Services Special Counsel and Disclosure Counsel Fulbright&Jaworski LLP (a member of Norton Rose Fulbright) Los Angeles,California District General Counsel Bradley R.Begin Woodruff, Spradlin& Smart,a Professional Corporation Costa Mesa,California Financial Advisor Public Resources Advisory Group Los Angeles,California Trustee Verification Agent MUFG Union Bank,N.A. Causey Demgen&Moore Inc. Los Angeles,California Denver,Colorado This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Revenue Obligations by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. The information set forth herein has been provided by the Orange County Sanitation District (the "District") and other sources that are believed by the District to be reliable. No dealer,broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement. If given or made, such other information or representations must not be relied upon as having been authorized by the District,the Corporation or the Initial Purchaser in connection with any reoffering. This Official Statement is not to be construed as a contract with the purchasers of the Revenue Obligations. Statements contained in this Official Statement which involve estimates, projections, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the Corporation since the date hereof This Official Statement is submitted with respect to the sale of the Revenue Obligations referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Preparation of this Official Statement and its distribution have been duly authorized and approved by the District and the Corporation. In connection with the offering of the Revenue Obligations, the Initial Purchaser in connection with any reoffering may over-allot or effect transactions which stabilize or maintain the market price of the Revenue Obligations at a level above that which might otherwise prevail in the open market. Such stabilizing,if commenced,may be discontinued at any time. The Initial Purchaser in connection with any reoffering may offer and sell the Revenue Obligations to certain dealers,institutional investors and others at prices lower than the public offering prices stated on the inside cover page hereof and such public offering prices may be changed from time to time by the Initial Purchaser. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as "plan,""expect,""estimate,""budget"or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results,performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. TABLE OF CONTENTS Page INTRODUCTION......................................................................................................................... 1 General............................................................................................................................... 1 TheDistrict........................................................................................................................2 Security and Sources of Payment for the Revenue Obligations........................................2 Continuing Disclosure.......................................................................................................3 Miscellaneous ....................................................................................................................3 REFUNDING PLAN.....................................................................................................................4 ESTIMATED SOURCES AND USES OF FUNDS.....................................................................4 THE REVENUE OBLIGATIONS................................................................................................ 5 General............................................................................................................................... 5 Prepayment Provisions....................................................................................................... 5 SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS............7 InstallmentPayments.........................................................................................................7 Available Funds of the District.......................................................................................... 8 NetRevenues..................................................................................................................... 8 Rate Stabilization Account................................................................................................9 Allocation of Revenues.................................................................................................... 10 RateCovenant.................................................................................................................. 10 Limitations on Issuance of Additional Obligations......................................................... 11 Insurance.......................................................................................................................... 13 Allocation of Installment Payments................................................................................. 13 THEDISTRICT........................................................................................................................... 15 Background...................................................................................................................... 15 Organization and Administration..................................................................................... 16 Services............................................................................................................................ 17 ServiceArea..................................................................................................................... 17 Employees........................................................................................................................ 18 RetirementPlan................................................................................................................ 19 Other Post-Employment Benefits....................................................................................21 RiskManagement............................................................................................................21 ExistingFacilities.............................................................................................................21 Permits, Licenses and Other Regulations ........................................................................22 2009 Facilities Master Plan and Capital Improvement Program.....................................24 Groundwater Replenishment System...............................................................................25 Preferred Level of Treatment...........................................................................................26 BiosolidsManagement.....................................................................................................26 UrbanRunoff...................................................................................................................27 Integrated Emergency Response Program.......................................................................28 Five-Year Strategic Planning...........................................................................................29 -i- TABLE OF CONTENTS (continued) Page DISTRICT REVENUES..............................................................................................................30 SewerService Charges ....................................................................................................30 AdditionalRevenues........................................................................................................32 Wastewater Treatment History........................................................................................34 Customers ........................................................................................................................34 AssessedValuation..........................................................................................................36 Tax Levies and Delinquencies........................................................................................37 BudgetaryProcess............................................................................................................38 Reserves...........................................................................................................................38 Summaryof Operating Data............................................................................................40 Projected Operating Data.................................................................................................42 Management's Discussion and Analysis of Operating Data............................................44 Investment of District Funds............................................................................................45 FINANCIAL OBLIGATIONS....................................................................................................45 ExistingIndebtedness......................................................................................................45 AnticipatedFinancings ....................................................................................................46 Direct and Overlapping Bonded Debt..............................................................................46 THECORPORATION................................................................................................................46 LIMITATIONS ON TAXES AND REVENUES........................................................................47 Article XIIIA of the California Constitution...................................................................47 Legislation Implementing Article XIIIA.........................................................................47 Article XIIIB of the California Constitution....................................................................48 Proposition IA and Proposition 22..................................................................................49 Article XIIIC and Article XIIID of the California Constitution......................................49 Other Initiative Measures.................................................................................................52 LEGALMATTERS.....................................................................................................................52 FINANCIAL ADVISOR.............................................................................................................52 ABSENCE OF LITIGATION.....................................................................................................52 FINANCIAL STATEMENTS.....................................................................................................52 TAXMATTERS..........................................................................................................................53 VERIFICATION OF MATHEMATICAL COMPUTATIONS..................................................55 CONTINUING DISCLOSURE...................................................................................................56 RATINGS....................................................................................................................................56 PURCHASE AND REOFFERING.............................................................................................56 MISCELLANEOUS....................................................................................................................56 _ ii_ TABLE OF CONTENTS (continued) Page APPENDIX A — COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2013.............................................................................A-1 APPENDIX B — THE COUNTY OF ORANGE—ECONOMIC AND DEMOGRAPHIC INFORMATION....................................................................................................B-1 APPENDIX C — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS........................................C-1 APPENDIX D — FORM OF CONTINUING DISCLOSURE AGREEMENT..................................D-1 APPENDIX E — BOOK-ENTRY SYSTEM......................................................................................E-1 APPENDIX F — FORM OF APPROVING OPINION OF SPECIAL COUNSEL............................F-1 -iii - OFFICIAL STATEMENT $[PAR AMOUNT]" ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2014A INTRODUCTION This introduction contains only a brief summary of certain of the terms of the Revenue Obligations being offered and a brief description of the Official Statement. All statements contained in this introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of,provisions of the Constitution and laws of the State of California (the "State') and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Trust Agreement the Installment Purchase Agreement and the Master Agreement (each, as hereinafter defined). See APPENDIX C— "SUMMARYOFPRINCIPAL LEGAL DOCUMENTS—Definitions"h ere in. General This Official Statement, including the cover page and all appendices hereto, provides certain information concerning the sale and delivery of$[Par Amount]aggregate principal amount of the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations"), which are certificates of participation evidencing direct,fractional undivided interests in certain installment payments (the "Installment Payments") and the interest thereon, to be made by the Orange County Sanitation District (the "District") pursuant to the Installment Purchase Agreement, dated as of August 1, 2014 (the"Installment Purchase Agreement'),by and between the District and the Orange County Sanitation District Financing Corporation(the"Corporation"). Unless the context clearly indicates to the contrary, a reference herein to either of the Installment Purchase Agreement or the Revenue Obligations is intended to refer to the corresponding interest in the Installment Purchase Agreement. Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the "Master Agreement'), by and between the District and the Corporation, the District has established and declared the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon, will be incurred and secured. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues (as defined hereinafter) as provided in the Installment Purchase Agreement, consisting primarily of all income and revenue received by the District from the operation or ownership of the Wastewater System of the District (the "Wastewater System") remaining after payment of Maintenance and Operation Costs, as further described in "SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS" herein. The Revenue Obligations are to be executed and delivered pursuant to a Trust Agreement, dated as of August 1, 2014 (the "Trust Agreement"), by and among the District, the Corporation and MUFG Union Bank,N.A., as trustee(the"Trustee"). Proceeds from the sale of the Revenue Obligations will be 'Preliminary,subject to change. used to (i)purchase and retire a portion of the District's Certificates of Participation, Series 2007B, currently outstanding in the aggregate principal amount of $ (collectively, the "Refunded Certificates")and(it)pay the costs incurred in connection with the execution and delivery of the Revenue Obligations. See"REFUNDING PLAN"herein. The Revenue Obligations will be executed and delivered in the form of fully registered certificates of participation, dated as of the date of initial delivery thereof and will mature on February 1 in each such year as set forth on the inside cover page hereof. Interest evidenced by the Revenue Obligations will be payable semiannually on February 1 and August 1 of each year, commencing on February 1, 2015. See "THE REVENUE OBLIGATIONS" herein. The Revenue Obligations initially will be delivered only in book-entry form and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Revenue Obligations, The Revenue Obligations will be delivered in denominations of $5,000 and any integral multiple thereof. So long as the Revenue Obligations are in the DTC book-entry system, the interest, principal, purchase price and prepayment premiums, if any, due with respect to the Revenue Obligations will be payable by the Trustee, or its agent, to DTC or its nominee. DTC, in tum, will make payments pursuant to its procedures as described under APPENDIX E — "BOOK—ENTRY SYSTEM"herein. The District The District is a public agency responsible for regional wastewater collection, treatment and disposal. The District is the sixth largest wastewater discharger in the United States. The District provides service to an area with a population of approximately 2.5 million people in the northern and central portion of the County of Orange (the "County"), in a service area of approximately 479 square miles, treating an average of 200 million gallons per day("mg/d")of wastewater in Fiscal Year 2012-13. See"THE DISTRICT,""DISTRICT REVENUES"and"FINANCIAL OBLIGATIONS"herein. Security and Sources of Payment for the Revenue Obligations The Revenue Obligations, which are certificates of participation, evidence direct, fractional undivided interests in the Installment Payments, and the interest thereon, paid by the District pursuant to the Installment Purchase Agreement The obligation of the District to pay the Installment Payments and the interest thereon and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided under the Installment Purchase Agreement, solely from Net Revenues, and other funds as provided in the Installment Purchase Agreement. Net Revenues generally consist of all income and revenue received by the District from the operation or ownership of the Wastewater System remaining after payment of Maintenance and Operation Costs, all as further provided in the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. The District currently has Outstanding Senior Obligations payable from Net Revenues on a parity with the Installment Payments under the Installment Purchase Agreement. See "ESTIMATED SOURCES AND USES OF FUNDS," "FINANCIAL OBLIGATIONS — Existing Indebtedness" and "THE DISTRICT"herein and APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS— Master Agreement"attached hereto.The District has no Subordinate Obligations currently outstanding. Pursuant to the Master Agreement, the District will,to the extent permitted by law, fix, prescribe and collect fees and charges for the services and facilities of the Wastewater System which will be at least sufficient to yield during each Fiscal Year (a)Net Revenues equal to 125% of Debt Service on Senior Obligations for such Fiscal Year and (b)Net Operating Revenues equal to 100% of Debt Service on all 2 Obligations for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall not reduce the fees and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements of the Master Agreement. See "SECURITY AND SOURCE OF PAYMENT FOR THE REVENUE OBLIGATIONS—Rate Covenant'herein. The obligation of the District to pay the Installment Payments and the interest thereon,and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided in the Installment Purchase Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase Agreement,and does not constitute a debt of the District or of the State, or of any political subdivision thereof, in contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and credit nor the taxing power of the District or the State or any political subdivision thereof, is pledged to the payment of the Installment Payments, or the interest thereon, or other payments required to be made under the Installment Purchase Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. See"SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS" herein. Continuing Disclosure The District bas covenanted for the benefit of holders and beneficial owners of the Revenue Obligations (a)to provide certain financial information and operating data(the"Annual Report")relating to the District and the property in the District not later than eight months after the end of the District's Fiscal Year (which currently would be March 1), commencing with the report for the 2013-14 Fiscal Year, and (b)to provide notices of the occurrence of certain enumerated events. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is set forth in the Continuing Disclosure Agreement. See "CONTINUING DISCLOSURE" herein and APPENDIX D —'FORM OF CONTINUING DISCLOSURE AGREEMENT." Miscellaneous The descriptions herein of the Trust Agreement, the Master Agreement, the Installment Purchase Agreement, the Continuing Disclosure Agreement and any other agreements relating to the Revenue Obligations me qualified in their entirety by reference to such documents. Copies of the Trust Agreement, the Master Agreement and the Installment Purchase Agreement are on file and available for inspection at the corporate trust office of MUFG Union Bank, N.A., Los Angeles, California Attention: Corporate Trust. 3 REFUNDING PLAN A portion of the net proceeds of from the sale of the Revenue Obligations, together with other available moneys,will be used to prepay a portion of the remaining installment payments (the`Refunded Installment Payments") to be made by the District pursuant to the Installment Purchase Agreement, dated as of December 1, 2007, by and between the District and the Corporation, which was executed and delivered in connection with the Refunded Certificates. The Refunded Certificates were executed and delivered on December 20, 2007 in the original aggregate principal amount of$300,000,000, of which $_is currently outstanding. Pursuant to the terms of the Trust Agreement, dated as December 1,2007 (the"2007 Trust Agreement"),by and among the District,the Corporation and MUFG Union Bank,N.A., as successor trustee thereunder, the prepayment of the Refunded Certificates will be effected by depositing a portion of the proceeds of the Revenue Obligations,together with other available moneys,in an escrow fund(the"Escrow Fund")to be created and established under the Escrow Agreement,dated as of August 1, 2014, by and between the District and MUFG Union Bank, N.A., as escrow agent thereunder. The District will cause the Escrow Fund deposit to be invested in Government Obligations (as defined in the 2007 Trust Agreement). The Government Obligations will be scheduled to mature in such amounts and at such times and will pay principal and interest at such rates as to provide amounts sufficient to pay principal and interest with respect to the Refunded Certificates due and payable through February 1, 2017 and to pay on February 1, 2017 (the `Prepayment Date") the principal with respect to the Refunded Certificates at a prepayment price equal to the principal amount thereof(the "Prepayment Price"),without premium. See"VERIFICATION OF MATHEMATICAL COMPUTATIONS"herein. The amounts deposited in the Escrow Fund will be held in trust solely for the Refunded Certificates and will not be available to pay the principal and interest evidenced by the Revenue Obligations or any obligations other than the Refunded Certificates. ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds in connection with the execution and delivery of the Revenue Obligations are presented below. Sources Principal Amount of Revenue Obligations $ [Reserve release?] [Net] Premium Total Sources $ Uses Deposit to Escrow Fund $ Initial Purchaser's Discount Costs of Issuances.. Total Uses $ Costs-of Issuance nclude,among other things,fees and expenses of rating agencies,verification agent, Special Counsel and Disclosure Counsel,and the initial fees of the Trustee. 4 THE REVENUE OBLIGATIONS General The Revenue Obligations will be prepared in the form of fully registered certificates of participation in denominations of$5,000 and any integral multiple thereof. The Revenue Obligations will be dated as of the date of initial delivery thereof and will mature on February 1 in such years as set forth on the inside cover page hereof. Interest evidenced by the Revenue Obligations will be payable semiannually on February 1 and August 1 of each year, commencing on February 1, 2015. The Revenue Obligations initially will be delivered only in book-entry form and will be registered in the name of Cede &Co., as nominee of The Depository Trust Company, New York, New York("DTC"),which will act as securities depository for the Revenue Obligations. Individual purchases of the Revenue Obligations will be made in book-entry form only. Purchasers of Revenue Obligations will not receive physical certificates representing their ownership interests in the Revenue Obligations purchased. The interest evidenced by the Revenue Obligations shall be payable on each Interest Payment Date to and including their respective Principal Payment Dates or prepayment prior thereto, and shall represent the sum of the interest on the Installment Payments coming due on the Interest Payment Dates in each year. The principal evidenced by the Revenue Obligations shall be payable on their respective Principal Payment Dates in each year and shall represent the Installment Payments coming due on the Principal Payment Dates in each year. Each Revenue Obligation shall evidence interest from the Interest Payment Date next preceding its date of execution to which interest has been paid in full,unless such date of execution shall be after a Record Date and on or prior to the following Interest Payment Date,in which case such Revenue Obligation shall evidence interest from such Interest Payment Date, or unless such date of execution shall be on or prior to January 15, 2015, in which case such Revenue Obligation shall represent interest from its date of initial delivery. Notwithstanding, the foregoing, if, as shown by the records of the Trustee, interest evidenced by the Revenue Obligations shall be in default, each Revenue Obligation shall evidence interest from the last Interest Payment Date to which such interest has been paid in full or duly provided for. Interest evidenced by the Revenue Obligations shall be computed on the basis of a 360-day year consisting of twelve 30-day months. See APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Trust Agreement." Payments of principal and interest evidenced by the Revenue Obligations are payable directly to DTC by MUFG Union Bank, N.A., as trustee. Upon receipt of payments of such principal and interest, DTC will in tutu distribute such payments to the beneficial owners of the Revenue Obligations. So long as the Revenue Obligations me held in the DTC book-entry system,the interest, principal,purchase price and prepayment premiums, if any, due with respect to the Revenue Obligations will be payable by the Trustee, or its agent,to DTC or its nominee. DTC,in turn,will make payments pursuant to its procedures as described under APPENDIX E—"BOOK-ENTRY SYSTEM"herein. Prepayment Provisions Optional Prepayment. The Revenue Obligations with stated Principal Payment Dates prior to February 1, 2024 are not subject to optional prepayment prior to their stated Principal Payment Dates. The Revenue Obligations with stated Principal Payment Dates on or after February 1, 2025 me subject to optional prepayment prior to their stated Principal Payment Dates, on any date on or after February 1, 2024, in whole or in part, in Authorized Denominations, from and to the extent of prepaid Installment Payments paid pursuant to the Installment Purchase Agreement or from any other source of available Preliminary,subject to change. 5 funds, any such prepayment to be at a price equal to the principal evidenced by the Revenue Obligations to be prepaid,plus accrued interest evidenced thereby to the date fixed for prepayment,without premium. Selection of Revenue Obligations for Prepayment Whenever less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to provisions of the Trust Agreement with respect to optional prepayment of Revenue Obligations, the Trustee shall select the Revenue Obligations to be prepaid among Revenue Obligations with different Principal Payment Dates as directed in a Written Request of the District. Whenever less than all the Outstanding Revenue Obligations with the same stated Principal Payment Date are to be prepaid on any one date in accordance with the Trust Agreement, the Trustee shall select the Revenue Obligations with such Principal Payment Date to be prepaid as directed in a Written Request of the District, or at the discretion of the District by lot in any manner that the Trustee deems fair and appropriate, which decision shall be final and binding upon the District and the Owners. The Trustee shall promptly notify the District in writing of the numbers of the Revenue Obligations so selected for prepayment on such date. For purposes of such selection, any Revenue Obligation may be prepaid in part in Authorized Denominations. Notice of Prepayment When prepayment of Revenue Obligations is authorized pursuant to the Trust Agreement, the Trustee shall give notice, at the expense of the District, of the prepayment of the Revenue Obligations. The notice of prepayment shall specify(a)the Revenue Obligations or designated portions thereof(in the case of prepayment of the Revenue Obligations in part but not in whole)which are to be prepaid, (b)the date of prepayment, (c)the place or places where the prepayment will be made, including the time and address of any paying agent, (d)the prepayment price, (e)the CUSIP numbers assigned to the Revenue Obligations to be prepaid, (f)the numbers of the Revenue Obligations to be prepaid in whole or in part and, in the case of any Revenue Obligation to be prepaid in part only, the principal evidenced by such Revenue Obligation to be prepaid, and (g)the interest rate and stated Principal Payment Date of each Revenue Obligation to be prepaid in whole or in part. Such notice of prepayment shall further state that on the specified date there shall become due and payable upon each Revenue Obligation or portion thereof being prepaid the prepayment price and that from and after such date interest evidenced thereby shall cease to accrue and be payable. With respect to any notice of optional prepayment of Revenue Obligations, unless at the time such notice is given the Revenue Obligations to be prepaid shall be deemed to have been paid within the meaning of the Trust Agreement, such notice shall state that such prepayment is conditional upon receipt by the Trustee, on or prior to the date fixed for such prepayment, of moneys sufficient to pay for the prepayment price of the Revenue Obligations to be prepaid, and that if such moneys shall not have been so received said notice shall be of no force and effect and the District shall not be required to prepay such Revenue Obligations. In the event a notice of prepayment of Revenue Obligations contains such a condition and such moneys are not so received,the prepayment of Revenue Obligations as described in the conditional notice of prepayment shall not be made and the Trustee shall,within a reasonable time after the date on which such prepayment was to occur, give notice to the persons and in the manner in which the notice of prepayment was given, that such moneys were not so received and that there shall be no prepayment of Revenue Obligations pursuant to such notice of prepayment. The Trustee shall,at lent 20 but not more than 60 days prior to any prepayment date, give notice of prepayment to the respective Owners of Revenue Obligations designated for prepayment by first-class mail,postage prepaid, at their addresses appearing on the registration books maintained by the Trustee as of the close of business on the day before such notice of prepayment is given. The actual receipt by the Owner of any notice of such prepayment shall not be a condition precedent to prepayment, and neither failure to receive such notice nor any defect therein shall affect the validity of the proceedings for the prepayment of such Revenue Obligations or the cessation of interest evidenced thereby on the date fixed for prepayment. 6 Effect of prepayment If notice of prepayment has been duly given as aforesaid and moneys for the payment of the prepayment price of the Revenue Obligations to be prepaid are held by the Trustee, then on the prepayment date designated in such notice, the Revenue Obligations so called for prepayment shall become payable at the prepayment price specified in such notice; and from and after the date so designated,interest evidenced by the Revenue Obligations so called for prepayment shall cease to accrue, such Revenue Obligations shall cease to be entitled to any benefit or security hereunder and the Owners of such Revenue Obligations shall have no rights in respect thereof except to receive payment of the prepayment price thereof. The Trustee shall, upon surrender for payment of any of the Revenue Obligations to be prepaid, pay such Revenue Obligations at the prepayment price thereof, and such moneys shall be pledged to such payment. SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS Installment Payments Pursuant to the Installment Purchase Agreement, the Project will be reacquired by the District from the Corporation. The District has covenanted to, subject to any rights of prepayment under the Installment Purchase Agreement, pay to the Corporation, solely from Net Revenues and from no other sources, the Purchase Price in Installment Payments, with interest thereon, as provided in the Installment Purchase Agreement. Pursuant to the Master Agreement, the District has established and declared the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon payable under the Installment Purchase Agreement,will be incurred and seemed. The obligation of the District to make the Installment Payments, and payments of interest thereon,and other payments required to be made by it under the Installment Purchase Agreement, solely from Net Revenues,is absolute and unconditional,and until such time as the Installment Payments, payments of interest thereon, and such other payments shall have been paid in full (or provision for the payment thereof shall have been made pursuant to the Installment Purchase Agreement), the District has covenanted that it will not discontinue or suspend any Installment Payments when due,whether or not the Project or any part thereof is operating or operable or has been completed, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such Installment Payments, payments of interest thereon, and other payments shall not be subject to reduction whether offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement or any cause whatsoever. The District's obligation to make Installment Payments from Net Revenues is on a parity with the District's obligation to make payments with respect to its Outstanding Senior Obligations. See "Net Revenues"below. Pursuant to the Trust Agreement, the Corporation has assigned to the Trustee for the benefit of the Owners of the Revenue Obligations substantially all of its rights, title and interest in and to the Installment Purchase Agreement, including its right to receive Installment Payments and the interest thereon. The District has certain Existing Senior Obligations Outstanding payable from Net Revenues on a parity with the Installment Payments under the Installment Purchase Agreement. The term "Existing Senior Obligations" as used in this Official Statement refers to the Installment Purchase Agreements relating to the District's Outstanding Senior Obligations, as set forth on Table 16 under the caption "FINANCIAL OBLIGATIONS—Existing Indebtedness"herein. The term"Senior Obligations"as used in this Official Statement refers to the Existing Senior Obligations and to any additional Senior Obligations, such as the Installment Purchase Agreement, that may be made payable on a parity basis to the Installment Payments as provided in the Master Agreement. Senior Obligations, together with any Subordinate Obligations payable on a subordinate basis to the Installment Payments incurred as provided in the Master Agreement, are referred to collectively as the "Obligations." The District has no Subordinate Obligations currently outstanding. See "FINANCIAL OBLIGATIONS Existing Indebtedness" herein and APPENDIX C — `SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement"attached hereto. 7 The obligation of the District to pay the Installment Payments, and the interest thereon,and other payments required to be made by it under the Installment Purchase Agreement and Master Agreement, is a special obligation of the District payable, in the manner provided in the Installment Purchase Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase Agreement, and does not constitute a debt of the District, the State or any political subdivision thereof,in contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and credit nor the taxing power of the District, the State or any political subdivision thereof, is pledged to the payment of the Installment Payments, or the interest thereon, or other payments required to be made under the Installment Purchase Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. See`SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS" herein. Available Funds of the District As Senior Obligations under the Master Agreement, the Installment Payments are payable from and secured by a pledge of Net Revenues. Should Net Revenues prove insufficient, the Installment Purchase Agreement further provides that the Installment Payments are payable from any other lawfully available funds of the District. The primary lawfully available funds of the District are its reserve funds, other than trustee-held amounts required to be in any Obligation Reserve Fund securing certain of the District's Senior Obligations, as described in the Master Agreement. At Jane 30, 2013, the District's Debt Service Required Reserves totaled $135 million, of which $53.1 million were trustee-held amounts in Obligation Reserve Funds as required under the Master Agreement See APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement" attached hereto. District reserve funds are maintained in accordance with the District's reserve policy. See "DISTRICT REVENUES — Reserves." Available reserves at Jane 30, 2012 and June 30, 2013 were approximately $608 million and$ million, respectively. See"DISTRICT REVENUES Reserves,"" Summary of Operating Data"and'—Projected Operating Data." Net Revenues The District is obligated to make Installment Payments solely from Net Revenues as provided in the Master Agreement, which consist of Revenues remaining after payment of costs paid by the District for maintaining and operating the Wastewater System ("Maintenance and Operation Costs"). Revenues are defined in the Master Agreement to mean, for any period, all income and revenue received by the District during such period from the operation or ownership of the Wastewater System, determined in accordance with generally accepted accounting principles, including all fees and charges received during such period for the services of the Wastewater System, investment income received during such period (but only to the extent that such investment income is generally available to pay costs with respect to the Wastewater System, including Maintenance and Operation Costs), Net Proceeds of business interruption insurance received during such period, ad valorem taxes received during such period,payments under the Agreement Acquiring Ownership Interests, Assigning Rights and Establishing Obligations, entered into on February 13, 1986,and amendment No. 1 thereto dated December 10, 1986(the"IRWD Agreement"), by and between predecessor County Sanitation District No. 14 of Orange County and the Irvine Ranch Water District (the `IRWD") received during such period and all other money received during such period howsoever derived by the District from the operation or ownership of the Wastewater System or arising from the Wastewater System (including any standby or availability charges), but excluding (a)Capital Facilities Capacity Charges, (b)payments received under Financial Contracts, and (c)refundable deposits made to establish credit and advances or contributions in aid of construction (which, for purposes of the Master Agreement, shall not include payments under the IRWD Agreement); provided, however, that (i)Revenues shall be increased by the amounts, if any, transferred during such period from the Rate Stabilization Account to the Revenue Account and shall be decreased by the 8 amounts, if any, transferred during such period from the Revenue Account to the Rate Stabilization Account, and(ii)Revenues shall include Capital Facilities Capacity Charges collected during such period to the extent that such Capital Facilities Capacity Charges could be properly expended on a Capital Facilities Capacity Charge Eligible Project for which the proceeds of Subject Obligations were used or are available to be used. Any Federal Subsidy payments received by the District will constitute Revenues as defined in the Master Agreement. See"DISTRICT REVENUES Additional Revenues"herein. The District's obligation to make the Installment Payments from its Net Revenues is on a parity with the District's obligation to make payments with respect to its other outstanding obligations described as Senior Obligations and all Reimbursement Obligations with respect to Senior Obligations,as provided in the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. Pursuant to the Master Agreement, the District pledges all Net Revenues to the payment of the Senior Obligations and Reimbursement Obligations with respect to Senior Obligations, and the Net Revenues will not be used for any other purpose while any of the Senior Obligations or Reimbursement Obligations with respect to Senior Obligations remain unpaid; provided, however, that out of the Net Revenues there may be apportioned such sums for such purposes as are expressly permitted by the Master Agreement. This pledge constitutes a first lien on the Net Revenues for the payment of the Senior Obligations and Reimbursement Obligations with respect to Senior Obligations. The term"Senior Obligations"generally means all revenue bonds or notes(including bond anticipation notes and commercial paper)of the District authorized, issued,executed and delivered under and pursuant to applicable law,the Installment Purchase Agreement, and all other contracts (including financial contracts) or leases of the District authorized and executed by the District under and pursuant to applicable law, including, without limitation, installment, lease or other payments which are, in accordance with the provisions of the Master Agreement, payable from Net Revenues on a parity with the payments under the Master Agreement. The District may at any time incur Subordinate Obligations payable on a subordinate basis to the Installment Payments as provided in the Master Agreement; provided, however, that prior to incurring such Subordinate Obligations, the District shall have determined that the incurrence thereof will not materially adversely affect the District's ability to comply with the requirements of the Master Agreement The District may at any time incur Reimbursement Obligations with respect to Subordinate Obligations. For a description of the District's Outstanding Senior Obligations and Subordinate Obligations, see "FINANCIAL OBLIGATIONS Existing Indebtedness" herein. There are currently no Subordinate Obligations or Reimbursement Obligations with respect to Subordinate Obligations outstanding. The District may, in connection with the incurrence of Subordinate Obligations, pledge Net Revenues to the payment of Subordinate Obligations and Reimbursement Obligations with respect to Subordinate Obligations; provided, however, that such pledge, and any lien created thereby, shall be junior and subordinate to the pledge of, and lien on,Net Revenues for the payment of Senior Obligations and Reimbursement Obligations with respect to Senior Obligations. Rate Stabilization Account To avoid fluctuations in its fees and charges of the Wastewater System, from time to time the District may deposit in the Rate Stabilization Account from Net Revenues such amounts as the District deems necessary or appropriate. From time to time, the District may also transfer moneys from the Rate Stabilization Account to the Revenue Account to be used by the District, first to pay all Maintenance and Operations Costs as and when the same shall be due and payable. In addition, any such amount transferred from the Rate Stabilization Account to the Revenue Account by the District is included as Revenues for any period,but such transferred amount is excluded from determining Operating Revenues 9 for any period. Revenues will be decreased by the amounts,if any,transferred from the Revenue Account to the Rate Stabilization Account. There me presently no funds in the Rate Stabilization Account. Allocation of Revenues To carry out and effectuate the pledge of Net Revenues under the Master Agreement as described above, the District agrees and covenants that all Operating Revenues received by the District will be deposited when and as received in the Revenue Account. Additionally, amounts may, from time to time as the District deems necessary or appropriate, be transferred from the Rate Stabilization Account and deposited in the Revenue Account,as described above under" Rate Stabilization Account'above. The District will pay from the Revenue Account all Maintenance and Operations Costs (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operations Costs, the payment of which is not immediately required)as and when the same shall be due and payable. After having paid, or having made provisions for the payment of, Maintenance and Operations Costs, the District shall set aside and deposit or transfer, as the case may be, from the Revenue Account such amounts at such times as provided in the Master Agreement in the following order of priority: (1) Senior Obligation Payment Account; (2) Senior Obligation Reserve Funds (the Revenue Obligations are not secured by any Reserve Fund); (3) Subordinate Obligation Payment Account; (4) Subordinate Obligation Reserve Funds;and (5) Rate Stabilization Account. Amounts required or permitted to be deposited or transferred as described in items 2, 3, 4 and 5 above, shall not be so deposited or transferred unless the District shall have determined that there will be sufficient Net Revenues available to make the required deposits or transfers on the dates on which such deposits or transfers are required to be made as described above. So long as the District has determined that Net Revenues will be sufficient to make all of the deposits or transfers required to be made pursuant to items 1, 2, 3, 4 and 5 above, on the dates on which such deposits or transfers are required to be made, Net Revenues on deposit in the Revenue Account may from time to time be used for any purpose for which the District fonds may be legally applied. For additional information, see APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Master Agreement." Rate Covenant Pursuant to the Master Agreement, the District will, to the extent permitted by law, fix, prescribe and collect fees and charges for the services of the Wastewater System which will be at least sufficient to yield during each Fiscal Year(a)Net Revenues equal to 125% of Debt Service on Senior Obligations for such Fiscal Year and (b)Net Operating Revenues equal to 100% of Debt Service on all Obligations for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but will not reduce the fees and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements of the Master Agreement. hi addition, the District has covenanted in the Master Agreement to prepare and adopt an annual budget for the Wastewater System for each Fiscal Year. Such budget will set forth in reasonable detail the Revenues anticipated to be derived in such Fiscal Year and the expenditures anticipated to be paid or 10 provided for therefrom in such Fiscal Year, including, without limitation, the amounts required to pay or provide for the payment of the Obligations during such Fiscal Year, the amounts required to pay or provide for the payment of Maintenance and Operations Costs during such Fiscal Year and the amounts required to pay or provide for the payment of all other claims or obligations required to be paid from Revenues in such Fiscal Year, and will show that Revenues and Net Revenues will be at least sufficient to satisfy the requirements of the Master Agreement. On or before September 1 of each Fiscal Year, the District will file with the Trustee a copy of the adopted budget for such Fiscal Year. See APPENDIX C "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Master Agreement" for additional information. The District has an established reserve policy with eight separate reserve fund categories. Over the next ten years,the year ending reserve total for each year is projected not to fall below$520 million as indicated in the District's ten-year cash flow forecast for Fiscal Years 2012-13 through 2021-22. At its election, the District may use unrestricted reserves to help satisfy the rate covenant described above. See "DISTRICT REVENUES Reserves"herein. Limitations on Issuance of Additional Obligations Senior Obligations. The District may at any time incur Senior Obligations in addition to the Existing Senior Obligations payable from Net Revenues as provided in the Master Agreement on a parity with all other Senior Obligations theretofore incurred but only subject to the following conditions under the Master Agreement: (1) Upon the incurrence of such Senior Obligations, no Event of Default will be continuing under the Master Agreement;and (2) Subject to the provisions of the Master Agreement, the District will have received either one of the following: (i) A Written Certificate of the District certifying that,for a 12 consecutive calendar month period during the 24 consecutive calendar month period ending in the calendar month prior to the incurrence of such Senior Obligations (which 12 consecutive calendar month period will be specified in such certificate or certificates): (A) Net Revenues,as shown by the books of the District,will have amounted to at least 125% of Maximum Annual Debt Service on all Senior Obligations to be outstanding immediately after the incurrence of such Senior Obligations,and (B) Net Operating Revenues,as shown by the books of the District,will have amounted to at least 100% of Maximum Annual Debt Service on all Obligations to be outstanding immediately after the incurrence of such Senior Obligations. For purposes of demonstrating compliance with the foregoing,Net Revenues and Net Operating Revenues may be adjusted for(x) any changes in fees and charges for the services of the Wastewater System which have been adopted and are in effect on the date such Senior Obligations are incurred, but which, during all or any part of such 12 consecutive calendar month period, were not in effect, (y)customers added to the Wastewater System subsequent to such 12 consecutive calendar month period but prior to the date such Senior Obligations are incurred, and (z) the estimated change in available Net Revenues and Net 11 Operating Revenues which will result from the connection of existing residences or businesses to the Wastewater System within one year following completion of any project to be funded or any system to be acquired from the proceeds of such Senior Obligations;or (ii) A certificate or certificates from one or more Consultants which, when taken together, project that, for each of the two Fiscal Years next succeeding the incurrence of such Senior Obligations: (A) Net Revenues will amount to at least 125% of Maximum Annual Debt Service on all Senior Obligations to be outstanding immediately after the incurrence of such Senior Obligations,and (B) Net Operating Revenues will amount to at least 100% of Maximum Annual Debt Service on all Obligations to be outstanding immediately after the incurrence of such Senior Obligations. For purposes of demonstrating compliance with the foregoing,Net Revenues and Net Operating Revenues may be adjusted for(x) any changes in fees and charges for the services of the Wastewater System which have been adopted and are in effect on the date such Senior Obligations are incurred or will go into effect prior to the end of such two Fiscal Year period, (y) customers expected to be added to the Wastewater System prior to the end of such two Fiscal Year period, and (z) the estimated change in available Net Revenues and Net Operating Revenues which will result from the connection of existing residences or businesses to the Wastewater System within one yew following completion of any project to be funded or any system to be acquired from the proceeds of such Senior Obligations. For purposes of preparing the certificate or certificates described above,the Consultant may rely upon financial statements prepared by the District that have not been subject to audit by an independent certified public accountant if audited financial statements for the period me not available. See, also "FINANCIAL OBLIGATIONS — Existing Indebtedness" herein. The District is not required to comply with the provisions described above in paragraph(2) if the Senior Obligations being incurred are Short-Term Obligations excluded from the calculation of Assumed Debt Service pursuant to clause (1-1) of the definition thereof. See APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Definitions"herein. The determination of Net Revenues for use in the calculation described above is more fully described in APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement Senior Obligations" attached hereto. The District is not required to comply with the provisions described in paragraph (2) above for such portion of Senior Obligations incurred for the purpose of providing fimds to refund or refinance Senior Obligations if (i)upon such refunding or refinancing, debt service on such refunded or refinanced Obligations, or debt service on bonds, notes or other obligations of an entity other than the District,the debt service on which is payable from Obligation Payments for such Obligations (the "Related Bonds"), will no longer be included in the calculation of Assumed Debt Service either because such Obligations, or the Related Bonds of such Obligations, will have been paid in full or because such debt service is disregarded pursuant to clause (L) of the definition of Assumed Debt Service, and (ii)Assumed Debt Service in each Fiscal Year for the portion of such Senior Obligations incurred for the purpose of providing funds to refund or refinance such Obligations is less than or equal to 105% of Assumed Debt Service in such Fiscal Year for such Obligations being refunded or refinanced (assuming for such purposes that debt service on such refunded or refinanced Obligations, or debt service on the Related Bonds of such Obligations, is not disregarded pursuant to 12 clause (L) of the definition of Assumed Debt Service). See APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Master Agreement'attached hereto for additional information. The District may at any time incur Reimbursement Obligations with respect to Senior Obligations. Subordinate Obligations. The District may at any time incur Subordinate Obligations upon satisfaction of the conditions provided in the Master Agreement. See APPENDIX C "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—Master Agreement'herein for a description of such conditions. There are currently no Subordinate Obligations outstanding. Insurance The District will procure and maintain or cause to be procured and maintained casualty insurance on the Wastewater System with responsible insurers, or provide self- insurance (which may be provided in the form of risk-sharing pools), in such amounts and against such risks (including accident to or destruction of the Wastewater System) as are usually covered in connection with facilities similar to the Wastewater System. The District will procure and maintain such other insurance which it will deem advisable or necessary to protect its interests and the interests of the Corporation. See "THE DISTRICT —Risk Management' and APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS— Master Agreement'herein. Allocation of Installment Payments Set forth in Table I are the principal and interest payments on the Revenue Obligations. Also set forth are the payments due on Existing Senior Obligations,including the Refunded Certificates. [Remainder of page intentionally left blank.] 13 Table 1 Payments Relating to the Revenue Obligations and Existing Senior Obligations of the District Fiscal Year Installment Payments Other Ending Relating to Revenue Obligations Senior Oblisationsl1)(2) June 30 Principal Interest Principal Interest Total 2015 $ 27,875,000 $ 58,025,730 $ 85,900,730 2016 29,405,000 57,014,106 86,419,106 2017 35,575,000 55,645,119 91,220,119 2018 33,170,000 54,116,919 87,286,919 2019 32,735,000 52,985,169 85,720,169 2020 34,370,000 51,351,269 85,721,269 2021 36,005,000 49,718,069 85,723,069 2022 37,035,000 47,959,819 84,994,819 2023 38,730,000 46,264,629 84,994,629 2024 40,360,000 44,634,229 84,994,229 2025 42,190,000 42,798,759 84,988,759 2026 43,840,000 41,153,641 84,993,641 2027 46,185,000 39,154,941 85,339,941 2028 48,195,000 37,105,266 85,300,266 2029 50,290,000 34,964,091 85,254,091 2030 53,415,000 32,727,566 86,142,566 2031 66,320,000 30,369,241 96,689,241 2032 79,140,000 27,737,519 106,877,519 2033 94,955,000 24,027,586 118,982,586 2034 54,700,000 19,648,306 74,348,306 2035 57,170,000 16,930,482 74,100,482 2036 59,760,000 14,087,710 73,847,710 2037 51,610,000 11,113,614 62,723,614 2038 34,290,000 8,325,855 42,615,855 2039 35,920,000 6,395,648 42,315,648 2040 24,575,000 4,375,150 28,950,150 2041 20,805,000 2,912,640 23,717,640 2042 12,430,000 1,581,120 14,011,120 2043 9,795,000 785,600 10,580,600 2044 2,480,000 158,720 2,638,720 Total $1,233,325,000 $914,068,508 $2,147,393,508 Th�tends to refinance its Revenue Refunding Certificate Anticipation Notes,Series 2013A("2013A Notes')on or before their maturity on October 16,2014. Assumes principal is amortized from 2022 through 2036 and an interest rate of 3%per annum.See"FINANCIAL OBLIGATIONS—Recent and Anticipated Financings"herein. het Includes payments with respect to the Refunded Certificates,which are to be purchased and retired with the proceeds of the Revenue Obligations. See`REFUNDING PLAN'herein. 14 THE DISTRICT Background The Orange County Sanitation District is a public agency responsible for regional wastewater collection, treatment and disposal. The District is the sixth largest wastewater discharger in the United States. The District provides service to an area with a population of approximately 2.5 million people in the northern and central portion of the County by treating an average of 200 mg/d of wastewater in Fiscal Year 2012-13. The District serves approximately 81% of the County population in approximately 479 square miles,or approximately 60%of the County's area. The service area which comprises the District was originally formed in 1954 pursuant to the County Sanitation District Act, as amended, Section 4700 et seq. of the Health and Safety Code of the State. The District's service area originally consisted of seven independent special districts in the County which were each responsible for matters relating to their individual districts. These special districts were jointly responsible for the treatment and disposal facilities which they each used. The seven independent districts were successors to the Joint Outfall Sewer Organization, which was formed in 1923 among the Cities of Anaheim, Santa Ana, Fullerton, and Orange, and the sanitary districts of Placentia, Buena Park, La Habra, and Garden Grove. The Joint Outfall Sewer Organization constructed a treatment plant and outfall in the early 1920s to serve its members. It was reorganized in 1947 and 1948 into seven county sanitation districts — District Nos. 1, 2, 3, 5, 6, 7 and 11. These prior districts were formed based on engineers' analyses of the gravity flows in the service area. District No. 13 was formed in 1985 and District No. 14 was added in 1986. These districts were co-participants in a Joint Agreement which provided for the joint construction,ownership,and operation of the prior districts'joint facilities. In April 1998, at the request of the Board of Directors of the District (the"Board of Directors"), the Board of Supervisors of the County of Orange (the "County Board") passed Resolution No. 98-140 approving the consolidation of the then existing nine special districts into a new, single sanitation district, to be known as the Orange County Sanitation District. This action was designed to simplify govemance structures, reduce the size of the Board of Directors, ease administrative processes, streamline decision- making and consolidate accounting and auditing processes. The consolidation was effective on July 1, 1998. Pursuant to the Resolution and Government Code Section 57500, the prior districts transferred and assigned all of their powers, rights, duties, obligations, functions and properties to the District, and the District assumed all obligations of the prior districts which were several and not joint including, without limitation, their obligations to repay the then outstanding certificates of participation. The boundaries of the nine predecessor special districts were initially used by the District to delineate separate revenue areas (the"Revenue Areas") for budgeting and accounting purposes and in order to facilitate the imposition of fees and charges imposed by the District. See "DISTRICT REVENUES — Sewer Service Charges"herein. The District is managed by the Board of Directors, whose members are appointed by 25 member cities and agencies which are serviced by the District. The District is responsible for construction and maintenance of a major portion of the wastewater collection, treatment and disposal facilities within its boundaries. Revenue Area No. 7 is responsible for approximately 170 miles of local sewers in its service area, whereas local sanitary districts, water districts and cities are responsible for local sewers in the remainder of the District's service area. 15 Organization and Administration The District is independent of and overlaps other political jurisdictions. There are many governmental entities,including the County,that operate within the District's jurisdiction. These entities are exclusively responsible for the administration of their own fiscal affairs,and the District is not entitled to operating surpluses of,or responsible for operating deficits of,any of the other entities. The 25-member Board of Directors is composed of representatives from 21 cities,unincorporated areas of the County and three special districts, including mayors of cities, members of city councils, directors of independent special districts and one member from the County Board. Several board committees, made up of members of the Board of Directors, consider topics for action by the Board of Directors and make recommendations to the Board of Directors. The Chair and the Vice Chair of the Board of Directors are elected every year by a majority of the Board of Directors, and serve at the pleasure of the majority of the Board of Directors. The District has a general manager, outside general counsel, and administrative and operating staff, with offices located at Reclamation Plant No. 1 in Fountain Valley, California. The District currently employs an administrative and operating staff of approximately 600 under the direction of its General Manager,James Heiberg. James Herberg, P.E. is the General Manager of the District and has served in this capacity since April 2013. During his 20 years with the District,he has held the positions of Assistant General Manager, Director of Engineering, and Director of Operations and Maintenance. Mr. Herberg has more than 27 years of experience in the water and wastewater industries, including six years at the Orange County Water District with whom the District has partnered on the Ground Water Replenishment System project. Robert P. Ghirelli,D.Env. is the Assistant General Manager of the District, and has served in that capacity since July 2006. Dr. Ghirelli previously served as Director of Technical Services for the District since his joining the District in 1998. Prior to joining the District, Dr. Ghirelli served for just over a year as managing principal of the Los Angeles office of a national environmental consulting firm, and served 20 years in supervisory positions with the State Water Resources Control Board and Regional Water Quality Control Boards, including 13 years serving as Executive Officer of the California Regional Water Quality Control Board,Los AngelesNentura Region. Lorenzo Tyner is the District's Director of Finance and Administrative Services. In September 2005, Mr. Tyner joined the District with approximately 20 years of public finance and budgeting experience,most recently serving as the Los Angeles Unified School District Budget Director and Deputy Chief Financial Officer. Mr. Tyner previously worked in large government organizations including the City of Los Angeles and the Los Angeles County Metropolitan Transportation Authority and with private sector companies IBM Global Services and TRW Space and Defense. Ed Torres is the District's Director of Operations and Maintenance for the District. He has served the District since 1991. Prior to joining the District, Mr. Torres served in a professional capacity for the California State University System and TRW Electronics and Defense Sector. Mr. Torres has more than 25 years of public and private sector experience in protecting public health and the environment. Nick Arhontes, P.E. is the District's Director of Facilities Support Services and has served the District since 1988. Mr. Arhontes has more than 30 years of experience managing various engineered systems in the private and public sectors regionally,nationally,and internationally. Robert Thompson, P.E. is the District's Director of Engineering. He has worked for the district since 1995. Mr. Thompson has served has served as manager in several departments with OCSD, 16 including Information Technology, Operations and Maintenance,and Engineering. He has had a lead role in creating and maintaining engineering,programming,tagging and asset standards for the District. Jeff Reed is the District's Director of Human Resources. He has worked for the District since 1987. Mr. Reed serves as the District's Employee Relations Officer, administering to employer-employee relations between the District and its local public employee organizations. In addition to human resources,Mr. Reed has served the District in leadership roles in both safety and operations. Services The District owns and operates regional wastewater collection, treatment, and disposal facilities for the metropolitan area in the northern and central portion of the County. The District receives wastewater from the collection systems of the cities, sanitary districts and unincorporated areas of the County located within the District. See`THE DISTRICT—Service Areas"herein. Generally, local agency systems collect wastewater from residential and industrial customers and convey the wastewater to District tank sewer pipelines for conveyance to the District's wastewater treatment plants. The District's staff is responsible for operating and maintaining the District's infrastructure, although some work is performed by external contractors. Currently, the District has established supply contracts for all chemicals necessary to the operation and maintenance of the facilities of the District. The District has sufficient standby systems in the event of equipment failures or system outages. Service Area The map on the inside cover of this Official Statement shows the District's boundaries and selected cities located within the District. District boundaries were originally established in 1947 and 1948 based on drainage basins. As the existing cities have grown and new areas have incorporated, city limits have come to overlap District boundaries. The District currently serves an approximately 479 square-mile area including 23 of the County's 34 cities and various unincorporated areas of the County. The District serves a population of approximately 2.5 million residents. 17 Set forth in Table 2 below is the estimated populations of cities and unincorporated areas served by the District as of January 1,2014. Table 2 Estimated Populations of Cities and Unincorporated Areas Served by the Orange County Sanitation District As of January 1,2014 citv Population Anaheim 348,305 Brea 42,397 Buena Park 82,344 Costa Mesa 111,846 Cypress 48,886 Fountain Valley 56,702 Fullerton 140,131 Garden Grove 173,953 Huntington Beach 195,999 Irvine 242,651 La Habra 61,717 La Palma 15,896 Los Alamitos 11,729 Newport Beach 86,874 Orange 139,279 Placentia 52,094 Santa Ana 331,953 Seal Beach 24,591 Stanton 38,963 Tustin 78,360 Villa Park 5,935 Westminster 91,652 Yorba Linda 67.069 Cities Subtotal ft 2,449,326 Unincorporated Areas(estimated)t'I 72,095 Total 2 521 421 Demogr�i Research esea ch Rp h Unit,State of California Department of Finance. (') Center for Demographic Research,California State University,Fullerton. Employees [update paragraph before posting) As of April 21, 2014, the District had a total of 581 employees. The majority of District employees are represented by recognized employee organizations, which include the following: the Orange County Employees Association ("OCEA"), representing administrative/clerical,technical services and engineering employees since 1979, the International Union of Operating Engineers—Local 501 ("Local 501"), representing operations and maintenance employees since October 1985, and the Supervisory and Professional Management Group (SPMT or S&P), representing employees within the Supervisor Group and Professional Group since 1991. The total number of represented employees as of April 21, 2014 was 543, and is broken down as follows: 98 employees represented by OCEA, 194 employees represented by Local 501, and 251 employees represented by the SPMT. The contractual agreements between District and the Supervisor Group and Professional Group were renegotiated in 2010 and expired on June 30, 2013. The District is continuing to 18 bargain with the Supervisor Group and Professional Group to reach agreement. [confirm] The contractual agreements between OCEA and District and the Local 501 and District were renegotiated in 2011 and expired on June 30, 2014. [status?] Historically, the District has experienced positive and collaborative working relationships with each organization and has not endured any work stoppages since the early 1980s. Retirement Plan The District participates in the Orange County Employees Retirement System ("OCERS"), a cost-sharing multiple-employer defined benefit pension plan, which is governed and administered by a nine-member Board of Retirement. OCERS was established in 1945 under the provisions of the County Employees Retirement Law of 1937,and provides members with retirement,death,disability, and cost of- living benefits. All full-time and part-time District employees participate in OCERS. Contributions are based on an OCERS actuarial-detemtined rate structure and age at time of employment; contributions are deducted on a pre-tax basis. Most employees do not pay into Social Security with the exception of 1.45% of gross income, which is paid into the Medicare portion of Social Security. The amount of the retirement allowance is based upon the member's age at retirement,the member's"final compensation"as defined in Section 31462 of the Retirement Law of 1937, the total years of service under OCERS, and the employee's classification as a Plan B, G, H, or U member. Plan U applies to all full-time and part-time employees hired on or after January 1, 2013. Plan B applies to supervisor and professional employees hired on or after October 1, 2010, Local 501 employees hired on or after July 1, 2011 and OCEA employees hired on or after August 1, 2011. Plan G applies to employees hired before September 21, 1979. Plan H applies to employees hired on or after September 21, 1979 and prior to the eligibility dates for Plan B or Plan U. Plan G and H provide 2.5% of final compensation per year of service at age 55. Plan B provides 1.667%of final compensation per year of service at age 57.5,and Plan U provides 2%at 62. "Final compensation"is the highest consecutive 12 months of compensation for Plan G members and the highest consecutive 36 months of compensation divided by three for Plan B, H, and U members. Benefits fully vest under the OCERS retirement plan upon reaching five years of service. Employees who retire at or after age 50 with ten or more yews of service are eligible to receive an annual retirement allowance,but at a reduced benefit for those employees retiring prior to age 62 for Plan U members, 57.5 for Plan B members, or prior to age 55 for Plan G and H members. OCERS also provides death and disability benefits. As a condition of participation under the provisions of the County Employees Retirement Law of 1937, members are required to contribute a percentage of their annual compensation to OCERS. The District contributes a percentage of covered employees' base salary towards the employee's contribution to OCERS for members of Plans G and H. Members of Plans U and B do not receive any contributions toward employee's contribution to OCERS. 19 Set forth in Table 3 below is a current comparison of the District's contributions to OCERS for Fiscal Years 2007-08 through 2012-13 and projected contributions for Fiscal Year 2013-14. Table 3 Orange County Sanitation District Comparison of District Contributions to OCERS for Fiscal Years 2007-08 through 2012-13 and Projected Contributions for Fiscal Year 2013-14 District Fiscal Year RateM Contributions 2007-08 20.55% $11,011,693 2008-09 21.14 12,193,601 2009-10 21.50 13,029,795 2010-11 24.04 14,370,158 2011-12 25.68 15,202,253 2012-13 27.61 17,078,872 2013-14") 31.83 19,163,600 Requi�on as a percent of covered payroll. Includes amortization of Unfunded Actuarial Accrued Liability.Combined rate for all Plans. (a Projected. Source: Orange County Sanitation District. For Fiscal Years 2007-08 through 2012-13, the District's required contribution was equal to the contribution that the District actually made. As noted, the required contribution set forth above includes amortization of Unfunded Actuarial Accrued Liability ("UAAL"). For the Fiscal Year ended June 30, 2013, total payroll costs of employees covered by OCERS was $59,966,096. As of the December 31, 2012 valuation, OCERS has an aggregate UAAL ratio of 62.52%, for a total UAAL on an actuarial basis of$5.68 billion. The District's retirement program includes Additional Retiree Benefit Account ("ARBA') benefits. ARBA benefits provide a monthly payment to retirees towards the premium costs of health insurance for the retiree and eligible dependents. The retiree is not required to use this amount for health insurance premium or to remain on the OCERS medical plan. Benefits vest upon retirement. The District pays 100%of the cost for the ARBA plan and utilizes a pay-as-you-go method for funding the plan. The District paid$421,650 in ARBA benefits during Fiscal Year 2012-13. Effective August 1, 2011, ARBA benefits we no longer available to new OCEA Group employees of the District. For more information regarding OCERS and the District's retirement plan as of June 30, 2013, see Note 6 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30,2013 set forth in Appendix A. The Comprehensive Annual Financial Reports of the Orange County Employees Retirement System are available on the OCERS website at http://www.ocers.org. The information on such website is not incorporated herein by such reference or otherwise. The District cannot predict whether the OCERS investment portfolio will experience additional losses in the future; however, any future losses could result in material increases in the District's required contributions. 20 Other Post-Employment Benefits In June 2004, Governmental Accounting Standards Board ("GASB") issued Statement No. 45, which requires state and local governmental employers to fund the actuarially determined annual required contribution ("ARC')for its post-employment benefits other than pension benefits (known as other post- employment benefits or"OPEB") or record the entire amount of the unfunded liability of its OPEB in its financial statements. OPEB includes healthcare and life insurance expenses and related liabilities, and an annual required contribution to fund such liabilities. The District adopted Statement No. 45 for the fiscal year beginning July 1, 2007, as required of a GASB "Phase 1 Agency." According to the District's actuary, Demsey Filliger Associates (the "Actuary"), the unfunded OPEB liability as of July 1, 2013 is approximately$11.6 million. The ARC is $755,078 for Fiscal Year 2013-14. Calculation of the ARC is based on the present value of benefits accruing in the current year,a 30-year amortization of the unfunded OPEB liability and an assumed rate of return on investments in the retiree fund of 4% per annum. The District does not believe that its OPEB liability will have a material impact on its operational results. Risk Management As of the date hereof, the District has in force basic all risk property and casualty insurance, including theft, fire, flood,terrorism and boiler and machinery losses at its plants and pump stations. The District is self-inswed for portions of workers' compensation,property damage and general liability. The self-insurance portion of workers' compensation is $750,000 per person per occurrence with outside excess insurance coverage to the statutory limit. The self-insured portion for property damage covering fire and other disasters is $250,000 per occurrence with outside excess insurance coverage to $1 billion. The self-insured portion for property damage covering flood is $100,000 per occurrence with outside excess insurance coverage to $300 million. The District also maintains outside comprehensive boiler and machinery insurance, including business interruption insurance, with a $100 million limit with deductibles ranging from$25,000 to$350,000. The District is self-insured for general liability coverage up to $250,000 per occurrence (except that employment practice liability is $500,000), with excess general liability coverage up to $30 million. In addition, the District relies on a combination of self-insurance and District reserves for all property damage from the perils of seismic activity as well as the expectation that some disaster relief funds may be available from the Federal Emergency Management Agency (`FEMA") to address any resulting damage. See "DISTRICT REVENUES — Reserves" and "— Integrated Emergency Response Program." There is no assurance that, in the event of a significant seismic event, a combination of self-insurance, District reserves or FEMA assistance would be available or sufficient for the repair or replacement of the effected property. During the past five fiscal years there have been no settlements in excess of covered amounts. Claims against the District are processed by outside claim administrators. The District believes that there are no uwecorded claims as of June 30, 2013 that would materially affect the financial position of the District. For more information regarding the District's insurance coverage as of June 30, 2013, see Note 1 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30,2013 set forth in Appendix A. Existing Facilities The Wastewater System presently consists of two wastewater treatment plants, an influent metering and diversion structure, 15 off-plant pump stations,various interplant pipelines and connections, and the ocean curtail facilities. The District's Wastewater System includes approximately 403 miles of sewers within 11 trunk sewer systems, 170 miles of local sewers located within a portion of Revenue 21 Area No. 7, two treatment plants, two discharge curtails and two emergency weir outlets. The existing treatment plants have a rated primary treatment capacity of 372 mg/d,including standby capacity. Treatment Plant No. 1 ("Plant No. 1") is located in the City of Fountain Valley, about fora miles from the coast, adjacent to the Santa Ana River. Secondary treatment capabilities are provided by a trickling filter plant and two conventional air activated sludge plants. Up to 105 mg/d of secondary treated effluent is conveyed to an Orange County Water District (the "OCWD") plant for tertiary treatment prior to reclamation and groundwater recharge. See "Groundwater Replenishment System" below. Treatment Plant No. 2 ("Plant No.2")is located in the City of Huntington Beach, 1,500 feet from the ocean, at the mouth of the Santa Ana River. Secondary treatment capabilities are provided by a Pure Oxygen Activated Sludge plant and a Solids Contact Trickling Filter plant. The District employs several phases in the treatment of wastewater. The first phase,preliminary treatment,removes debris such as eggshells, sand and other non-biodegradable items. See also"Preferred Level of Treatment" and "Biosolids Management" below. In the next phase, primary treatment, wastewater is pumped to large settling basins. The liquids are separated from the remaining solids which settle or float as the wastewater passes through large settling basins called clarifiers. The settled solids are sent to solids treatment facilities. All of the wastewater received by the District is sent to secondary treatment for further processing. During secondary treatment, the wastewater is treated with naturally occurring bacteria to remove most of the remaining dissolved and suspended microscopic organic solids. The treated wastewater from both plants is mixed together at Plant No.2,where it is then pumped through the ocean outfall pipe that extends five miles offshore. Set forth in Table 4 below are the treatment plants' approximate treatment capacities. Table 4 Wastewater System Treatment Capacities (mg/d) 2012-13 Primary Secondary Treatment Actual Flows Treatment Capacity Ca aci Plant No. 1 97 204 182 Plant No. 2 103 168 150 Aggregate Treatment 200 Z 332 Source: Orange County Sanitation District. The District also has the capability to divert a portion of the influent flow from Plant No. 1 to Plant No. 2 through interplant connections. A portion of the flow destined for Plant No. 2 can also be diverted to Plant No. 1. Another interplant facility allows gas generated during solids treatment to be transported between Plant No. 1 and Plant No. 2 and allows digester gas (which is used as fuel for many of the facilities' engines)from one plant to be used at the other to balance the supply and demand, which results in efficient gas utilization. Permits,Licenses and Other Regulations The District is subject to laws, roles and permits issued by federal, state, regional and local regulatory bodies. The Wastewater System is subject to regulations imposed by the 1972 Clean Water Act, Public Law 92-500 (the "Clean Water Act"), the California Environmental Quality Act of 1970, as amended ("CEQA") and the Federal Clean Air Act. The regulatory requirements are primarily 22 administered by the United States Environmental Protection Agency (the "EPA"), the California Air Resources Board, the Santa Ana Regional Water Quality Control Board ("RWQCB'), and the South Coast Air Quality Management District ("AQMD"). Regulations of these agencies deal primarily with the quality of effluent which may be discharged from the treatment plants and air quality emissions. The Clean Water Act directs the EPA to monitor and to regulate the discharge of pollution into navigable waterways and to enforce the requirements that all wastewater treatment plants in the nation provide full secondary treatment for sewage. In 1977, Congress amended the Clean Water Act to allow waivers of secondary treatment standards for certain ocean dischargers if they can demonstrate,to the satisfaction of the EPA that significant adverse environmental impacts would not occur. The District currently has all applicable permits and licenses necessary to operate its facilities. The District has discharged treated wastewater into the Pacific Ocean under a permit issued by the EPA and the RWQCB. The discharge permit included a waiver under the 301(h) provisions of the Clean Water Act, allowing for less than full secondary treatment based on an ocean discharge of sufficient depth,distance and dilution. The permit was initially issued in 1985 and was the first modified Section 301(h)permit issued to a major wastewater treatment facility. The permit was re-issued on May 6, 1998 and expired on June 8,2003. On July 17,2002,the Board of Directors adopted Resolution No. OCSD 02-14, "Establishing the Policy for Level of Treatment of Wastewater Discharged into the Ocean." This resolution established the District's policy to treat all wastewater discharges into the ocean to secondary treatment standards thereby providing for continued public safety, marine ecosystem protection, and water reclamation opportunities. To implement this policy, District staff was directed to immediately proceed with the planning, design, and implementation of treatment methods that will allow the District to meet Clean Water Act secondary treatment standards with the expressed purposes of eliminating the need for the permit waiver received under Section 301(h). The District completed these improvements by December 2012 at a total capital improvement cost of$537.8 million. Following the determination by the Board of Directors on July 2002 to implement full secondary standards, staff prepared the Secondary Treatment National Pollutant Discharge Elimination System ("NPDES") Permit Application that was required to be submitted to the regional office of the EPA and the RWQCB in December 2002. The NPDES Permit is separate and apart from the permit waiver received under Section 301(h), and once awarded would negate the need for a waiver. Achieving secondary treatment standards was originally projected to take nine years to complete, with completion expected in December 2012. Because ocean discharge permits are issued for only five years, and the EPA has no authority to waive the discharge limit requirements or grant a longer permit (except in accordance with Section 301(h)), the District decided to voluntarily seek a consent decree concurrently with the issuance of the new ocean discharge permit. This negotiated consent decree(the"Consent Decree")approves the schedule and decrees that no penalties will be imposed for discharges that exceed the secondary treatment limits during the period of construction. The Consent Decree was signed by the District, the EPA and the RWQCB and filed with the U.S.District Court on November 15,2004. The District is in compliance with the Consent Decree. The District is also subject to the requirements of the Federal Clean Air Act which mandates attainment with national ambient air quality standards for criteria pollutants (ozone, particulate matter, carbon monoxide,lead,nitrogen dioxide,and sulfur dioxide). Criteria air pollutants cause adverse effects on human health and environment. AQMD is the local air pollution control agency charged with implementing the Federal Clean Air Act. In addition to criteria pollutants, AQMD also implements numerous federal and state requirements related to the toxic air pollutants which can cause cancer or other severe localized health effects. The State's Air Toxic Hot Spots Act, for example, requires facilities to conduct health risk assessments and notify the neighboring communities if the health risk exceeds the regulatory thresholds. 23 Pursuant to AQMD's requirements, the District must obtain permits before sewage treatment improvement projects can be constructed and operated. Such permits are project specific and may contain conditions that govern design criteria, operating parameters, and emissions standards. Most of the District's treatment facilities are enclosed in order to capture and treat emissions to meet regulatory emissions standards and to minimize odor impact to the neighboring communities. The District's treatment plants are also subject to the requirements of Title V of the Federal Clean Air Act amendments. The Title V permit is a single air quality permit for a facility that consolidates and replaces all of the air permits for individual pieces of equipment previously issued by the local air quality district. The permit contains all of the applicable local, state, and federal requirements, including periodic self-certification of compliance and mandatory self-reporting of permit deviation. All Title V permit related reporting and documents submitted to the AQMD must be signed by the highest District official — in this case the General Manager. The Title V program also demands facilities to organize and conduct extensive training of the staff involved,including the field operation and maintenance staff. Another Title V important feature is a possibility of the public active participation and intervention in the cases of potential emission limits and monitoring violations. The District Title V permits did not receive any negative public responses or comments during the required public review period. The District received initial Title V permits for both treatment plants in January 2009. These Title V permits are issued for a five-year period. In anticipation of permit expiration in January 2014, the District recently submitted application packages for renewal of its Title V permits. [update] District Planning and Capital Improvement Program In November 2007, the Board of Directors adopted a new comprehensive strategic plan to consider the District's service levels and operational needs for the next five years. The Strategic Plan has been updated annually to continue looking at a five-year horizon(each,a"Five-Year Strategic Plan"). See "THE DISTRICT—Five-Year Strategic Planning." In December 2009, the Board of Directors adopted a Facilities Master Plan (the"Master Plan"). The Master Plan updated the planning processes set forth in the 1989 Master Plan,the 1999 Strategic Plan and the 2002 Interim Strategic Plan Update. The Master Plan also incorporates and implements the levels of services defined by the Board of Directors that are included in the 2009 Five-Year Strategic Plan. The result is a plan that integrates research, facilities planning, water conservation and reclamation, sludge reuse, other wastewater programs and financial planning into a single unified approach. Key components of the Master Plan include updated flow projections and collection system hydraulic modeling. The District expects to satisfy required sewer capacity and rehabilitation improvements for the Wastewater System through its Capital Improvement Program ("CIP"). The District annually reviews and validates its CIP. The CIP was developed to satisfy anticipated regulatory requirements, increased population, anticipated rehabilitations and replacements, additional treatment requirements, conservation, energy and other resource savings considerations, odor control improvements, and air quality protection needs. Through Fiscal Year 2030-31,the current CIP is scheduled to accomplish: • Major rehabilitation of the existing headworks, primary treatment, secondary treatment, outfall pumping, and solids handling facilities at both treatment plants; • Replace and rehabilitate nine of the District's outlying pumping stations, and 26 trunk sewer improvement projects;and • Reduce fence line odor to levels that do not generate odor complaints. The 2014 CIP Validation Study resulted in revisions to the CIP. The CIP currently consists of 115 individual capital projects through Fiscal Year 2030-31 with remaining outlays of$1.9 billion. Over 24 the next five years, the CIP contemplates average annual capital expenditures of$141.7 million based on the 2014 CIP Validation Study. Implementation of full secondary treatment standards was completed in December,2012. Set forth in Table 5 below is a summary of total estimated capital costs for the CIP for Fiscal Years 2014-15 through 2030-31. Table 5 Capital Improvement Program—Estimated Capital Costs Fiscal Years 2014-15 through 2030-31 Project Cost Collection System Capacity $ 215,855,000 Collection System Repair,Rehabilitation,Replacement 419,878,000 Treatment Plant Capacity 311,193,000 Additional Secondary Treatment 121,784,000 Improved Treatment 147,557,000 Treatment Plant Repair, Rehabilitation, Replacement 663,011,000 Support Facilities 33,096,00 Total Validated Capital Improvement Program $1.912.374.000 Source: 2012-13 Budget Update,Orange County Sanitation District. The CIP included budgeted expenditures of$169.2 million in Fiscal Year 2014-15. There we currently 37 projects in the construction phase with proposed capital outlay spending in 2014-15. The two most significant projects in the construction phase are the Sludge Dewatering and Odor Control at Plant 1 and the Newport Force Main Rehabilitation with projected Fiscal Year 2014-15 expenditures of$61.1 million and$20.4 million respectively. Groundwater Replenishment System The District has taken a multi-jurisdictional approach to planning for capital facilities because many of the methods for reducing or managing flows involve other jurisdictions. One such project is the Groundwater Replenishment System ("GWRS"). In March 2001, the District entered into an agreement with the OCWD to design and construct Phase I of the GWRS. The capital cost of this Phase was shared equally (50% shares) by each agency. The GWRS is a joint effort by the two agencies to provide reclaimed water for replenishment of the Orange County Groundwater Basin and to augment the seawater intrusion barrier. Phase I of the GWRS became operational in January of 2008. In 2013, GWRS produced approximately 72,000 acre-feet. The Phase II expansion broke ground in January 2012 to add approximately 33,000 acre-feet per year. The District expects the Phase II expansion to be completed in the first quarter of 2015. The Phase II expansion and all future phases will be funded solely by OCWD. The District has committed 168,000 acre-feet per year of secondary effluent to these future expanded operations. The District and OCWD amended their 2001 agreement in 2010 to provide OCWD with the first right of refusal of secondary treated water flows from the District's Fountain Valley-based Plant No. 1 for these future phases; however, no capital funding is anticipated or dedicated from the District for these future expansion phases. OCWD and the District have agreed to share equally in the cost of the Joint GWRS Microfiltration Backwash Redirection Project which will increase the quantity of water available during the early morning hours when the flows are low. This project will save the District operational costs in the form of reduced primary treatment chemical usage. 25 Preferred Level of Treatment In July 2002, the Board of Directors approved a change from the existing level of treatment, a blend of 50% advanced primary and 50% secondary treated wastewater, to full secondary treatment standards. The District completed all of the necessary expansion projects to support full secondary treatment by December 2012. See "THE DISTRICT — Permits, Licenses and Other Regulations." On July 20, 2012, the District received a new NPDES permit, that reflects the full secondary treatment requirements. Biosolids Management Through the treatment of wastewater,the District recovers and treats nutrient-rich, organic matter (solids) to produce biosolids. Biosolids can be recycled through composting or fertilizing farm fields (non-food) (land application) or disposed in a landfill for methane gas recovery. The District's goal is to ensure our biosolids management strategies align with existing market conditions and continue a sustainable,reliable,and economical biosolids management program that provides environmentally sound practices and meets the stringent federal, state,and local regulatory requirements. The District's biosolids averaged about 770 tons per day("tpd")in 2013,with an average cost per ton of$62.55 for managing at offsite locations, as described in the table below. The Fiscal Year 2013-14 budget for biosolids management is $17.94 million, with a slight increase anticipated to $18.6 million through Fiscal Year 2015-16. Over the next two fiscal years, the District's biosolids tonnage will be peaking at about 785 tpd until the following new facilities come online to reduce biosolids costs by about a third. • Irvine Ranch Water District is constructing solids processing facilities and will stop sending their solids to the District by the end of 2016. • Plant No. I centrifuges are currently under construction and anticipated to start creating drier solids and reducing hauling costs by mid-2017. • Plant No. 2 centrifuges will begin operating by early 2019. 26 Biosolids Management Contracts Current tons Contract per day Average cost (Minimum tons managed per ton Contractor Location Product Per day and ter (auuroximate (March 2014 Synagro Kem County,CA Compost 250 tpd—10 years plus two 250 tpd $75.18 five-year renewals,first renewal 12/27/16 Synagro La Paz County,AZ Compost 0 tpd— 10 years plus two 70 tpd $62.97 five-year renewals,first renewal 12/27/16 Title Ranch Yuma County,AZ Land 0 tpd—One year plus four 350 tpd $54.58 application (4)one-year renewals,first renewal 1/1/2015 Orange Orange County,CA Local 0 tpd—8 years plus one 70 tpd $53.06 County Landfill 10-year renewal,fast Waste& renewal 6/30/18 Recycling The District's contractors provide back-up biosolids management capacityin California and Arizona that include composting, land application, and landfill. Together, these options have the additional available capacity to manage more than ten timesthe District's daily biosolids production to ensure sustainable,consistent,and reliable operations. The District anticipates issuing a request for proposals ("RFP") in 2016 in advance of the Synagro contract renewal. In Fall 2013, the Board of Directors adopted a new Five-Year Strategic Plan that included studying biosolids management options in order to make recommendations for a potentially longer-term management option RFP in 2018. In 2003, the District was the first agency in the nation to be certified by the National Biosolids Partnership for its biosolids program. Certification requires regular third-party audits and a robust internal management system based on the ISO 14001 Environmental Management System standard. The District is committed to a diverse biosolids program to help ensure a sustainable, reliable, and economical program. Urban Runoff Recognizing that County beaches were being affected by pollution tamed by urban runoff, the Board of Directors adopted a number of resolutions agreeing to accept dry weather urban runoff into the sewer system. In June 2002, Assembly Bill 1892 amended the District's charter to formally allow the diversion and management of dry weather urban ranoff flows. Resolution No. 01-07, adopted March 28, 2001, declared that the District will initially waive fees and charges associated with authorized discharges of dry weather urban runoff to the sewer system until the total volume of all runoff discharges exceeds four million gallons per day ("MGD") calculated on a monthly average. For the first 12 years of the Urban Runoff Program,the average monthly flow averages remained less than the 4 MGD threshold thus avoiding user fee costs being assessed to the diversion pemdttees. In 2012, the District received a number of diversion proposals to deal with bacteria and selenium loading to the upper Newport Bay. The discharge from the additional proposed diversions combined with the existing diversion flows would 27 eventually exceed the four MOD fee threshold. On June 12, 2013,the Board adopted Resolution No. 13- 09 expanding the waiver of fees or charges on the treatment of dry weather urban runoff from four MOD to ten MGD. According to the Board,the change was necessary not only to protect the Cowry's coastal resources, but also to provide an economic benefit to the local economy by helping to keep our beaches open. There are currently 19 active urban runoff diversion structures, four owned and operated by the County, 11 owned and operated by the City of Huntington Beach, one owned and operated by the City of Newport Beach, two owned and operated by the IRWD, and one owned and operated by The Irvine Company. The Dry Weather Urban Runoff Program is administered by the Environmental Compliance Division which issues a discharge permit for each of the diversion structures. The permit functions as a control mechanism that specifically prohibits storm runoff and authorizes discharge only during periods of dry weather. The permit also establishes specific discharge limits, constituent monitoring, and flow metering requirements. In addition, the District conducts quarterly sampling and analysis of the urban runoff discharges to ensure discharge limit compliance for the various regulated constituents. Since 1999, the District has treated a total of 7.5 billion gallons of dry-weather urban mnoff that would otherwise have been discharged into the ocean with no treatment From January 1, 2013 through December 31, 2013, the daily average urban runoff flow ranged between 0.59 and 1.72 MGD with a cumulative total diversion of 408 million gallons for this period. At the existing operations and maintenance cost of$1,582 per million gallons (2012-13 rate), the District's cost for treating the urban runoff discharge for this period is estimated at$646,143. Due to increasingly strict receiving water quality standards, the District is receiving requests to accept additional urban runoff discharges. Five additional urban runoff diversions have been proposed to deal with bacteria and selenium loading to the Newport Back Bay Watershed: Peters Canyon in the City of Irvine, Big Canyon Wash in the City of Newport Beach, and the Delhi, Santa Fe, and Lane flood control channels in the City of Santa Ana. Peters Canyon Wash,which collects selenium from selenium- laden shallow groundwater, is the biggest contributor of selenium in the San Diego Creek watershed in dry weather. The proposed urban runoff flows will result in average monthly flows of 4-6 MOD. Integrated Emergency Response Program In recognition of the potential damage which could occur in the event of a major earthquake, flood, or other disaster, the District implemented an Integrated Emergency Response Program (the "IERP") in 1979. The IERP is a two-volume plan which contains policies, plans and procedures preparing for, and responding to, emergencies. The District also analyzed disaster preparedness issues and policies within the Master Plan, and within a 1994 document tilled Fault Rupture Hazard Investigation—Wastewater Treatment Plant No. 2. The disaster preparedness plan included in the Master Plan reviewed two possible major earthquake scenarios: an 8.3 Richter magnitude ("M") earthquake on the southern San Andreas fault system and an M 7.0 earthquake on the Newport-Inglewood fault zone, which includes Plant No. 2. An M 8.3 earthquake on the southern San Andreas fault,while on the whole more destructive than the M 7.0 Newport-Inglewood fault, may result in less damage to the District's service area due to the distance of the fault from most of the service area. However, the Master Plan stated that damage from such a major earthquake on the San Andreas fault would be extensive. Also, the Master Plan indicated that an M 7.0 earthquake on the Newport-Inglewood fault within five miles of the District's sewerage facilities could cause major destruction to those facilities. The disaster preparedness plan in the Master Plan indicated that it would not be economically feasible to upgrade all of the existing sanitary sewerage facilities to survive an earthquake of this magnitude along the Newport-Inglewood fault. The IERP outlines the policies and employee actions to be taken before, during and after an earthquake, earthquake response guidelines and damage assessment procedures. 28 The Master Plan analyzed the vulnerability of the sanitary sewerage facilities and operations of the District and planned a risk reduction program wherein the vulnerability of many of the District's sanitary sewerage facilities to an earthquake could be reduced by recommended retrofit construction measures. The Master Plan also recommended that designs of existing major structures which were constructed prior to development of current seismic design standards be reviewed and the structures strengthened,if necessary. Since the Master Plan and the 1994 Report, the District has completed retrofitting where deemed appropriate. Pursuant to the Master Plan, all recent and future projects have been, and will be, designed to the same high earthquake code standards as set for other essential services, such as hospitals and fire stations. Many of the older buildings analyzed in the Master Plan have been replaced by structures built after 1989. The Army Corps of Engineers' "All-River Plan" has mitigated any future flooding of the Santa Ana River system and potential threats to the District's Wastewater System. Also, both Plant No. 1 and Plant No.2 are built to federal standards. The IERP takes into account the damage potential posed by coastal flooding, tsunamis (large ocean waves generated by seismic activity) and windstorms. No assurance can be given that any such events would not have a material adverse impact on the Wastewater System. The Strategic Plan and IERP makes recommendations regarding fire protection of the Wastewater System. Most of the structures at Plant No. 1 and Plant No. 2 are constructed of fire-resistant materials. The IERP describes the procedures needed to respond to a possible disaster. For more information regarding emergency response policies, the disaster preparedness plan described in the IERP can be reviewed at the District's office. Five-Year Strategic Planning The Strategic Plan envisions an organizational culture that adheres to the District's core values and makes efficient and effective use of all available resources. Over the past six years, the District completed thirty-eight strategic goals and made strides to improve technical operations, biosolids management, odor control,and regulatory compliance. Through a newly developed Vision Statement,the District is committed to focusing efforts on customer service, protecting public health and the environment, fiscal responsibility, communications,partnering with others, and creating the best possible workforce. As a result of two Strategic Planning workshops, individual Board of Director's interviews, employee and management focus groups,the following eight new strategic goals were identified: 1. Odor Control—Completion of the Odor Control Master Plan. 2. Future Biosohds Management Options — Study biosolids management options including third parry contracts and onsite capital facilities. 3. Energy Efficiency — Continue to research new energy efficiency and energy conversion technologies. 4. Disinfection of Ocean Discharge — Develop an implementation plan that includes the technical,financial and societal factors associated with cessation of disinfection of the ocean discharge. 29 5. Local Sewer Transfers—Complete the transfer of 174 miles of local sewers serving parts of the City of Tustin and unincorporated areas north of the City of Tustin and local sewer transfers in the City of Santa Ana. 6. Legislative Advocacy and Public Outreach—Develop a unified legislative advocacy and public outreach program. 7. Future Water Recycling — Determine partnerships, needs, strategies, benefits and costs associated with recycling of Plant No. 2 effluent water. 8. Workforce Planning and Workforce Development—This initiative is ongoing and part of a comprehensive workforce planning and development effort to ensure that the District has the right people with the right skills and abilities, in the right place,at the right time. DISTRICT REVENUES Sewer Service Charges General. The District has the power to establish fees and charges for services of the Wastewater System. Such fees and charges are established by the District's Board of Directors and are not subject to review or approval by any other agencies. In Fiscal Year 1997-98, a Rate Advisory Committee (the "RAC") was established comprised of representatives from industrial, commercial and residential users. The goal of the RAC was to examine the then current rate structure and, if needed, develop recommendations for change. The RAC analyzed the District's rate structure to determine whether its then current sewer service user fees (now known as "Sewer Service Charges") were equitable among residential and industrial customers. This review resulted in a proposal to expand the number of non-residential user categories from one to 23 and to provide for gradual rate increases in seven of the nine Revenue Areas. The Sewer Service Charges for those categories were based on the average flow and strength of wastewater discharged for each property type and remain currently in use. The Board of Directors establishes the annual sanitary sewer service charges by ordinance. The sanitary sewer service charge ordinances are adopted by a two-thirds vote of the Board of Directors as required under law after conducting a noticed public hearing in compliance with Proposition 218. See "LIMITATIONS ON TAXES AND REVENUES — Article XIIIC and Article XIIID of the California Constitution." In May 2002, the Board of Directors adopted District Ordinance No. OCSD 18 (the "2002 Ordinance") which became effective on July 1, 2002. The 2002 Ordinance included a single family residential ("SFR") rate increase, the underlying basis for all sanitary sewer service charges including sanitary sewer rates for multi-family residential units as well as most commercial and industrial properties, of $7.50 per year, or 9.4%, to $87.50 per year. hi June 2003, the Board of Directors authorized a Proposition 218 notice on proposed"not to exceed"rate increases for each year over the next five years. The District collects Sewer Service Charges from property owners through the semi-annual property tax bill distributed by the County throughout the District, except in Revenue Area No. 14. Pursuant to the IRWD Agreement, the District receives quarterly fee payments from the IRWD which directly collects fees from customers through a monthly billing procedure in Revenue Area No. 14. The District currently participates in the County's Teeter Plan under which the District receives annually 100% of the secured property tax levies to which it otherwise is entitled, regardless of whether the County has actually collected the levies. 30 The District has covenanted in the Master Agreement to fix, prescribe and collect fees and charges to satisfy certain coverage requirements as further described under "SECURITY AND SOURCES OF PAYMENT FOR THE NOTES—Rate Covenant"herein. Residential and Commercial Sewer Service Charges. Pursuant to the 2002 Ordinance, the District established residential Sewer Service Charges, except within Revenue Area No. 14, based on the cost of services and facilities provided to each customer of the District. The noticed public hearing held in connection with the 2002 Ordinance considered increases in the amount of the annual charges of approximately 20% per year for each of the then following five years. In May 2005, the Board of Directors adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06 single family residential rate, the underlying basis for all sewer service charges, by 31%, from $115.00 to $151.00 for all ratepayers, except those located in Revenue Area No. 14. In June 2007, the Board of Directors adopted Ordinance No. OCSD-32 increasing the Fiscal Year 2007-08 single family residential rate by 9.8%. On February 27, 2008, the Board of Directors approved increases in its sanitary sewer service charges for all single family and multi-family residential units, and for all commercial properties. The Board of Directors increased the single family residential rate, which is the basis for all of the District's sewer service charges, by 10.4% for Fiscal Year 2008-09, 10.0% for Fiscal Year 2009-10, 10.4% for Fiscal Year 2010-11, 9.4% for Fiscal Year 2011-12 and 10.1% for Fiscal Year 2012-13. On March 27, 2013, the Board of Directors adopted Ordinance No. OCSD-41 approving increases in its sanitary sewer service charges for all single family residences, multi-family residential units, and all non-residential properties. The Board increased the single family residential rate, which is the basis for all of the District's sewer service charges, by 4.8% for Fiscal Year 2013-14 and thereafter by an average annual increase of 2.4%for each Fiscal Year through Fiscal Year 2017-18. Set forth in Table 6 below is a comparison of the Sewer Service Charge rate for single family residences for the fiscal years shown. Table 6 Annual Sewer Service Charges Single Family Residence Rate Ten Year Rate Schedule Fiscal Years 2009-10 through 2018-19 Historical Projected Fiscal Sewer Service Fiscal Sewer Service Year Charee Year Charee 2009-10 $221 2014-15 $316 2010-11 244 2015-16 323 2011-12 267 2016-17 331 2012-13 294 2017-18 339 2013-14 308 2018-19 Source: Orange County Sanitation District. Set forth in Table 7 below are the total average annual Sewer Service Charges for single family residences ("SFR") within the District, together with comparable total average annual charges for wastewater service within the jurisdictions of certain other cities and districts within the State as of the dates indicated. The District's approved SFR rate of$308 in Fiscal Year 2013-14 remains below the average annual sewer rate of $484 according to a Fiscal Year 2012-13 survey of 759 agencies encompassing all 58 counties in California conducted by the State Water Resources Control Board. 31 Table 7 Comparison of Total Sewer Service Charges For Single family Residences As of July 1,2013 Average Dry Annual Weather Sewer Flow Service Treatment Collection Property Tax Entity m d 1) Charee") Level")1) Responsibility") Income") City of San Diego 168 $573 2 Yes No City of Los Angeles 428 409 4 Yes No East Bay MUD 80 331 4 No Yes Sacramento County 140 312 3 No Yes Orange County 221 308 3 No Yes Sanitation District Los Angeles County 497 150 4 No Yes Source: Information obtained from respective entities listed. n) Treatment Level Categories: "1"—Primary treatment. "2"—Advanced primary or primary with some secondary treatment. "3"—Secondary treatment. "4"—Advanced secondary or secondary with some tertiary treatment. (3) "5"—Tertiary treatment. Source: Wastewater User Charge Survey Report by the California State Water Resources Control Board. Industrial Sewer Service Charges. The District charges industrial Sewer Service Charges to customers discharging high-strength or high-volume wastes into the sewer systems. Customers subject to industrial Sewer Service Charges are billed directly by the District. The fee charged to each customer is based on the customer's sewage volume, the concentration of suspended solids and biochemical oxygen demand. Pursuant to the 2002 Ordinance, rates for each component factor were revised for certain industrial users in order to be consistent with the rates charged to residential users. Total industrial Sewer Service Charges in Fiscal Year 2012-13 were approximately $11 million. Industrial Sewer Service Charges are applied to both operating and capital funds. The Sewer Service Charge increases described above are necessary to meet the District's cash flow needs arising from the addition of disinfection treatment and other operating requirements. As projected through Fiscal Year 2030-31, the cash flow needs of the CIP total approximately $1.9 billion. Over the next five years the CIP contemplates average annual capital expenditures of$1141.71 million. In addition, the CIP contemplates $212 million, or an annual average of$42 million, to finance projects currently unlmown or unidentified as forecasted by the District's Asset Management Program(the"Asset Management Program"). Additional Revenues The District has several sources of additional revenue, including property taxes, Capital Facilities Capacity Charges,capacity rights,permit and inspection fees and interest earnings. Property Taxes. The District receives approximately 2.5%of the one percent County ad valorem property tax levy, based on the allocation procedure under State law. Property tax revenues were $64.8 million in Fiscal Year 2009-10, $64.3 million in Fiscal Year 2010-11, $67.9 million in Fiscal Year 2011- 12, $77.3 million in Fiscal Year 2012-13, and we projected to be $74.0 million in Fiscal Year 2013-14. Because of one-time redevelopment dissolution property tax proceeds received in Fiscal Year 2012-13, 32 the District projects that its property tax receipts will remain flat in Fiscal Year 2013-14,but increase by approximately 5.0% each year thereafter through Fiscal Year 2018-19. The apportionment of the ad valorem tax is made pursuant to a revenue program adopted by the District in April 1979 to comply with EPA and RWQCB mandates,legal and contractual requirements and Board of Director's policy. Capital Facilities Capacity Charges. Capital Facilities Capacity Charges (commonly referred to as connection fees) are one-time fees with two components, paid at the time property is developed and connected to the Wastewater System. The fees are imposed by the District pursuant to Section 5471 of the California Health and Safety Code and are levied to pay a portion of the District's capital costs and for access to capacity in the Wastewater System. The District currently has Capital Facilities Capacity Charges of $3,341 per residential unit (three-bedroom); however, under the current industrial use ordinance, additional Capital Facilities Capacity Charges can be imposed on industrial users who place larger than average demand on the Wastewater System. Member cities and sanitary districts collect Capital Facilities Capacity Charges for the District when building permits are issued. Capital Facilities Capacity Charges are reviewed annually to reflect the changes in the value of the Wastewater System to which a new customer is connecting. On December 15, 1999, the Board of Directors approved District Ordinance No. OCSD 99-11 (the"1999 Ordinance")which established a comprehensive Capital Facilities Capacity Charge. The 1999 Ordinance, effective as of January 1, 2000, renamed connection fees as Capital Facilities Capacity Charges and provided a more equitable schedule of fees among industrial, commercial and residential users. Pursuant to the 1999 Ordinance, Capital Facilities Capacity Charges were revised for high demand industrial users in five incremental increases from 1999 through 2001. For a summary of historical and projected revenues derived from Capital Facilities Capacity Charges, see Table 14 and Table 15 below. Pursuant to an agreement with the IRWD, the IRWD is not required to pay Capital Facilities Capacity Charges and, in exchange, the IRWD provides funding to the District for the construction costs of certain wastewater collection, transmission, treatment and disposal facilities to be used by the IRWD and is obligated to make certain payments to the District for certain services arising from the Wastewater System(including any standby or availability charges). Sale of Capacity. The District has entered into agreements with the Santa Ana Watershed Project Authority ("SAWPA") whereby wastewater from Upper Santa Ana River Basin dischargers can be transported through the District's Santa Ana River Interceptor to the District's wastewater treatment facilities. This program was developed in the early 1970s. The agreements establish control mechanisms regarding the quality of wastes deposited into the Wastewater System. At the present time, SAWPA has purchased and paid for 30 mg/d of maximum regulated flow capacity rights in the District's Santa Ana River Interceptor and 17 mg/d of monthly average flow capacity in the District's wastewater treatment plants. Projected revenues from SAWPA range from$4.5 million to$5.3 million over the next five years. Additional treatment plant capacity can be purchased in increments at the District's current replacement cost. Federal Subsidy Payments. In connection with the District's Revenue Obligations,Series 2010A (the "2010A Revenue Obligations") and the District's Revenue Obligations, Series 2010C (the "2010C Revenue Obligations"), issued as `Build America Bonds," the District is scheduled to receive certain federal subsidy payments of approximately $5.1 million annually through 2031 and lesser amounts thereafter until 2044. Subsidy payments with respect to the 2010A Revenue Obligations and the 2010C Revenue Obligations constitute Revenues as defined in the Master Agreement. In its fmancial reports,the District accounts for subsidy payments received in connection with the 2010A Revenue Obligations and the 2010C Revenue Obligations as a reduction in interest expense with respect to such obligations. For the 2010A Revenue Obligations and the 2010C Revenue Obligations to be and remain Build America Bonds, the District must comply with certain covenants and establish certain facts and 33 expectations with respect to the 2010A Revenue Obligations and the 2010C Revenue Obligations,the use and investment of proceeds thereof and the use of property financed thereby. Thus, it is possible that the District may not receive the federal subsidy payments due to the District's noncompliance. The federal subsidy payments are also subject to offset against amounts that may, for unrelated reasons, be owed by the District to any agency of the United States of America. On March 1, 2013, the federal government announced the implementation of certain automatic spending cuts known as the sequester. As a result of the sequester, federal subsidy payments for the 2010A Revenue Obligations were reduced by 8.7% (or $67,874) and federal subsidy payments for the 2010C Revenue Obligations were reduced by 8.7% (or $152,807) for the federal fiscal year ending September 30, 2013. According to the Internal Revenue Service, subsidy payments will be reduced by 7.2% for the federal fiscal year ending September 30, 2014. The District is obligated to make all payments with respect to the 2010A Revenue Obligations and the 2010C Revenue Obligations, however, from Revenues as defined in the Master Agreement, regardless of whether it receives the full amount of federal subsidy payments. The District cannot predict whether future reductions in federal subsidy payments will occur due to the sequester. However, the District does not believe that any reduction in federal subsidy payments will have a material adverse effect on the District's ability to pay the 2010A Revenue Obligations or the 2010C Revenue Obligations Wastewater Treatment History The wastewater flows for Fiscal Year 2008-09 through Fiscal Year 2012-13 were 211 mg/d, 196 mg/d, 207 mg/d, 201 mg/d and 200 mg/d,respectively. The highest flow rate experienced was during El Nino storm periods. Peak flows of 500 mg/d were recorded in December 1997 and February 1998. There were no sewer failures or overflows during these events. Customers The historical number of customers served by the District for the Fiscal Years 2009-10 through 2013-14 and the projected number of customers served by the District for the Fiscal Years 2014-15 through 2018-19, identified in Equivalent Dwelling Units ("EDUs"), are set forth in Table 8 and Table 9 below. As discussed below, sewer service charges are based on the expected meant of wastewater flow for a single family dwelling. This base amount is considered the "equivalent dwelling unit" Set forth in Table 8 below are the EDUs that equate to total Sewer Service Charge levies, while the EDUs set forth in Table 9 equate to total sewer service charge collections. 34 Table 8 Historical and Projected Equivalent Dwelling Units Fiscal Years 2009-10 through 2018-19 Historical Projected Fiscal Year EDUs(l) Fiscal Year EDUs 2009-10 930,164 2014-15 920,506 2010-11 924,622 2015-16 923,175 2011-12 924,525 2016-17 925,898 2012-13 915,685 2017-18 928,676 2013-14 917,936"' 2018-19 931,462 With respect Fiscal Years, presentation in the Statistical Section of the District's Comprehensive Annual Financial Rcporl set forth in Appendix A includes EDUs that equate to total Sewer Service Charge collections rathcr than levies. n) EDUs projected in current budget as of June 2013. Source: Orange County Sanitation District. Set forth in Table 9 below are the number of residential and commercial customers and industrial customers and the approximate percentages of Sewer Service Charge revenues derived from the combined residential and commercial use and industrial use for the last five fiscal years. Table 9 Number of Accounts and Revenues by Customer Class for the Fiscal Years 2009-10 through 2013-14 ($in Millions) Residential/Commercial Industrial Number of Percentage Percentage Equivalent of Sewer of Sewer Single- Service Number of Service Family Total Charge Customer Total Charge Fiscal Year Dwellim, Revenue Revenues Accounts Revenue Revenues 2009-10 875,442 $193.5 95% 487 $10.8 5% 2010-11 874,130 213.3 95 479 10.1 5 2011-12 869,709 232.2 96 516 9.5 4 2012-13 879,443 258.6 96 527 10.8 4 2013-14 889,02301 273.801 960) 486tD 12.91u 40) Source:Orange County Sanitation District. (n Projected. Set forth in Table 10 below are the ten largest principal sewer service customers of the District for the Fiscal Year ended June 30,2013. 35 Table 10 Largest Principal Sewer Service Customers of the District for the Fiscal Year Ended June 30,2013 Sewer Service User Charees Stremicks Heritage Foods,LLC $ 986,404.98 House Foods America Corp. 953,541.81 Kimberly-Clark Worldwide, Inc. 903,947.22 Dean Foods Co. of CA Inc. 890,942.89 MCP Foods,Inc. 870,130.48 Pulmuone Wildwood,Inc. 574,796.70 Schreiber Foods Inc. 473,288.56 Jazz Semiconductor 446,893.60 Nor-Cal Beverage Co.hie. (NCB) 416,000.20 Pepsi-Cola Bottling Group $ 394,930.48 Total $6.910.876.92 Source: Orange County Sanitation District. Assessed Valuation The assessed valuation of property in the County is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Due to changes in assessment required under State Constitution Article XHIA, the County assessment roll no longer purports to be proportional to market value. See "LIMITATIONS ON TAXES AND REVENUES" herein. Generally,property can be reappraised upward to market value only upon a change in ownership or completion of new construction. The assessed value of property that has not incurred a change of ownership or new construction must be adjusted annually to reflect inflation at a rate not to exceed 2% per year based on the State consumer price index. In the event of declining property value caused by substantial damage, destruction, economic or other factors, the assessed value must be reduced temporarily to reflect market value. For the definition of full cash value and more information on property tax limitations and adjustments,see"LIMITATIONS ON TAXES AND REVENUES"herein. The County Assessor determines and enrolls a value for each parcel of taxable real property in the County every year. The value review may result in a reduction in value. Taxpayers in the County also may appeal the determination of the County Assessor with respect to the assessed value of their property. 36 Set forth in Table 11 below is a five-year history of assessed valuations in the District for the fiscal years shown. Table 11 Assessed Valuations of Property in the District Fiscal Years 2009-10 through 2013-14 ($in Billions) Fiscal Year Value %Chance 2009-10 $305.2 (0.80%) 2010-11 304.3 (0.27) 2011-12 308.7 1.43 2012-13 316.4 2.48 2013-14 329.3 4.09 Source: Orange County Auditor-Controller. Tax Levies and Delinquencies Property taxes we based on assessed valuation which is determined as described under "DISTRICT REVENUES—Assessed Valuation"herein. In accordance with the California Revenue and Taxation Code, the County tax collector collects secured tax levies for each Fiscal Year. Property taxes on the secured roll are due in two installments, on November 1 and February 1. The District currently participates in the County's Teeter Plan under which the District receives annually 100% of the secured property tax levies and Sewer Service Charges to which it otherwise is entitled,regardless of whether the County has actually collected the levies. This alternative method provides for funding each taxing entity included in the Teeter Plan with its rural secured property taxes during the year the taxes are levied, including any amount uncollected at fiscal year-end. Under this plan, the District's general fund receives the full amount of secured property taxes levied each year on its behalf and, for so long as such plan remains in effect, the participating entities, such as the District, no longer experience delinquent taxes. The County's general fund is the designated recipient of future collections of penalties and interest on all delinquent taxes collected on behalf of participants in this alternative method of apportionment. In recent years, the County has experienced delinquencies of Sewer Service Charges in the District of approximately 2.0%. Set forth in Table 12 below is a five-year history of the District's ad valorem total property tax and Sewer Service Charge levies. 37 Table 12 Total Property Tax and Sewer Service Charge Levies in the District for Fiscal Years 2009-10 through 2013-14 (In Thousands) Total Property Tax and Sewer Fiscal Year Service Charge Lew 2009-10 $272,050 2010-I1 292,646 2011-12 314,077 2012-13 340,298 2013-14 356,904 Source: County of Orange Auditor-Controller. Budgetary Process The District's operating fund budget relies on revenues from Sewer Service Charges and property taxes,both of which are collected on the property tax bill, as previously described under the captions" Sewer Service Charges" and " Additional Revenues." The District receives tax revenues from the County in eight allocations, with the largest receipts in December and April. The District operates on a Fiscal Year beginning each July 1. The operating fund budgets include funds to cover the dry period of each tax year, i.e., the period from the beginning of the Fiscal Year until the first taxes are received. The dry-period requirement is budgeted at one-half of the annual operating fund budgeted expenditures. The District uses the accrual method of accounting in its budgets. The District has conformed to its budgets for the last five fiscal years and is conforming to its budget for the current fiscal year. The District's annual budget preparation process begins in January of each year and concludes in June upon its adoption. The General Manager reviews the final operating budgets and then distributes them to the Directors and District Committees for consideration. The Board of Directors then adopts the proposed annual budgets,with any revisions,in June of each year. Budgetary control is exercised at the individual Department level and administrative policies provide guidelines on budget transfers and the authorization necessary to implement transfers. A budget adjustment is a transfer which does not change the total appropriated amount and does not require Board of Directors action. Approval may be granted by the General Manager or the Department Head in certain circumstances. Department Heads have the discretion to reapportion funds between certain line items within a division but may not exceed total appropriated amounts for each department. They may also transfer staff across divisional lines. The General Manager and Board of Directors must approve additional capital outlay items. A budget amendment is an adjustment to the total appropriated amount which was not included in the original budget. These supplemental appropriations require formal action by the Board of Directors. Prior year reserves or fund balances may be appropriated to fund items not previously included in the adopted budget. Reserves or fund balances exceeding minimum amounts required by fiscal policies may be appropriated if it is determined to be in the best interest of the District. Directors may also appropriate reserves in case of emergencies or unusual circumstances. Reserves The District has an established reserve policy with eight separate categories for its reserve funds. Collectively, these individual reserve requirements total over $500 million for each year of the current 38 ten-year cash flow forecast. In Fiscal Year 2009-10, Financial Management staff and the Board of Directors concluded that given the nature of the likely events that may cause a withdrawal from the District's reserves and the degree of overlap among reserve categories,the total amount reserved need not equal the sum of each separate reserve category. As a result, the District adjusted the application of its reserve policy, leading to a reduction of $40 million of the accumulated total, or approximately 8%. Reserve levels are calculated in accordance with the District's reserve policy. Set forth in Table 13 below are the actual reserves at June 30, 2011, June 30, 2012 and June 30, 2013, and projected reserves at June 30,2014 for each had. Table 13 Cash Reserves June 30, 2011 through 2013 and Projected at June 30,2014 (In Minions) Actual Projected 2011 2012 2013 2014 June 30 June 30 June 30 Jane 30 Cash Flow Requirements Reserve— Operating Expenses $ 75 $76 $ 76 $ 71 Certificates of Participation Payments 97 92 98 83 Operating Contingencies Reserve 15 15 15 14 Capital Improvement Program Reserve 154 171 209 310 Catastrophe and Self Insurance 57 57 57 57 Capital Replacement and Refurbishment 57 59 61 61 Debt Service Required Reserves(') 142 138 135 132 Total $597 $.64.8 S651 s728 "Debt"Debt Se1� Reserves" constitute all amounts held in Obligation Reserve Funds, together with additional amounts held by the District that may be used for the payment of debt service on District obligations in accordance with the District's reserve policy. As of Jane 30, 2013, $135 million of Debt Service Required Reserves were held in Obligation Reserve Funds,of which$53.1 million is restricted by covenant for the specific obligations for which such Obligation Reserve Funds were established. Source: Orange County Sanitation District. The District has the following reserves: • The Cash Flow Requirements Reserve was established to fund operation, maintenance and certificates of participation debt service expenses for the first half of the fiscal year, prior to the receipt of the first installment of the property tax allocation and sewer service user fees which are collected as a separate line item on the property tax bill. The level of this reserve is established as the sum of an amount equal to six months operations and maintenance expense and the total of certificates of participation debt service expenses due in the subsequent fiscal year. • The Operating Contingencies Reserve was established to provide for non-recurring expenditures that were not anticipated when the annual budget and Sewer Service Charges were adopted. The level of this reserve is equal to 10% of the District's annual operating budget. • The Capital Improvement Program Reserve was established to fund annual increments of the Capital Improvement Program with a target level at one-half of the average annual Capital Improvement Program through the yew 2020. Levels higher and lower than the target can be 39 expected while the long-tenn financing and capital improvement programs are being finalized. • The Catastrophic Loss, or Self-Insurance Reserve is established for property damage including fire, flood and earthquake, general liability and workers' compensation. The level of reserve in this fund is maintained at a level to fund the District's non-reimbursed costs which are estimated to be$57 million. • The Capital Replacement and Refurbishment Reserve was established to provide 30% of the funding to replace or refurbish the current collection, treatment and disposal facilities. The current replacement value of these facilities is estimated to be approximately $6.2 billion. The initial reserve level for this fund was established at $50 million and is augmented by interest earnings and a portion of the annual Sewer Service Charges. • Debt Service Required Reserves include trustee-held amounts in any Obligation Reserve Fund and additional amounts held by the District for the payment of debt service in accordance with the District's reserve policy. The District's current policy is to maintain reserves (including trustee-held reserves) for debt service in the amount of 10% of the principal amount of the District's outstanding debt obligations. • The Rate Stabilization Reserve accumulates all available funds which exceed the targets for all other reserves. The Rate Stabilization Reserve is a separate fund from the Rate Stabilization Account established under the Trust Agreement. There is currently no established target for this reserve and, because the reserves of all other funds have not been exceeded, the reserve level for this reserve fund has been zero for Fiscal Year 2010-11 through Fiscal Year 2013-14. Summary of Operating Data Set forth in Table 14 below is a summary of historic operating results for the District for Fiscal Years 2009-10 through Fiscal Year 2012-13 and projected results for Fiscal Year 2013-14. The information presented in the summary should be read in conjunction with the financial statements and notes. See APPENDIX A — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED.TUNE 30,2013." 40 Table 14 Summary of Historical District Revenues and Expenses and Other Financial Information For Fiscal Years 2009-10 through 2012-13 and Projected for Fiscal Year 2013-14 ($in Millions) Audited Projected 2009-10 2010-11 2011-12 2012-13 2013-14 Revenues: Residential&Commercial Sewer Service Charges(l) Regional $193.5 $213.3 $232.2 $258.6 $273.5 Local 5.6 5.7 5.7 5.8 5.8 Industrial Sewer Service Charges 10.8 10.1 9.5 13.5 13.3 Revenue Area No. 14 Fees 10.2 21.4 18.0 27.5 8.5 Ad Valorem Taxes 64.8 64.3 67.9 77.3 74.0 Interest Earnings 19.2 10.1 15.7 (3.6) 3.8 Other Revenues 12.5 5.7 3.6 4.6 2.0 Total Revenues $316.6 $330.6 $352.6 $383.7 $380.9 Operations and Maintenance Expenses(2) 138.1 143.4 172.313i 149.8 142.9 Net Revenues S178.5 S187,2 $180.3 $233, S23$,4 Debt Service S 67.1 5 72 a $ 65.4 $ 77.6 5 82 6 Coverage Ratios 2.66x 2.59x 2.76x 3.Olx 2.88x CIP Outlay %251.1 S160,7 $101.7 $ 97.fi S 92.7 Ending Reserves $473.0 $527. $608.0 $615. S727 6 Net of rebates, if any, to commercial users. Local sewer service fees were not established until Fiscal Year 2008-09. (2) Excludes depreciation and amortization expenses. ro) Includes a one-lime write-down of$34.2 million for costs of feasibility studies (which costs were previously capitalized and being amortized over a five-year period)to properly conform to generally accepted accounting principles. Source: Orange County Sanitation District. 41 Projected Operating Data Set forth in Table 15 below are forecasted operating results for the District for Fiscal Years 2014- 15 through 2018-19. These projections assume the number of projects and scheduled build out set forth in the 2014 CIP Validation Study, and reflect the Board-approved rate increase of 2.6% in Fiscal Year 2014-15, and the average annual rate increases of 2.4% over the following three fiscal years. Principal expenditure components of these projections are derived from the 2014 CIP Validation Study, which identified 77 large capital projects and 38 special projects with a 20-year projected outlay of$1.9 billion. Much of the construction is scheduled during the next five years, with average annual capital outlays of $164 million. The District's projected CIP cash flow outlay for Fiscal Year 2013-14 was approximately $92.7 million. The District's CIP cash flow budget for Fiscal Year 2014-15 is $186.4 million. This CIP budget finances joint works treatment and disposal system improvement projects, and collection system improvement projects. The preparation of such projections was based upon certain assumptions and certain forecasts with respect to conditions that may occur in the future. While the District believes that these assumptions and forecasts are reasonable for the purposes of the projected selected operating data,it makes no representation that they will in fact occur. To the extent that actual future conditions differ from those assumed herein,the data will vary. [Remainder of page intentionally left blank.] 42 Table 15 Summary of Projected District Revenues and Expenses and Other Financial Information for Fiscal Years 2014-15 through 2018-19 ($in Millions)") 2014-15 2015-16 2016-17 2017-18 2018-19 Revenues Residential&Commercial Sewer Service Charges $288.9 $296.3 $304.5 $312.9 $321.4 Industrial Sewer Service Charges 13.7 14.0 14.3 14.7 15.0 IRWD Assessments 14.2 13.5 8.8 4.6 5.0 SAWPA Assessments 2.5 2.7 2.8 2.9 3.0 Ad Valorem Taxes 77.7 81.6 85.7 90.0 94.5 Interest Earnings 13.1 14.7 17.4 17.5 20.6 Other Revenues 1.7 1.7 10.1 1.8 1.8 Total Revenues $411.8 $424.5 $443.6 $444.4 $461.3 Add: Build America Bonds Federal Subsidy $ 5.1 $ 5.1 $ 5.1 $ 5.1 $ 5.1 Operations and Maintenance Expenses (152.5) (155.0) (158.8) (162.6) (169.9 ) Net Revenues(2) $2644 $274.6 $289.9 $286.92 65 Debt Service $ 85.8 $ 86.7 $ 91.7 $ 87.8 $ 86.0 Build America Bonds Federal Subsidy 5.1 5.1 5.1 5.1 5.1 Gross Debt Service $ 909 $ 9L8 S 96.8 S-92.9 S 91.1 Coverage Ratios(r) 191x 2 99x 2 99x 3 09x 3 25x CIE Outlays $186.4 206. $196.6 205. $198.8 Ending Reserves $599.8 $587.4 593.1 $590.7 $606.9 See REVENUES-Additional Revenues-Federal Subsidy Payments"herein. tt) Calculated in accordance with the Master Agreement and the Installment Purchase Agreement. (a) Assumptions: a) Annual growth in EDUs is projected to increase 0.3%over the next five years. b) The Residential and Commercial Sewer Service Charge and the Industrial Sewer Service Charges forecasts are based on the total projected EDUs, and the actual board approved rate increase of 2.6% in Fiscal Year 2014-15,and board approved rate increases over the next three years averaging 2.4%per year. c) Revenue Area No. 14 Fees are derived based on the projected contribution of sewage flows to the District from the IRWD. d) Ad valorem taxes are projected with annual increases of 5.0%. e) Interest earnings are projected to average 2.0%of annual cash balances. 1) Operating and Maintenance Expenses are forecasted with a base increase of 1.1%per year with adjustments for known periodic outlays that do not occur annually. g) Annual CIP Outlays are based on the cash flow projections developed from the CIP Validation Study. Source: Orange County Sanitation District. 43 Management's Discussion and Analysis of Operating Data The District's Fiscal Year 2014-15 total operating, capital improvement, debt service, and other financing requirement budget is $554.4 million, a 39.6% increase over the prior yen budget of$397.0 million. This overall increase is primarily attributable to a one-time reduction of$125 million in long- term liabilities. This one-time reduction is the result of the CIP program being scheduled out into future years and the receipt of unexpected one-time revenues. This $125 million one-time reduction will consist of either a pay down of the $200 million current unfunded accrued actuarial pension liability, the $25 million current unfunded accrued actuarial "other postemployment benefit" liability, or the $1.2 billion outstanding bonded debt,or some combination of all three. Excluding this one-time reduction,the total proposed cash flow budget for Fiscal Yen 2014-15 totals $429 million, an 8.2% increase over the prior year. This overall increase consists of an increase in capital outlay of$41.5 million or 28.2%, a decrease in debt service requirements of$12.4 million or 12.6%, and an increase in operating expenses of $3.2 million or 2.1%. The Fiscal Yen 2014-15 proposed budget to operate, maintain and manage our sewage collection, treatment and disposal system is $152.5 million, an increase of 2.1% over the prior year budget. Personnel costs have increased by$1.2 million,or 1.2%, due to the retirement of many long-term employees, as there were 23 retirees in Fiscal Year 2013-14 and 17 retirees in Fiscal Year 2012-13, and the time required to refill these vacant positions. As of Much 31, 2014, there were 44 vacant positions, or 7.0%of total staffing, and staffing levels are proposed to remain unchanged from the current full-time equivalent("FTE")positions of 626.0. Repairs and maintenance costs are proposed to increase $1.8 million or 15.8%. This increase is mostly attributable to increases in basic repairs and maintenance costs including the scheduling of digester cleanings totaling $1.0 million and one central generation engine overhaul totaling $893,000. Contractual services are proposed to increase $0.9 million, or 4.0%, due primarily to a$382,000,or 2.1% increase in solids removal. This increase is due to both unit cost increases and the increase in production as biosolids production is projected to increase to 765 tons per day,up from the prior year estimate of 756 tons per day, with secondary treatment processes being fully operational. Security services, another component of contractual services,me proposed at an increase of$199,600,or 49.9%. Overhead cost allocation out to the CIP has been reduced by $1.5 million, or 8.1%reduction due to decreased CIP outlay over the past several years. Conversely affecting these operating increases,chemical supplies have decreased$1.0 million,or 6.8%, as a result of the decrease disinfection, odor control, and chemicals used in the treatment process due to chemical optimization and decreased disinfection requirements. In addition,property and liability insurance premiums are proposed to decrease $900,000, or 64.3%, due favorable market conditions on premiums for insurance renewals. In preparation of the Fiscal Year 2014-16 biennium budget,District staff developed and reviewed with the Board of Directors a capital improvement program to deliver the levels of service included in the District's five-yen strategic plan. These levels of services and associated capital projects are included in the District's Five-Year Strategic Plan. In addition, District staff validated the active CIP projects currently being executed to ensure that the scope of work on the active projects remains appropriate, and that the cost estimates have been accurately updated. The Fiscal Year 2014-15 CIP cash flow budget was approved at $186.5 million. The 2014 validated CIP includes 77 large capital projects and 38 special projects with 20-year outlays totaling$1.9 billion. The completion of the CIP Validation Study in 2013 reaffirmed the need for rate increases in future years. Based on the results of the CIP Validation Study and the Five-Year Plan, the Board of Directors adopted Ordinance No. OCSD-41, increasing the sanitary sewer service charges by 44 approximately 4.8% in Fiscal Year 2013-014, and by an average of 2.4% over the following four years. These rate increases were approved by a vote of two-thirds of the members of the Board of Directors and no not subject to reaffirmation in any of the future fiscal years covered by this five-year period. This action increased the single family residence user rate,the basis for all sewer user fee rates, from $308 in Fiscal Year 2013-14 to $316 in Fiscal Yew 2014-15. See "DISTRICT REVENUES — Sewer Service Charges." Investment of District Funds State statutes authorize the District to invest in obligations of the United States Government,state and local governmental agencies, negotiable certificates of deposits, bankers acceptances, commercial paper, reverse repurchase agreements and a variety of other investment instruments which are allowable under California Government Code Section 53600 et seq. All District funds, except for Obligation Reserve Funds controlled by a bank trustee pursuant to the provisions of Existing Senior Obligations, are managed by an external money manager, Pacific Investment Management Company. Mellon Trust serves as the District's independent custodian bank for its investment program. Callan Associates serves as the District's independent advisor. As of March 31, 2014, the District's externally managed fund consisted of a short-term investment portfolio of$50.9 million with an average maturity of 22 days, and a long-term investment portfolio of$439.2 million with average maturities of 3.2 years. Investments consist of United States government securities, corporate bonds and commercial paper. The District's portfolio contains no structured investment vehicles("SIV s")or reverse repurchase agreements. Deposits in banks are maintained in financial institutions which provide deposit protection on the bank balance from the Federal Deposit Insurance Corporation. The California Government Code requires State banks and savings and loans to secure local government deposits by pledging government securities equal to I10°/ of the deposits or by pledging first trust deed mortgage notes equal to 150% of the deposits. The District's Investment Policy requires that the District invest public funds in a manner which ensures the safety and preservation of capital while meeting reasonable anticipated operating expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds. The primary objectives, in order, of the District's investment activities are safety,liquidity and return on investment. FINANCIAL OBLIGATIONS Existing Indebtedness Currently, the District has Senior Obligations Outstanding payable on a parity with the Revenue Obligations. The table below describes the District's outstanding parity certificates of participation as of [July 11, 2014. The payment obligations in connection with each series of these certificates of participation constitute Senior Obligations,subject to the provisions of the Master Agreement and shall be afforded all of the benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. The District has no general obligation bonds or subordinate bonds outstanding. 45 Table 16 Outstanding Senior Obligations As of[July 11,2014 [update[ Original Principal Issue Outstanding Final Amount Date Balance Main 2007A Certificates $ 95,180,000 05/22/07 $ 92,385,000 02/01/30 2007B Certificates 300,000,000 12/20/07 267,255,000(o 02/01/37 2008B Certificates 27,800,000 09/11/08 25,585,000 08/01/16 2009A Certificates 200,000,000 05/07/09 184,090,000 02/01/39 2010A Certificates 80,000,000 05/18/10 80,000,000 02/01/40 2010C Certificates 157,000,000 11/29/10 157,000,000 02/01/44 2011 A Certificates 147,595,000 10/03/11 130,345,000 02/01/26 2012A Certificates 100,645,000 03/22/12 100,645,000 02/01/33 2012B Certificates 66,395,000 08/16/12 66,395,000 02/01/26 2013A Certificates 129,625,000 10/16/13 129,625.000t't 10/16/14t't Total Senior Obligations $1.304.240.000 1.233.325.000 Consists of the Refunded Certificates to be partially refunded with the proceeds of the Revenue Obligations. See"REFUNDING PLAN"herein. (a The District may in the future refund the 2013A Certificates(referenced herein as the 2013A Notes)with Senior Obligations amortizing over a term of approximately 22 years. In connection with the execution and delivery of the above-referenced outstanding certificates of participation, the District entered into certain installment purchase agreements, or equivalent documents, providing for the payment of installment payments or similar payments. Anticipated Financings From time to time the District may incur other obligations to finance portions of the CIP. Over the next ten years,however,the District does not expect to issue any additional debt,other than refunding debt. The District expects to refund outstanding obligations from time to time, such as the 2013A Certificates discussed in Table 16 above. Direct and Overlapping Bonded Debt The aggregate direct and overlapping bonded debt of the District as of June 30, 2013 is set forth on page 54 of Appendix B. THE CORPORATION The Corporation was organized on June 19, 2000 as a nonprofit public benefit corporation Initiation to the Nonprofit Public Corporation law of the State. The Corporation's purpose is to render assistance to the District in its acquisition of equipment,real property and improvements on behalf of the District. Under its articles of incorporation, the Corporation has all powers conferred upon nonprofit public benefit corporations by the laws of the State,provided that it will not engage in any activity other than that which is necessary or convenient for, or incidental to the purposes for which it was formed. 46 The Corporation is a separate legal entity from the District. It is governed by a twenty-five member Board of Directors. The Corporation has no employees. All staff work is performed by employees of the District. The members of the Corporation's Board of Directors are the Board of Directors of the District. The District's Director of Finance and Administrative Services and other District employees are available to provide staff support to the Corporation. The Corporation has not entered into any material financing arrangements other than those referred to in this Official Statement. Further information concerning the Corporation may be obtained from the Orange County Sanitation District office at 10844 Ellis Avenue, Fountain Valley, California, 92708-7018. LIMITATIONS ON TAXES AND REVENUES Article XIIIA of the California Constitution On June 6, 1978, California voters approved proposition 13 ("Proposition 13"), which added Article XIIIA to the State Constitution ("Article XIIIA"). Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i)indebtedness approved by the voters prior to July 1, 1978,(ii)(as a result of an amendment to Article XIIIA approved by State voters on Jane 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-third of the voters on such indebtedness, and (iii)bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures we included in the proposition. Article XIIIA defines full cash value to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under "full cash value," or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment" The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2%per year or to reflect a reduction in the consumer price index or comparable data for the area under the taxing jurisdiction, or reduced in the event of declining property values caused by substantial damage, destruction, or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law,local agencies are no longer permitted to levy directly any property tax(except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the County and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25%of market value which was expressed as$4 per$100 assessed value. 47 All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per$100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. Article XIIIB of the California Constitution An initiative to amend the State Constitution entitled"Limitation of Government Appropriations" was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ("Article XIIIB"). Under Article XIIIB,the State and each local governmental entity has an annual"appropriations limit" and is not permitted to spend certain moneys that are called "appropriations subject to limitation" (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriations of moneys that are excluded from the definition of"appropriations subject to limitation," including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities' revenues in any year exceed the amounts permitted to be spent,the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. "Appropriations subject to limitation" we authorizations to spend "proceeds of taxes," which consist of tax revenues, state subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed"the cost reasonably home by such entity in providing the regulation, product or service,"but"proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non- tax funds. Not included in the Article XIIIB limit are appropriations for the debt service costs of bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government and appropriations for qualified capital outlay projects. The appropriations limit may also be exceeded in certain cases of emergency. The appropriations limit for the District in each year is based on the District's limit for the prior year, adjusted annually for changes in the cost of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the District's option, either(1)the percentage change in State per capita personal income, or (2) the percentage change in the local assessment roll on nonresidential property. Either test is likely to be greater than the change in the cost of living index, which was used prior to Proposition 111. Change in population is to be measured either within the jurisdiction of the District or the County as a whole. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received by a District over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. As originally enacted in 1979,the District's appropriations limit was based on 1978-79 authorizations to expend proceeds of taxes and was adjusted annually to reflect changes in cost of living and population (using different definitions, which were modified by Proposition 111). Starting with Fiscal Year 1990-91,the District's appropriations limit was recalculated by taking the actual Fiscal Year 1986-87 limit, and applying the annual adjustments as if Proposition 111 had been in effect. The District does not anticipate that any such appropriations 48 limitations will impair its ability to make Installment Payments as required by the Installment Purchase Agreement. Proposition 1A and Proposition 22 Proposition lA ("Proposition lA"), proposed by the Legislature in connection with the 2004-05 Budget Act and approved by the voters in November 2004, restricts State authority to reduce major local tax revenues such as the tax shifts permitted to take place in Fiscal Years 2004-05 and 2005-06. Proposition lA provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition lA generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year,as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the Legislature. Proposition IA provides, however, that beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8%of local government property tax revenues,which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. Such a shift may not occur more than twice in any ten-year period. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition IA was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known as Proposition 22 ("Proposition 22"). The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation,redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government or from temporarily shifting property taxes from cities, counties and special districts to schools. This is intended to, among other things, stabilize local government revenue sources by restricting the State's control over local property taxes. Prior to the passage of Proposition 22, the State invoked Proposition lA to divert $1.935 billion in local property tax revenues in fiscal year 2009-10 from cities, counties, and special districts to the State to offset State general fund spending for education and other programs. Approximately$5 million of the District's property tax revenues were diverted to the State as a result of this Proposition IA suspension. The District participated in a Proposition IA Securitization Program (the `Program") sponsored by the California Statewide Communities Development Authority. The Program allowed the District to exchange its anticipated State property tax receivable for an equal amount of cash. In addition,the State's adopted 2009-10 budget included a $1.7 billion diversion in local property tax revenues from local redevelopment agencies. Many California Redevelopment Association members are actively engaged in litigation to block such diversion and recoup certain payments already made under certain legislation passed in July 2009 that is beyond the reach of Proposition 22,known as"ABX4 26." Proposition IA also provides that if the State reduces the vehicle license fee ("VLF") rate currently in effect, 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition IA requires the State to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. 49 Article XIIIC and Article XIIID of the California Constitution Proposition 218, a State ballot initiative (mown as the "Right to Vote on Taxes Act," was approved by the voters on November 5, 1996. The initiative added Articles XIIIC and XIIID to the California Constitution, creating additional requirements for the imposition by most local governments of "general taxes,""special taxes,""assessments,""fees,"and"charges." Proposition 218 became effective, pursuant to its terms, as of November 6, 1996, although compliance with some of its provisions was deferred until July 1, 1997, and certain of its provisions purport to apply to any tax imposed for general governmental purposes (i.e., "general taxes") imposed, extended or increased on or after January 1, 1995 and prior to November 6, 1996. Article XIIID imposes substantive and procedural requirements on the imposition, extension or increase of any"fee" or"charge" subject to its provisions. A "fee" or"charge" subject to Article XIIID includes any levy, other than an ad valorem tax, special tax or assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership. Article XIIID prohibits, among other things, the imposition of any proposed fee or charge, and, possibly, the increase of any existing fee or charge, in the event written protests against the proposed fee or charge are presented at a required public hearing on the fee or charge by a majority of owners of the parcels upon which the fee or charge is to be imposed. Except for fees and charges for water, sewer and refuse collection services, the approval of a majority of the property owners subject to the fee or charge,or at the option of the agency,by a two-thirds vote of the electorate residing in the affected area, is required within 45 days following the public hearing on any such proposed new or increased fee or charge. The California Supreme Court decisions in Richmond v. Shasta Community Services District, 32 Cal.4th 409 (2004) ("Richmond"), and Bighorn- Desert View Water Agency v. Verjil, 39 CalAth 205 (2006) ("Bighorn") have clarified some of the uncertainty surrounding the applicability of Section 6 of Article XIIID to service fees and charges. in Richmond, the Shasta Community Services District charged a water connection fee, which included a capacity charge for capital improvements to the water system and a fire suppression charge. The Court held that both the capacity charge and the fire suppression charge were not subject to Article XDID because a water connection fee is not a property-related fee or charge because it results from the property owner's voluntary decision to apply for the connection. In both Richmond and Bighorn, however, the Court stated that a fee for ongoing water service through an existing connection is imposed "as an incident of property ownership" within the meaning of Article XIIID, rejecting, in Bighorn, the water agency's argument that consumption-based water charges are not imposed "as an incident of property ownership"but as a result of the voluntary decisions of customers as to how much water to use. Article XIIID also provides that"standby charges"are considered"assessments"and most follow the procedures required for "assessments" under Article XIIID and imposes several procedural requirements for the imposition of any assessment, which may include (1) various notice requirements, including the requirement to mail a ballot to owners of the affected property; (2) the substitution of a property owner ballot procedure for the traditional written protest procedure,and providing that"majority protest" exists when ballots (weighted according to proportional financial obligation) submitted in opposition exceed ballots in favor of the assessments; and (3) the requirement that the levying entity "separate the general benefits from the special benefits conferred on a parcel"of land. Article XIDD also precludes standby charges for services that are not immediately available to the parcel being charged. Article XIIID provides that all existing, new or increased assessments are to comply with its provisions beginning July 1, 1997. Existing assessments imposed on or before November 5, 1996, and "imposed exclusively to finance the capital costs or maintenance and operations expenses for [among other things] water" are exempted from some of the provisions of Article XIIID applicable to assessments. Article XIIIC extends the people's initiative power to reduce or repeal existing local taxes, assessments, fees and charges. This extension of the initiative power is not limited by the terms of Article 50 XIIIC to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other authority could result in retroactive reduction in any existing taxes, assessments, fees or charges. In Bighorn, the Court concluded that under Article XIIIC local voters by initiative may reduce a public agency's water rates and delivery charges. The Court noted, however, that it was not holding that the authorized initiative power is free of all limitations, stating that it was not determining whether the electorate's initiative power is subject to the public agency's statutory obligation to set water service charges at a level that will "pay the operating expenses of the agency, . . . provide for repairs and depreciation of works,provide a reasonable surplus for improvements,extensions, and enlargements,pay the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due." The District implemented a five-year plan beginning in Fiscal Year 2002-03 which included a rate increase of$7.50 per year, or 9.4%, for all ratepayers to$87.50 per year. In May 2003,the Board of Directors approved a 15%rate increase per year, for each year, over the then following five years, upon 2/3 vote of the Board of Directors after conducting a noticed public hearing in compliance with Article XIIID. The Board of Directors considered this increase necessary to provide needed capital improvements,to cover additional treatment and disinfection costs, and to minimize rate increases over an extended period of time. On July 2, 2003, the Board of Directors adopted Ordinance No. OCSD-20 increasing sanitary sewer service charges for all single family and multi-family residential units as well as most commercial and industrial properties. The Ordinance was adopted by a 2/3 vote of the Board of Directors as required under law after conducting a noticed public hearing in compliance with all laws. The Ordinance increases the amount of the annual charges by approximately 15%per year for each of the following five years, commencing with Fiscal Year 2003-04, thereby raising the single family residence user rate from the then current$87.50 to$100.00, $115.00,$132.00, $152.00, and$175.00 annually. The Ordinance discounted by 5%the annual increases which were the subject of the required protest hearings on the fee increase as described above. After the completion of the CIP Validation Study for Fiscal Year 2005-06 that increased its ten year CIP cash flow projects to $2.2 billion, or an average of$220 million per year, the Board of Directors adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06 single family residential rate 31%,from$I15 to$151 for such year. In May 2006, the Board of Directors adopted Ordinance No. OCSD-30B increasing the Fiscal Year 2006-07 single family residential rate 9.8%, from$151.00 to $I65.80 for such year, except those located in Revenue Area 14. These increases represented the increase permitted under the protest hearings on the fee increase which was held in 2003. In June 2007, the Board of Directors adopted Ordinance No. OCSD-32 increasing the Fiscal Year 2007- 08 single family residential rate by 9.8%. In February 2008, after a noticed public hearing, the Board of Directors adopted Ordinance No. OCSD-35, which provides for annual increases in the single family residential rate of 10.4%, 10.0%, 10.4%, 9.4%and 10.1%,respectively, for Fiscal Years 2008-09 through 2012-13. On Much 27, 2013, the Board of Directors adopted Ordinance No. OCSD-41 approving increases in its sanitary sewer service charges for all single family residences, multi-family residential units, and all non-residential properties. The Board of Directors increased the single family residential rate, which is the basis for all of the District's sewer service charges, by 4.8% for Fiscal Year 2013-14 and thereafter by an average of 2.4%annually for each Fiscal Year through Fiscal Year 2017-18. Pursuant to the Master Agreement, the District will,to the extent permitted by law, fix, prescribe and collect fees and charges for the services of the Wastewater System which will be at least sufficient to yield during each Fiscal Year(a)Net Revenues equal to 125%of Debt Service on Senior Obligations for such Fiscal Year, and(b)Net Operating Revenues equal to 100% of Debt Service on all Obligations for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but will not reduce the fees and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements of the Master Agreement. In the event that service charges are determined to be subject to Article XIIID, and proposed increased service charges cannot be imposed as a result of a majority protest, such circumstances may adversely affect the ability of the District to generate revenues in the amounts required by the Master Agreement, and to make Installment payments as 51 provided in the Installment Purchase Agreement. No assurance may be given that Articles XIIIC and XIIID will not have a material adverse impact on Net Revenues. Other Initiative Measures Articles XIIIA, XIIIB, XIIIC and XIIID were adopted pursuant to California's constitutional initiative process. From time to time other initiative measures could be adopted by California voters, placing additional limitations on the ability of the District to increase revenues. LEGAL MATTERS The validity of the Revenue Obligations and certain other legal matters are subject to the approving opinion of Fulbright & Jaworski LLP (a member of Norton Rose Fulbright), Los Angeles, California, Special Counsel to the District. A complete copy of the proposed Form of Special Counsel opinion is attached as Appendix F hereto. Special Counsel, in its capacity as Special Counsel to the District,undertakes no responsibility for the accuracy,completeness or fairness of this Official Statement. Certain legal matters will be passed on for the District and the Corporation by Woodruff, Spradlin & Smart, a Professional Corporation, Costa Mesa, California, and for the District by Fulbright & Jaworski LLP(a member of Norton Rose Fulbright),Disclosure Counsel to the District. FINANCIAL ADVISOR The District has retained Public Resources Advisory Group as financial advisor (the "Financial Advisor") in connection with the execution and delivery of the Revenue Obligations. The Financial Advisor has not been engaged, nor have they undertaken, to audit, authenticate or otherwise verify the information set forth in the Official Statement, or any other related information available to the District, with respect to accuracy and completeness of disclosure of such information. The Financial Advisor has reviewed this Official Statement but makes no guaranty, warranty or other representation respecting accuracy and completeness of the information contained in this Official Statement. ABSENCE OF LITIGATION There is no action, suit,proceeding, inquiry or investigation,at law or in equity,before or by any court, regulatory agency, public board or body, pending or, to the best knowledge of the District, threatened against the District affecting the existence of the District or the titles of its directors or officers to their offices or seeking to restrain or to enjoin the sale or delivery of the Revenue Obligations, the application of the proceeds thereof in accordance with the Trust Agreement, or in any way contesting or affecting the validity or enforceability of the Revenue Obligations, the Trust Agreement, the Master Agreement, the Installment Purchase Agreement or any action of the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement, or contesting the powers of the District or its authority with respect to the Revenue Obligations or any action of the District contemplated by any of said documents, nor, to the knowledge of the District is there any basis therefor. There is no action, suit, proceeding, inquiry or investigation,at law or in equity,before or by any court, regulatory agency, public board or body pending or, to the best knowledge of the District, threatened against the District contesting or affecting the ability of the District to collect amounts from which Installment Payments are payable, or which would have a material adverse effect on the District's ability to make Installment Payments. 52 FINANCIAL STATEMENTS The basic financial statements of the District included in Appendix A to this Official Statement have been audited by McGladrey & Pullen, LLP, independent certified public accountants. See APPENDIX A—"COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2013" herein. The District has received the Government Finance Officer's Association Certificate of Achievement for "Excellence in Financial Reporting"for 19 consecutive years. [confirm] The audited financial statements,including the footnotes thereto, should be reviewed in their entirety. McGladrey & Pullen, LLP, the District's independent auditor, has not been engaged to perform, and has not performed, since the date of its report included in Appendix A, any procedures on the financial statements addressed in that report. McGladrey &Pullen,LLP also has not performed any procedures relating to this official statement. TAX MATTERS The Internal Revenue Code of 1986 (the "Code") imposes certain requirements that must be met subsequent to the execution and delivery of the Revenue Obligations for the interest component of each Installment Payment(the"Interest Componem"), and the allocable portion thereof distributable in respect of each Revenue Obligation (the "Certificate Interest Distribution"), to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause such amounts to be included in gross income for federal income tax purposes retroactive to the date of delivery of the Installment Purchase Agreement and the Revenue Obligations. The District has covenanted to maintain the exclusion of the Interest Components and the Certificate Interest Distributions from the gross income of the owners thereof for federal income tax purposes. In rendering its opinion with respect to the Interest Components and Certificate Interest Distributions as described below, Special Counsel will rely upon representations and covenants of the District (including such covenant noted above, and the covenants and representations described below) made in connection with the execution and delivery of the Revenue Obligations, and will assume that all such representations are true and correct and that the District will comply with all such covenants. Upon the execution and delivery of the Installment Purchase Agreement, Fulbright & Jaworski LLP, Los Angeles, California, Special Counsel, will deliver its opinion that under existing law, and assuming compliance with the covenants referred to herein, each Interest Component, and each of the Certificate Interest Distributions in respect of a Revenue Obligation, is excluded pursuant to section 103(a) of the Code from the gross income of the owner of the Revenue Obligation for federal income tax purposes. Further, on that same day Special Counsel will render its opinion, based solely on the foregoing,and upon existing provisions of the laws of California,that each Interest Component, and each of the Certificate Interest Distributions in respect of a Revenue Obligation, is exempt from personal income taxes of the State of California under present state law. Special Counsel will render its further opinion that, under existing statutes, regulations, rulings and court decisions, the Installment Purchase Agreement will not constitute a"specified private activity bond" within the meaning of section 57(a)(5) of the Code and,therefore,that each Interest Component,and each of the Certificate Interest Distributions in respect of a Revenue Obligation, will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of an Interest Component allocable to or Certificate Interest Distribution in respect of a Revenue Obligation owned by, a corporation may affect the computation of the alternative minimum taxable income of that corporation. A corporation's alternative minimum taxable income is the basis upon which the alternative minimum tax imposed by section 55 of the Code is computed. Pursuant to the Trust Agreement and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986, to be delivered by the District in connection with the issuance of the Revenue Obligations,the District will make representations 53 relevant to the determination of, and will make certain covenants regarding or affecting, the exclusion of interest on the Revenue Obligations from the gross income of the owners thereof for Federal income tax purposes. In reaching its opinions described above, Special Counsel will assume the accuracy of such representations and the present and future compliance by the District and the Corporation with such covenants. Further, except as stated above, Special Counsel will express no opinion as to any federal or state tax consequences of the receipt of interest on, or the ownership or disposition of, the Revenue Obligations. A copy of the proposed form of opinion of Special Counsel relating to the Revenue Obligations is included in Appendix F. Special Counsel has not undertaken to advise in the future whether any events after the date of execution and delivery of the Installment Purchase Agreement and the Revenue Obligations may affect the tax status of the Interest Components or the Certificate Interest Distributions. No assurance can be given that future legislation, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of such amounts from personal income taxation by the State of California or of the exclusion of the interest on the Revenue Obligations from the gross income of the owners thereof for federal income tax purposes. Furthermore, Special Counsel will express no opinion as to any federal, state or local tax law consequences with respect to the Installment Purchase Agreement, the Revenue Obligations, the Interest Components or Certificate Interest Distributions, if any action is taken with respect to the Installment Purchase Agreement, the Revenue Obligations or the proceeds thereof, or the Trust Agreement predicated or permitted upon the advice or approval of other counsel. To the extent that a purchaser of a Revenue Obligation acquires that Revenue Obligation at a price that exceeds the aggregate amount of scheduled distributions (other than distributions of qualified stated interest within the meaning of section 1.1273-1 of the Treasury Regulations) to be made on the Revenue Obligation (determined, in the case of a prepayable Revenue Obligation, under the assumption described below) (the "Stated Redemption Price at Maturity"), such excess will constitute "bond premium" under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt obligation must be amortized on a constant yield, economic accrual, basis; the amount of premium so amortized will reduce the owner's basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. In the case of a purchase of a Revenue Obligation that is subject to prepayment, the determination whether there is amortizable bond premium, and the computation of the accrual of that premium, must be made under the assumption that the Revenue Obligation will be prepaid on the permitted date that would minimize the purchaser's yield on the Revenue Obligation (or that the Revenue Obligation will not be prepaid prior to the stated maturity date in respect of that Revenue Obligation if that would minimize the purchaser's yield). The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when a Revenue Obligation owned by such owner is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Revenue Obligation to the owner. Any person considering purchasing a Revenue Obligation at a price that includes bond premium should consult his or her own tax advisors with respect to the amortization and treatment of such bond premium, including, but not limited to, the calculation of gain or loss upon the sale, prepayment or other disposition of the Revenue Obligation. Any person considering purchasing a Revenue Obligation of a maturity in respect of which there is original issue discount should consult his or her own tax advisors with respect to the tax consequences of ownership of such Revenue Obligation,including the treatment of a purchaser who does not purchase in the original offering and at the original offering price of that Revenue Obligation, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of seemed original issue discount in respect of such Revenue Obligation under federal individual and corporate alternative minimum taxes. 54 Although Special Counsel is of the opinion that Interest Component, and Certificate Interest Distributions in respect of a Revenue Obligation, are exempt from California personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner's federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Revenue Obligations. The nature and extent of these other tax consequences will depend upon the owner's other items of income or deduction. Without limiting the generality of the foregoing,prospective purchasers of the Revenue Obligations should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Revenue Obligations and the Code contains additional limitations on interest deductions applicable to financial institutions that own tax-exempt obligations (such as the Revenue Obligations), fit with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including Interest Component and Certificate Interest Distributions in respect of the Revenue Obligations, (iii) Interest Component and Certificate Interest Distributions accrued in respect of Revenue Obligations owned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including Interest Component and Certificate Interest Distributions accrued in respect of Revenue Obligations,may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, Interest Distributions and Certificate Interest Distributions accrued in respect of Revenue Obligations owned by such recipients for federal income tax purposes, and (vi) under section 32(i) of the Code, receipt of investment income, including Interest Components and Certificate Interest Distributions accrued in respect of Revenue Obligations, may disqualify the recipient thereof from obtaining the earned income credit. Special Counsel has expressed no opinion regarding any such other tax consequences. Special Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the District described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Special Counsel, and Special Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Revenue Obligations is commenced,under current procedures the Service is likely to treat the District as the"taxpayer,"and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the Interest Component and Certificate Interest Distributions accrued in respect of Revenue Obligations, the District may have different or conflicting interest from the owners. Public awareness of any future audit of the Revenue Obligations could adversely affect the value and liquidity of the Revenue Obligations during the pendency of the audit, regardless of its ultimate outcome. Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the Interest Components and Certificate Interest Distributions accrued in respect of Revenue Obligations from gross income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Revenue Obligations. Prospective purchasers of the Revenue Obligations should consult with their own tax advisors with respect to any proposed or future changes in tax law. VERIFICATION OF MATHEMATICAL COMPUTATIONS Causey Demgen & Moore Inc., a firm of independent arbitrage consultants, will verify the accuracy of(i)mathematical computations concerning the adequacy of the maturing principal amounts of and interest canned on the Federal Securities deposited in the Escrow Fund,together with amounts held as 55 cash therein,to provide for payment of the redemption prices(including seemed interest)of the Refunded Certificates on the Redemption Date and (ii)certain mathematical computations supporting the conclusion that the Revenue Obligations are not"arbitrage bonds" under the Code,which will be used in part by Special Counsel in concluding that interest on the Interest Components and Certificate Interest Distributions accrued in respect of Revenue Obligations is excluded from gross income for federal income tax purposes under present laws, including applicable provisions of the Code, existing court ratings,regulations and Internal Revenue Service rulings. The report of such independent arbitrage consultants will include the statement that the scope of their engagement was limited to verifying the mathematical accuracy of the computations contained in such schedules provided to them and that they have no obligation to update their report because of events occurring,or data or information coming to their attention, subsequent to the date of their report. CONTINUING DISCLOSURE The District has covenanted for the benefit of holders and beneficial owners of the Revenue Obligations (a)to provide certain financial information and operating data(the"Annual Report")relating to the District and the property in the District not later than eight months after the end of the District's Fiscal Year (which currently would be March 1), commencing with the report for the 2013-14 Fiscal Year, and(b)to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the Trustee on behalf of the District, with the Municipal Securities Rulemaking Board. The notices of enumerated events will be filed by the Trustee on behalf of the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is set forth in the Continuing Disclosure Agreement. See APPENDIX D — "FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants have been made in order to assist the Initial Purchaser in complying with S.E.C. Rule 15c2-12 (the `Rule"). During the past five years, the District has never failed to comply in all material respects with any previous undertaking with respect to the Rule to provide annual reports or notices of enumerated events. RATINGS The Revenue Obligations will be rated " " by Standard & Poor's Financial Services LLC ("S&P"),and" "by Fitch Ratings("Fitch"). Such ratings reflect only the views of the rating agencies, and do not constitute a recommendation to buy, sell or hold the Revenue Obligations. Explanation of the significance of such ratings may be obtained only from the respective organizations at: Standard & Poor's Ratings Services, 55 Water Street, New York, New York 10041 and Fitch Ratings, One State Street Plaza,New York,New York 10004. There is no assurance that any such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the respective rating agencies, if in the judgment of any such rating agency circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Revenue Obligations. PURCHASE AND REOFFERING (the "Initial Purchaser") has purchased the Revenue Obligations from the District at a competitive sale for a purchase price of$ (representing the aggregate principal amount of the Revenue Obligations, plus a premium of $ , and less an Initial Purchaser's discount of$ ). The public offering prices may be changed from time to time by the Initial Purchaser. The Initial Purchaser may offer and sell Revenue Obligations to certain dealers and others at prices lower than the offering prices shown on the inside cover page hereof. 56 MISCELLANEOUS Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Revenue Obligations. 57 The execution and delivery of this Official Statement has been duly authorized by the District. ORANGE COUNTY SANITATION DISTRICT By: Chair of the Board of Directors 58 APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30,2013 A-1 APPENDIX B THE COUNTY OF ORANGE-ECONOMIC AND DEMOGRAPHIC INFORMATION B-1 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS C-t APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT D-2 APPENDIX E BOOK-ENTRY SYSTEM The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Revenue Obligations, payment of principal and interest evidenced by the Revenue Obligations to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Revenue Obligations, and other Revenue Obligation-related transactions by and between DTC, Participants and Beneficial Owners, is based on information furnished by DTC which the District and the Corporation each believes to be reliable, but the District and the Corporation take no responsibility for the completeness or accuracy thereof. The Depository Trust Company—Book-Entry System The Depository Trust Company("DTC"),New York,NY,will act as securities depository for the securities (the "Revenue Obligations"). The Revenue Obligations will be issued as fully-registered securities registered in the name of Cede& Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Revenue Obligations in the aggregate principal amount of such issue, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities,through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations,and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clewing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly(`Indirect Participants"). DTC has a Standard&Poor's rating of"AA+." The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information on such website is not incorporated herein by such reference or otherwise. Purchases of Revenue Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for the Revenue Obligations on DTC's records. The ownership interest of each actual purchaser of each Revenue Obligation (Beneficial Owner") is in tam to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Revenue Obligations are to be accomplished by entries made on E-1 the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Revenue Obligations, except in the event that use of the book-entry system for the Revenue Obligations is discontinued. To facilitate subsequent transfers, all Revenue Obligations deposited by Direct Participants with DTC are registered in the time of DTC's partnership nominee,Cede&Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Revenue Obligations with DTC and their registration in the time of Cede&Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Revenue Obligations; DTC's records reflect only the identity of the Direct Participants to whose accounts such Revenue Obligations are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Revenue Obligations may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Revenue Obligations, such as prepayments, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Revenue Obligations may wish to ascertain that the nominee holding the Revenue Obligations for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Prepayment notices shall be sent to DTC. If less than all of the Revenue Obligations within an issue are being prepaid, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be prepaid. Neither DTC nor Cede &Co. (nor such other DTC nominee)will consent or vote with respect to the Revenue Obligations unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures,DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Revenue Obligations are credited on the record date(identified in a listing attached to the Omnibus Proxy). Prepayments with respect to the Revenue Obligations will be made to Cede& Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the District or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, nor its nominee, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds,distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. E-2 DTC may discontinue providing its services as securities depository with respect to the Revenue Obligations at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained,Revenue Obligations are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Revenue Obligations will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. Discontinuance of DTC Services In the event (i)DTC determines not to continue to act as securities depository for the Revenue Obligations, (ii)DTC shall no longer act and give notice to the Trustee of such determination or(iii) the District determines that it is in the best interest of the Beneficial Owners that they be able to obtain Revenue Obligations and delivers a written certificate to the Trustee to that effect, DTC services will be discontinued. If the District determines to replace DTC with another qualified securities depository, the District shall prepare or direct the preparation of a new single, separate, fully registered Revenue Obligation for each of the maturities of the Revenue Obligations,registered in the name of such successor or substitute qualified securities depository or its nominee. If the District fails to identify another qualified securities depository to replace DTC then the Revenue Obligations shall no longer be restricted to being registered in the certificate registration books in the time of Cede&Co.,but shall be registered in such names as are requested in a certificate of the District,in accordance with the Trust Agreement. All Revenue Obligations may be presented for transfer by the Owner thereof, in person or by his attorney duly authorized in writing,at the Principal Office of the Trustee,on the books required to be kept by the Trustee pursuant to the provisions of the Trust Agreement, upon surrender of such Certifications for cancellation accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee. The Trustee may treat the Owner of any Revenue Obligation as the absolute owner of such Revenue Obligation for all purposes, whether or not such Revenue Obligation shall be overdue, and the Trustee shall not be affected by any knowledge or notice to the contrary; and payment of the interest and principal evidenced by such Revenue Obligation shall be made only to such Owner, which payments shall be valid and effectual to satisfy and discharge the liability evidenced by such Revenue Obligation to the extent of the sum or sums so paid. Whenever any Revenue Obligations shall be surrendered for transfer, the Trustee shall execute and deliver new Revenue Obligations representing the same principal amount in Authorized Denominations. The Trustee shall require the payment of any Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Revenue Obligations may be presented for exchange at the Principal Office of the Trustee for a like aggregate principal amount of Revenue Obligations of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be required to transfer or exchange any Revenue Obligation during the period in which the Trustee is selecting Revenue Obligations for prepayment, nor shall the Trustee be required to transfer or exchange any Revenue Obligation or portion thereof selected for prepayment from and after the date of mailing the notice of prepayment thereof. E-3 APPENDIX F FORM OF APPROVING OPINION OF SPECIAL COUNSEL Upon the execution and delivery of the Revenue Obligations, Fulbright& Jaworski LLP, Los Angeles, California, Special Counsel to the District, will render its final approving opinion with respect to the Revenue Obligations in substantially thefollowingform: [Date of Delivery] Orange County Sanitation District 10844 Ellis Avenue Fountain Valley,California 92708-7018 Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2014A Ladies and Gentlemen: We have acted as Special Counsel in connection with the $ aggregate principal amount of Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations") which are certificates of participation that evidence direct, fractional undivided interests of the Owners thereof in the installment payments (the "Installment Payments"), and the interest thereon, to be made by the Orange County Sanitation District (the"District') pursuant to the Installment Purchase Agreement, dated as of August 1, 2014(the"Installment Purchase Agreement'),by and between the District and the Orange County Sanitation District Financing Corporation (the "Corporation"). Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the "Master Agreement'), by and between the District and the Corporation, the District has established conditions and terms upon which obligations such as the Installment Payments, and the interest thereon, will be incurred and secured. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues as provided in the Installment Purchase Agreement, consisting primarily of all income and revenue received by the District from the operation or ownership of the Wastewater System of the District (the "Wastewater System") remaining after payment of Maintenance and Operation Costs. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Installment Purchase Agreement. The Revenue Obligations are to be executed and delivered pursuant to a Trust Agreement, dated as of August 1, 2014 (the "Trust Agreement"), by and among the District, the Corporation and MUFG Union Bank,N.A., as trustee(the "Trustee"). Proceeds from the sale of the Revenue Obligations will be used to (i)purchase and retire the District's Certificates of Participation, Series 2007B and (ii)pay the costs incurred in connection with the execution and delivery of the Revenue Obligations. F-1 As Special Counsel,we have examined copies certified to us as being true and complete copies of the Master Agreement, the Trust Agreement and the Installment Purchase Agreement and the proceedings of the District in connection with the execution and delivery of the Revenue Obligations. We have also examined such certificates of officers of the District, the Corporation and others as we have considered necessary for the purposes of this opinion. Based upon the foregoing,we are of the opinion that: 1. The Master Agreement, the Installment Purchase Agreement and the Trust Agreement each has been duly and validly authorized,executed and delivered by the District and, assuming the Master Agreement, the Installment Purchase Agreement and the Trust Agreement each constitutes the legally valid and binding obligation of the other parties thereto, each constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its respective terms. 2. The obligation of the District to pay the Installment Payments, and the interest thereon, and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided in the Installment Purchase Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase Agreement lawfully available therefor. 3. Assuming due authorization, execution and delivery of the Trust Agreement and the Revenue Obligations by the Trustee, the Revenue Obligations are entitled to the benefits of the Trust Agreement. 4. Under existing statutes, regulations, rulings and court decisions, and, assuming compliance with the covenants mentioned below, the component of each Installment Payment designated as "Interest on Installment Payment" in Section 3.02 of the Installment Purchase Agreement (each, an "Interest Component"), and the allocable portion thereof distributable in respect of any Revenue Obligation (the"Certificate Interest Distribution"), is excluded pursuant to section 103(a)of the Internal Revenue Code of 1986(the"Code")from the gross income of the owners thereof for federal income tax purposes. We are further of the opinion that under existing statutes, regulations, rulings and court decisions, the Installment Purchase Agreement is not a "specified private activity bond" within the meaning of section 57(a)(5) of the Code and, therefore, that the Interest Components and the Certificate Interest Distributions will not be treated as items of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of Interest Component, and the Certificate Interest Distributions in respect of a Revenue Obligation, owned by a corporation may affect the computation of the alternative minimum taxable income of that corporation. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed. We are further of the opinion that the Interest Component allocable to and the Certificate Interest Distributions in respect of a Revenue Obligation, are exempt from personal income taxes of the State of California under present state law. Pursuant to the Trust Agreement and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code of 1986, to be delivered by the District in connection with the execution and delivery of the Revenue Obligations, the District has made representations relevant to the determination of, and has undertaken certain covenants regarding or affecting,the exclusion of the Interest Component,and the Certificate Interest Distribution, from the gross income of the owners thereof for federal F-2 income tax purposes. In reaching the opinions described in the immediately preceding paragraph, we have assumed the accuracy of such representations and the present and future compliance by the District with such covenants. Except as stated in the second preceding paragraph, we express no opinion as to any federal or state tax consequence of the ownership or disposition of the Installment Purchase Agreement or the Revenue Obligations. Furthermore, we express no opinion as to any federal, state or local tax law consequence with respect to the Installment Purchase Agreement, Revenue Obligations,Interest Components, or Certificate Interest Distributions, if any action is taken with respect to the Installment purchase Agreement, the Master Agreement, the Trust Agreement, the Revenue Obligations, or the proceeds thereof, permitted or predicated upon the advice or approval of counsel,if such advice or approval is given by counsel other than us. The rights of the owners of the Revenue Obligations and the enforceability of the Revenue Obligations,the Master Agreement,the Trust Agreement and the Installment Purchase Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. The enforceability of the Revenue Obligations, the Master Agreement, the Trust Agreement and the Installment purchase Agreement is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief,regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California. No opinion is expressed herein on the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Revenue Obligations. Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. Respectfully submitted, F-3 Return to Aaenda Report Fulbright& Jaworski LLP—Draft 06/03/14 OFFICIAL NOTICE INVITING BIDS $[PAR AMOUNT]' ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2014A (Book-Entry-Only) NOTICE IS HEREBY GIVEN that bids will be received by the Orange County Sanitation District (the "District") for the purchase of $[PAR AMOUNT]* original principal amount of Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A Evidencing Direct, Fractional Undivided Interests of the Owners Thereof in Installment Payments to be Made by the Orange County Sanitation District to the Orange County Sanitation District Financing Corporation(the"Revenue Obligations"). Bids for less than all of the Revenue Obligations will not be accepted. The bids will be received in the form, in the manner and up to the time specified below (unless postponed as described herein): Date: July 8,2014 11:00 a.m.,New York Time Electronic Bids: Electronic proposals may be submitted to Ipreo, at www.newissuehome.i-deal.com and the Parity electronic bid submission system (the "Electronic Service"). The Electronic Service will act as agent of the bidder and not of the District in connection with the submission of bids and the District assumes no responsibility or liability for bids submitted through the Electronic Service. See "Information Regarding Electronic Proposals"herein. No facsimile,hand delivery or sealed bids will be accepted. Terms of the Revenue Obligations The Preliminary Official Statement for the Revenue Obligations, dated June_, 2014, including the cover page and all appendices thereto (the "Preliminary Official Statement"), provides certain information concerning the sale and delivery of$[PAR AMOUNT]*aggregate principal amount of the Revenue Obligations, which are certificates of participation evidencing direct, undivided fractional interests in the Installment Payments (the "Installment Payments"), and the interest thereon, payable by the District pursuant to the Installment Purchase Agreement,dated as of August 1,2014(the"Installment Purchase Agreement"), by and between the District and the Orange County Sanitation District Financing Corporation (the"Corporation"). Each bidder must have obtained and reviewed the Preliminary Official Statement prior to bidding for the Revenue Obligations. This Official Notice Inviting Bids, including all exhibits and attachments, contains certain information for quick reference only, is not a summary of the issue and governs only the terms of the sale of, bidding for and closing procedures with respect to the Revenue Obligations. Bidders most read the entire Preliminary Official Statement to obtain information essential to making an informed investment decision. Preliminary,subject to change. Pursuant to the Master Agreement for District Obligations, dated as of August 1, 2000 (the "Master Agreement"), by and between the District and the Corporation, the District has established and declared the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon, will be incurred and secured. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues, as provided in the Master Agreement and the Installment Purchase Agreement, consisting primarily of all income and revenue received by the District from the operation or ownership of the Wastewater System of the District (the"Wastewater System")remaining after payment of Maintenance and Operation Costs. The Issue The proceeds from the sale of the Revenue Obligations will be used to: (i)prepay and retire a portion of the District's outstanding Certificates of Participation, Series 2007B (the "Prior Certificates") and(ii)pay costs of execution and delivery of the Revenue Obligations. The Revenue Obligations are to be executed and delivered pursuant to a Trust Agreement, dated as of August 1, 2014 (the "Trust Agreement'), by and among the District, the Corporation and MUFG Union Bank, N.A., as trustee (the "Trustee"). Capitalized terms not defined herein shall have the same definitions as used in the Trust Agreement or the Master Agreement. Authorization On June 25, 2014, the District and the Corporation authorized the execution and delivery of the Installment Purchase Agreement,the Trust Agreement and the Revenue Obligations. Outstanding Senior Obligations The District has outstanding Senior Obligations payable on a parity with the Installment Payments under the Installment Purchase Agreement. The term"Existing Senior Obligations"as used in the Preliminary Official Statement refers to the the 2007A Installment Purchase Agreement, the 200713 Installment Purchase Agreement, the 2008B Installment Purchase Agreement, the 2009A Installment Purchase Agreement, the 2010A Installment Purchase Agreement, the 2010C Installment Purchase Agreement, the 201 IA Installment Purchase Agreement,the 2012A Installment Purchase Agreement, the 2012B Installment Purchase Agreement and the 2013A Installment Purchase Agreement. The Revenue Obligations will retire the 2007B Installment Purchase Agreement. Security and Source of Payments The Revenue Obligations are certificates of participation which evidence direct, undivided fractional interests in the Installment Payments, and the interest thereon, paid by the District pursuant to the Installment Purchase Agreement. The obligation of the District to pay the Installment Payments and the interest thereon and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided under the Installment Purchase Agreement, solely from Net Revenues and other funds as provided in the Installment Purchase Agreement. Net Revenues generally consist of all income and revenue received by the District from the operation or ownership of the Wastewater System remaining after payment of Maintenance and Operation Costs,all as further provided in the Master Agreement. The District's obligation to make Installment Payments from Net Revenues is on a parity with the District's obligation to make payments with respect to its other outstanding obligations described as Senior Obligations and all Reimbursement Obligations, if any, with respect to Senior Obligations, as 2 provided in the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security for Senior Obligations pursuant to the Master Agreement. Pursuant to the Master Agreement, the District pledges all Net Revenues to the payment of the Senior Obligations and Reimbursement Obligations with respect to Senior Obligations, and the Net Revenues will not be used for any other purpose while any of the Senior Obligations or Reimbursement Obligations with respect to Senior Obligations remain unpaid; provided, however, that out of the Net Revenues there may be apportioned such sums for such purposes as we expressly permitted by the Master Agreement. This pledge constitutes a first lien on the Net Revenues for the payment of the Senior Obligations and Reimbursement Obligations with respect to Senior Obligations. The term Senior Obligations, generally means all revenue bonds or notes(including bond anticipation notes and commercial paper)of the District authorized, executed,issued and delivered under and pursuant to applicable law,the Installment Purchase Agreement and all other contracts (including financial contracts) or leases of the District authorized and executed by the District under and pursuant to applicable law, the installment, lease or other payments which are, in accordance with the provisions of the Master Agreement, payable from Net Revenues on a parity with the payments under the Master Agreement. The District may at any time incur Subordinate Obligations; provided, however, that prior to incurring such Subordinate Obligations,the District will have determined that the incurrence thereof will not materially adversely affect the District's ability to comply with the requirements of the Master Agreement. The District may at any time incur Reimbursement Obligations with respect to Subordinate Obligations. Currently, there are no Subordinate Obligations outstanding. For a description of the District's outstanding Senior Obligations, see "FINANCIAL OBLIGATIONS— Existing Indebtedness" in the Preliminary Official Statement. The District may, in connection with the incurrence of Subordinate Obligations, pledge Net Revenues to the payment of Subordinate Obligations and Reimbursement Obligations with respect to Subordinate Obligations; provided, however, that such pledge, and any lien created thereby, shall be junior and subordinate to the pledge of, and lien on,Net Revenues for the payment of Senior Obligations and Reimbursement Obligations with respect to Senior Obligations. Pursuant to the Master Agreement, the District is required,to the extent permitted by law,to fix, prescribe and collect fees and charges for the services and facilities of the Wastewater System which will be at least sufficient to yield during each Fiscal Year(a)Net Revenues equal to 125% of Debt Service on Senior Obligations for such Fiscal Year and (b)Net Operating Revenues equal to 100% of Debt Service on all Obligations for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary,but shall not reduce the fees and charges then in effect unless the Revenues and Net Revenues from such reduced fees and charges will at all times be sufficient to meet the requirements of the Master Agreement. See "SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS Rate Covenant"in the Preliminary Official Statement. Additional Obligations In addition to the Existing Senior Obligations, the District may at any time incur Obligations payable on a parity or on a subordinate basis to the payment by the District of the Installment Payments upon satisfaction of conditions provided in the Master Agreement. No Obligations payable on such a subordinate basis are currently outstanding. See "SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS — Limitations on Issuance of Additional Obligations" in the Preliminary Official Statement. 3 Book-Entry-Only The Revenue Obligations will be executed and delivered in the form of fully registered certificates payable in lawful money of the United States of America. The Revenue Obligations will be initially delivered only in book-entry form and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC'), which will act as securities depository for the Revenue Obligations. Individual purchases of the Revenue Obligations will be made in book-entry form only. Purchasers of Revenue Obligations will not receive physical certificates representing their ownership interests in the Revenue Obligations purchased. The Revenue Obligations will be delivered in Authorized Denominations of$5,000 and any integral multiple thereof. Payments of principal and interest evidenced by the Revenue Obligations are payable directly to DTC by the Trustee. Upon receipt of payments of such principal and interest,DTC will in turn distribute such payments to the beneficial owners of the Revenue Obligations. So long as the Revenue Obligations are in the DTC book- entry system, the interest, principal and prepayment premiums, if any, due with respect to the Revenue Obligations will be payable by the Trustee,or its agent,to DTC or its nominee. Principal and Interest Payments The Revenue Obligations will be dated as of the date of initial delivery and will evidence interest from that date(computed on the basis of a 360-day year of twelve 30-day months). Interest evidenced by the Revenue Obligations is payable semiannually on February I and August I of each yen, commencing on February 1, 2015. Payment of principal and prepayment premium, if any, evidenced by the Revenue Obligations will be paid in lawful money of the United States of America upon presentation and surrender thereof at the Principal Office of the Trustee. Principal Amortization The Revenue Obligations will be executed and delivered in the original principal amount of $[PAR AMOUNT]*and will be subject to principal amortization through serial maturities on February 1 in the years 20 through 20 in the amounts set forth in the Official Bid Form. Mandatory Sinking Account Prepayment If the successful bidder designates principal amounts to be combined into a term maturity, such term maturity shall be subject to mandatory sinking account payments commencing on February I of the first year which has been combined to form such term maturity and continuing on February 1 in each year thereafter until the stated maturity date of that term maturity The prepayment price will be equal to the principal amount for such year set forth in the Official Bid Form,plus accrued interest evidenced thereby to the date fixed for prepayment, without premium. The amount of each such prepayment shall be reduced in the event and to the extent that Installment Payments payable on the corresponding Installment Payment Date are prepaid pursuant to provisions of the Installment Purchase Agreement governing optional prepayment. Optional Prepayment The Revenue Obligations with stated Principal Payment Dates prior to February 1,20[24] are not subject to optional prepayment prior to their stated Principal Payment Dates. The Revenue Obligations with stated Principal Payment Dates on or after February I, 20[25] me subject to optional prepayment Preliminary,subject to change. 4 prior to their stated Principal Payment Dates, on any date on or after February 1, 20[24], in whole or in part, in Authorized Denominations, from and to the extent of prepaid Installment Payments paid pursuant to the Installment Purchase Agreement or from any other source of available funds, any such prepayment to be at a price equal to the principal evidenced by the Revenue Obligations to be prepaid, plus accrued interest evidenced thereby to the date fixed for prepayment,without premium. Selection of Revenue Obligations for Prepayment Whenever less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to provisions of the Trust Agreement with respect to optional prepayment of Revenue Obligations, the Trustee shall select the Revenue Obligations to be prepaid among Revenue Obligations with different Principal Payment Dates as directed in a Written Request of the District. Whenever less than all the Outstanding Revenue Obligations with the same stated Principal Payment Date are to be prepaid on any one date pursuant to the Tmst Agreement, the Trustee shall select the Revenue Obligations with such Principal Payment Date to be prepaid as directed in a Written Request of the District, or at the discretion of the District by lot in any manner that the Trustee deems fair and appropriate,which decision shall be final and binding upon the District and the Owners. The Trustee shall promptly notify the District in writing of the numbers of the Revenue Obligations so selected for prepayment on such date. Notice of Prepayment The Trustee shall,at least 20 but not more than 60 days prior to any prepayment date, give notice of prepayment to the respective Owners of Revenue Obligations designated for prepayment by first-class mail,postage prepaid, at their addresses appearing on the registration books maintained by the Trustee as of the close of business on the day before such notice of prepayment is given. The actual receipt by the Owner of any notice of such prepayment shall not be a condition precedent to prepayment, and neither failure to receive such notice nor any defect therein shall affect the validity of the proceedings for the prepayment of such Revenue Obligations or the cessation of interest evidenced thereby on the date fixed for prepayment. Interest Rates,Reoffering Prices,Premium or Discount Bids and Certificate of Initial Purchaser Bidders most bid to purchase all and not part of the Revenue Obligations and must submit their bids on the Official Bid Form. Bidders must specify a rate of interest for each maturity of the Revenue Obligations. The rates of interest most be expressed in multiples of either [one-eighth ('s) or one- twentieth ('/,) of one percent (1%)], and no interest rate can exceed [5.0]% per annum. All Revenue Obligations of the same maturity must evidence interest at the same rate. The successful bidder will, within 30 minutes after being notified of the award of the Revenue Obligations, advise the District of the initial bona fide public reoffering prices of each maturity of the Revenue Obligations on the date of award. The successful bidder will also be required to famish to the District a certificate ("Certificate of Initial Purchaser) in the form of the Certificate of Initial Purchaser attached hereto(with such modifications as may be acceptable to Special Counsel). At any time before or after delivery of the Revenue Obligations to the successful bidder, that successful bidder also may be required by the District or Special Counsel to clarify any discrepancies between the Certificate of Initial Purchaser and publicly available information relating to trades of the Revenue Obligations that might suggest that the initial sale of a substantial portion of any maturity of the Revenue Obligations to the public was at a materially higher price than the price stated for that maturity in the Certificate of Initial Purchaser. 5 Bidders may bid to purchase the Revenue Obligations from the District at a discount or with a premium; however, no bid will be considered if the bid is to purchase Revenue Obligations at an aggregate price less than [113]% or more than [125]% of the aggregate principal amount of the Revenue Obligations. No bid will be accepted that contemplates the waiver of any interest or other concession by the bidder as substitute for payment in full of the purchase price. Bids that do not conform to the terms of this section may be rejected. See`Right to Reject Bids,Waive Irregularities"below. Adjustment of Principal Amounts After Receipt of Bids The principal amounts of the Revenue Obligations set forth in the Official Bid Form reflect estimates of the District as to the likely interest rates of the winning bid and the premium or discount contained in the winning bid. After selecting the winning bid, the amortization schedule for the Revenue Obligations will be adjusted in $5,000 increments, to reflect the actual interest rates and any discount or premium in the winning bid to properly fund the purchase price of the Prior Certificates and to accommodate certain other requirements or preferences of the District. Such adjustments will not change any Revenue Obligation in any year by more than the greater of$500,000 or 10%of the principal amount for such year. The dollar amount bid for the Revenue Obligations by the winning bidder will be adjusted to reflect such adjustment in the applicable amortization schedule. Any such adjustment will change the total (but not the per Revenue Obligation) dollar amount of purchaser's discount and original issue discount or premium, if any, provided in such bid. Any such adjustment will be communicated to the winning bidder within 24 hours after receipt of such bid by the District. Changes in the amortization schedule made as described in this paragraph will not affect the determination of the winning bidder or give the winning bidder any right to reject the Revenue Obligations. No Insurance THE SUCCESSFUL BIDDER SHALL NOT PURCHASE MUNICIPAL BOND INSURANCE IN CONNECTION WITH THE REVENUE OBLIGATIONS. Form of Bid BIDS FOR LESS THAN ALL OF THE REVENUE OBLIGATIONS WILL NOT BE ACCEPTED. Each bid must be on the Official Bid Form. All electronic proposals shall be deemed to incorporate the provisions of the Official Bid Form and must be unconditional and irrevocable. In addition, each bidder is requested to supply an estimate of the true interest cost resulting from its bid, computed as prescribed below under the caption "Award, Delivery and Payment," which shall be considered as informative only and not binding on either the bidder or the District. Each bid must be in accordance with the terms and conditions set forth in this Official Notice Inviting Bids. The District will make its best efforts to accommodate electronic bids; however, the District, the Financial Advisor (Public Resources Advisory Group) and Special Counsel assume no responsibility for any error contained in any electronic bid, or for the failure of any electronic bid to be transmitted or received at the official time for receipt of such bids. The official time for receipt of bids will be determined by the District at the place of the bid opening, and the District shall not be required to accept the time kept by Electronic Service as the official time. The District assumes no responsibility for informing any bidder prior to the deadline that its bid is incomplete, or not received. If multiple timely bids are received from a single bidder the District shall accept the best of such bids and each bidder agrees,by submitting any bid,to be bound by its best bid. 6 Information Regarding Electronic Proposals Electronic proposals must be submitted through the Electronic Service. If any provision of this Official Notice Inviting Bids conflicts with information provided by the Electronic Service, this Official Notice Inviting Bids shall control. The District is not responsible for the proper operation of, and shall have no liability for any delays or interruptions of or any damages caused by the Electronic Service. The District is using the Electronic Service as a communication mechanism and not as the District's agent to conduct electronic bidding for the Revenue Obligations. The District is not bound by any advice of or determination by the Electronic Service to the effect that any particular bid complies with the terms of this Official Notice Inviting Bids. All costs and expenses incurred by prospective bidders in connection with their submission of bids through the Electronic Service are the sole responsibility of such bidders and the District is not responsible for any such costs or expenses. Further information about the Electronic Service, including any fee charged, may be obtained from linen, 1359 Broadway, Second Floor,New York,NY 10018 (212-849-5023). The District assumes no responsibility or liability for bids submitted through the Electronic Service. The District shall be entitled to assume that any bid submitted through the Electronic Service has been made by a duly authorized agent of the bidder. Bid Security Deposit Each bidder must provide with its bid (i) a financial smety bond ("Surety Bond") in the amount of$ (the`Bid Security Deposit') issued by an insurance company rated in one of the top two rating categories by Moody's Investors Service, Fitch Ratings or Standard & Poor's Ratings Services, without regard to any modification of the rating, and licensed to issue such a bond in the State of California, naming the District as the beneficiary and identifying the bidder whose deposit is guaranteed by the Surety Bond or(ii)a wire transfer of immediately available federal funds. Surety Bonds. If the successful bidder has provided a Surety Bond, such bidder shall wire transfer to the District the amount of the Bid Security Deposit in immediately available federal funds not later than 3:00 p.m. (New York Time) on the business day next succeeding the day of acceptance of the bid, which amount shall be deposited in an escrow fund or account or a similar fund and applied to the purchase price of the Revenue Obligations at the time of delivery of the Revenue Obligations. If the District has not received such federal funds wire transfer by the time stated, the District may draw upon the Surety Bond to satisfy the successful bidder's Bid Security Deposit requirements. Wire Transfers. Any Bid Security Deposit wire transfers must be received in federal funds prior to the deadline for examination of the bids, and should be directed as follows: Bank: MUFG Union Bank,N.A. ABA: 122000496 Account: 37130196431 Account Name: TRUSDG For Further Credit: Orange County Sanitation District Series 20I4A Attention: Timothy P.Miller The wire transfers of unsuccessful bidders will be returned promptly on the bid date after the examination of bids. The wire transfer of the successful bidder will be retained by the District and applied to the purchase price at the time of delivery of the Revenue Obligations. The District disclaims any liability for funds sent by wire transfer,except for any willful misconduct or reckless disregard for its duties. 7 If after the award of the Revenue Obligations,the successful bidder fails to complete the purchase on the terms stated in its bid,unless such failure of performance shall be caused by any act or omission of the District, the Bid Security Deposit,whether paid by federal funds wire or pursuant to the Surety Bond procedure set forth above, shall be retained by the District as stipulated liquidated damages. No interest will be paid upon any Bid Security Deposit. Official Statement The District has approved a Preliminary Official Statement for the Revenue Obligations, dated June , 2014, which the District has "deemed final" for purposes of Rule 15c2-12 promulgated by the Securities and Exchange Commission, as amended(the"Rule"), although subject to revision,amendment and completion in conformity with the Rule. The District will provide the successful bidder such reasonable number of printed copies of the final Official Statement as such bidder may reasonably request no later than seven business days after the day the Revenue Obligations are awarded. Up to 50 copies of the final Official Statement will be famished without cost to the successful bidder and further copies, if desired, will be made available at the successful bidder's expense. The successful bidder shall file the final Official Statement with a nationally recognized municipal securities information repository on a timely basis. The successful bidder shall, by accepting the award, agree at all times to comply with the provisions of the Rule and with all applicable rules of the Municipal Securities Rulemaking Board. Award,Delivery and Payment If satisfactory bids are received, the Revenue Obligations will be awarded to the highest responsible bidder not later than two hours after the time established for the receipt of bids. The highest bidder shall be the bidder submitting the best price for the Revenue Obligations,which best price shall be that resulting in the lowest true interest cost with respect to the Revenue Obligations. The true interest cost shall be computed by doubling the semi-annual interest rate (compounded semi-annually) necessary to discount the debt service payments from their respective payment dates to the date of the Revenue Obligations and to the price bid. If two or more bidders have bid the same true interest cost, the award shall be made at the sole discretion of the District. Delivery of the Revenue Obligations is expected to occur on or about August. 2014. The Revenue Obligations will be delivered through the facilities of DTC, New York, New York. The successful bidder shall pay for the Revenue Obligations on the date of delivery in Los Angeles,California in immediately available federal funds. Any expenses of providing federal funds shall be home by the purchaser. Payment on the delivery date shall be made in an amount equal to the price bid for the Revenue Obligations less the amount of the bid security deposit. Right to Reject Bids,Waive Irregularities The District reserves the right to reject any and all bids, and to the extent permitted by law, to waive any irregularity or informality in any bid. CUSIP Numbers It is anticipated that CUSIP numbers will be printed on the Revenue Obligations, but the District will assume no obligation for the assignment or printing of such numbers on the Revenue Obligations or for the correctness of such numbers, and neither the failure to print such numbers on any Revenue Obligation nor any error with respect thereto shall constitute cause for a failure or refusal by the purchasers thereof to accept delivery of and make payment for the Revenue Obligations. The cost for the 8 assignment of CUSIP numbers to the Revenue Obligations will be the responsibility of the successful bidder. California Debt and Investment Advisory Commission The successful bidder will be required to pay all fees due to the California Debt and Investment Advisory Commission("CDIAC")under California law. CDIAC will invoice the successful bidder after the delivery of the Revenue Obligations. Legal Opinions The District will famish to the successful bidder at the closing of the Revenue Obligations the legal opinion of Special Counsel to the effect that, in the opinion of Special Counsel, based upon an analysis of existing laws,regulations,ratings and court decisions,and assuming, among other matters,the accuracy of certain representations and compliance with certain covenants,the interest component of each Installment Payment and the allocable portion thereof distributable in respect of each Revenue Obligation is excluded from gross income for federal income tax purposes under section 103 of the Internal Revenue Code of 1986 and is not a specific preference item for purposes of the federal alternative minimum tax and is exempt from State of California personal income taxes. Special Counsel will express no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on,the Revenue Obligations. Closing Documents The District will furnish to the successful bidder at the time of delivery of the Revenue Obligations: (1)a certificate certifying (i) that as of and at the time of delivery of the Revenue Obligations,there is no action, suit,proceeding or investigation,pending or,to the best knowledge of the District, threatened against or affecting the District, (A) which affects or seeks to prohibit, restrain or enjoin the execution and delivery of the Revenue Obligations or the Trust Agreement, (R) in any way contesting the validity of the Revenue Obligations, the Installation Purchase Agreement or the Trust Agreement or the powers of the District to enter into or perform its obligations under such documents to which it is a party or the existence of the District, or (C)wherein an unfavorable decision, ruling or finding would materially and adversely affect the District,or the validity or enforceability of the Revenue Obligations, the Installation Purchase Agreement or the Trust Agreement or the ability of the District to perform its obligations under such documents to which it is a party, (ii)that the Preliminary Official Statement did not on the date of sale of the Revenue Obligations and the Official Statement does not on the date of delivery contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, and (2) a receipt of the District showing that the purchase price of the Revenue Obligations has been received by the District. Continuing Disclosure To assist the successful bidder in complying with the Rule, the District will undertake, pursuant to the Continuing Disclosure Agreement, to provide certain annual financial information, and notices of the occurrence of certain enumerated events. A description of the Continuing Disclosure Agreement is set forth in the Preliminary Official Statement and will be set forth in the final Official Statement. 9 Additional Information Electronic copies of the Trust Agreement, the Installment Purchase Agreement, the Master Agreement, this Official Notice Inviting Bids, the Official Bid Form, and the Preliminary Official Statement will be furnished to any potential bidder upon request made to the District's Financial Advisor at: Public Resources Advisory Group, 11500 West Olympic Boulevard, Suite 502, Los Angeles, CA 90064,310-477-8487,via e-mail at Ichoi@pragla.com. Right to Modify or Amend The District reserves the right to modify or amend this Official Notice Inviting Bids, including but not limited to the right to adjust and change the principal amount of the Revenue Obligations being offered;provided,however,that such notifications or amendments shall be made not later than August 2014, by 4:00 p.m.,New York Time and communicated through Thomson Municipal News (available at http://w .tm3.com) and by facsimile transmission to any qualified bidder timely requesting such notice. Bidders are required to bid for the Revenue Obligations as so modified. Cancellation or Postponement The District reserves the right to cancel or postpone, from time to time, the date established for the receipt of bids for any reason at any time. Any such postponement will be announced by Thomson Municipal News. If any date fixed for the receipt of bids and the sale of the Revenue Obligations is postponed, any alternative sale date will be announced via Thomson Municipal News at least 24 hours prior to such altemative sale date and will be provided by facsimile transmission to any qualified bidder timely requesting such notice. On any such alternative sale date, any bidder my submit a sealed bid for the purchase of the Revenue Obligations in conformity in all respects with the provisions of this Official Notice Inviting Bids except for the date of sale and except for the changes announced by Thomson Municipal News at the time the sale date and time are announced. Dated: June�2014 10 EXHIBIT A FORM OF CERTIFICATE OF INITIAL PURCHASER August_2014 Orange County Sanitation District Fountain Valley,California Fulbright&Jaworski LLP Los Angeles,California Ladies and Gentlemen: We have served as the Underwriter in connection with the execution and delivery on behalf of the Orange County Sanitation District (the "District') of $ Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A(the"Revenue Obligations"). We hereby certify that: (i) August_, 2014 was the first day on which there was a binding contract in writing for the sale or exchange of the Revenue Obligations by the District to the Underwriter, and on that day(the "Sale Date"), we undertook pursuant to such contract to make a bona fide public offering of all of the Revenue Obligations. On the Sale Date all of each maturity of the Revenue Obligations was offered in a bona fide initial offering to the general public at the initial offering price or initial offering yield (the "Initial Offering Price") shown, for such maturity on the inside cover page of the Official Statement, dated July 2014, relating to such offering (the "Official Statement"). The Initial Offering Price for each maturity represented: (i) our reasonable determination of a fair market value on the Sale Date of that maturity of the Revenue Obligations; and (ii) the price at which we reasonably expected to sell all the Revenue Obligations of that maturity to the general public; (ii) based upon our records and other information available to us that we believe to be correct,the first price at which a substantial portion(but in no event less than ten percent) of each maturity of the Revenue Obligations[, (except for the Revenue Obligations maturing an (the "Unsold Maturity"),] was sold by the Underwriter to the general public was the Initial Offering Price in respect of that maturity as described above. [For[the] [each]Unsold Maturity,on the Sale Date we reasonably expected that a substantial portion (at least ten percent) of that Unsold Maturity would be sold at the initial offering price or yield in respect of that maturity]; (iii) at the time that we agreed to purchase the Revenue Obligations, based upon then prevailing market conditions, we had no reason to believe that the first sale of any of the Revenue Obligations to a member of the general public would be at an initial offering price greater than or an initial offering yield less than the fair market value thereof; (iv) taking into account the aggregate amount of each maturity, and treating the Initial Offering Price as the issue price of each Revenue Obligation of that maturity, the aggregate issue price of the Revenue Obligations is $ ; and (v) we provided the yield proof attached hereto as Exhibit A to Special Counsel;we make no representations regarding its legal sufficiency for any purpose. For purposes of this Certificate, the term"general public"does not include bond houses,brokers, or similar persons or organizations acting in the capacity of underwriters or wholesalers. The undersigned understands that the statements made herein will be relied upon by the District in its efforts to comply with the conditions imposed by the Internal Revenue Code of 1986 (the "Code"), and will be relied upon by Special Counsel in rendering its legal opinion, concerning the exclusion from gross income for federal income tax purposes of the interest component of each Installment Payment under the Installment Purchase Agreement, dated as of August 1, 2014, and described in more detail in the Official Statement,and the amount thereof distributable with respect to the Revenue Obligations. [INITIAL PURCHASER], as Underwriter By: Title: 2 Exhibit A Yield Proof (See attached) 3 OFFICIAL BID FORM $[PARAMOUNT]- ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2014A August , 2012 Orange County Sanitation District 10844 Ellis Avenue Fountain Valley,CA 92708-7018 Attn: Lorenzo Tyner Ladies and Gentlemen: We hereby offer to purchase all of the $[PAR AMOUNT]" aggregate principal amount of the Orange County Sanitation District (the "District") Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations"), more particularly described in the Official Notice Inviting Bids, dated June _, 2014(the"Official Notice Inviting Bids"),which is incorporated herein by reference, and made a part thereof,at a purchase price of$ . This offer is for Revenue Obligations evidencing interest at the rates and in the form of serial maturities or term maturities with mandatory sinking account prepayments as set forth in the table on the following page. The bid is subject to acceptance not later than two hours after the expiration of the time established for the final receipt of bids. Our calculation of the true interest cost, computed in accordance with the instructions in the Official Notice Inviting Bids,and which is considered to be informative only and not a part of the bid,is %. (PLEASE CHECK ONE OF THE FOLLOWING TWO PARAGRAPHS) [ ] A surety bond has been provided to the District in the amount of $ issued by an insurance company rated in one of the top two rating categories by Moody's Investors Service, Fitch Ratings or Standard & Poor's Ratings Services, without regard to any modification of the rating, and licensed to issue such a bond in the State of California, naming the District as the beneficiary and indentifying our bidding syndicate whose deposit is guaranteed by the surety bond. [ ] With this bid we me providing the District a wire transfer in immediately available federal funds in the amount of $ to an account specified by the District or its representative, in accordance with the Official Notice Inviting Bids. We have noted that payment of the purchase price is to be made in immediately available Federal Funds at the time of delivery of the Revenue Obligations. If we are the successful bidder, we will (1) within 30 minutes after being notified of the verbal award of the Revenue Obligations, advise the District of the initial public offering prices of the Revenue Obligations; and (2) prior to delivery of the Revenue Obligations furnish a certificate, acceptable to Special Counsel, Fulbright& Jaworski LLP, as to the "issue price"of the Revenue Obligations in the form specified in the Official Notice Inviting Bids. Preliminary,subject to change. Maturity Principal Interest Serial Sinking (February 1) Amount* Rate Maturi Account Prepayment (Check one column) We represent that we have full and complete authority to submit this bid on behalf of our bidding syndicate and the undersigned will serve as the lead manager for the group if the Revenue Obligations are awarded pursuant to this bid. We certify(or declare)under penalty of perjury under the laws of the State of California that this proposal is genuine, and not a sham or collusive, nor made in the interest of or on behalf of any person not herein named, and that the bidder has not directly or indirectly induced or solicited any other bidder to put in a sham bid or any other person, firm or corporation to refrain from bidding, and that the bidder has not in any manner sought by collusion to secure for himself an advantage over any other bidder. Respectfully Submitted, Account Manager: By: Address: City: State: Telephone: Following(or attached)is a list of the members of our account on whose behalf this bid is made. Preliminary,subject to change. 2 Return to Mende Report Fulbright& Jaworski LLP—Draft 06/03/14 NOTICE OF INTENTION TO SELL Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2014A NOTICE IS HEREBY GIVEN that the Orange County Sanitation District(the"District") intends to receive electronic bids until 11:00 a.m.,New York time, on July 8,2014, through the use of an electronic bidding service offered by Ipreo; at www.newissuehome.i- deal.com and the Parity electronic bid submission system, for the purchase of all of the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2014A (the "Revenue Obligations"), dated as of the date of initial delivery, and maturing on such dates as described in the related Official Notice Inviting Bids (the"Notice"). No bids will be accepted by facsimile. Bids for less than all of the Revenue Obligations will not be accepted. The District reserves the right to postpone the date established for the receipt of bids as more fully described under the paragraph"Cancellation or Postponement"in the Notice. NOTICE IS HEREBY FURTHER GIVEN that electronic copies of the Notice and the Preliminary Official Statement issued in connection with the sale of the Revenue Obligations may be obtained from the District's financial advisor, Public Resources Advisory Group, 11500 West Olympic Boulevard, Suite 502, Los Angeles, California 90064, 310-477-8487, via e- mail: tchoi@pmgla.com. Orange County Sanitation District Dated: _June_, 2014 ' Preliminary, subject to change. 40622385.3 ADMINISTRATION COMMITTEE Neeting Date T1.1 of Dir. O6/11/14 6/2s/14 AGENDA REPORT Item Number Item Number s Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director, Finance and Administrative Services SUBJECT: PURCHASE OF COMPUTER NETWORK PARTS GENERAL MANAGER'S RECOMMENDATION A. Reject the apparent low bid submitted by Office Supply Inc. as deemed non-responsive in accordance with specification requirements for Purchase of Cisco Parts, Specification No. E-2014-616BD; and B. Approve a Purchase Order Agreement with Presidio Networked Solutions, the lowest responsive and responsible bidder, for Purchase of Cisco Parts, Specification No. E-2014-6168D, for an amount not to exceed $435,587; and C. Approve a contingency of$21,780 (5%). SUMMARY This procurement provides information technology networking equipment required to support the wastewater industrial control system. The system was designed by inhouse staff in accordances with the National Institute of Standards and Technology (NIST), Special Publication 800-82, Guide to Industrial Control Systems. The design was vetted by Westin Engineering and peer review. The apparent lowest bidder did not propose on all items as required in the specification, thus the rejection of their bid. PRIOR COMMITTEE/BOARD ACTIONS April1992: Established Cisco Equipment as the Sanitation District's standard networking equipment. ADDITIONAL INFORMATION This procurement was competitively bid with five bid packages received. The responsive bids and the bid amounts are listed below. Purchase of Cisco Parts Bid Date— May 15, 2014 @ 2:00 PM (Pacific) E-2014-616BD Page 1 of 2 Bidder Amount of Bid Presidio Networked Solutions $435,587 Nefterts, Inc. $439,842 Aprisa Technology LLC $449,518 Apex Computer Systems, Inc. $541,005 Staff recommends Presidio Networked Solutions be awarded a purchase order for the Purchase of Cisco Parts as the lowest responsible and responsive bidder. CEQA N/A BUDGET/PURCHASING ORDINANCE COMPLIANCE This request complies with authority levels of the Sanitation District's Purchasing Ordinance. This item has been budgeted in SP-89 (Information Technology Equipment Upgrade) and J-125 (Programmable Control Panel Upgrades Project contingency funds will be used for this bid. Date of ADDroval Contract Amount Contingency 6/25/14 $435,587 $21,780 ATTACHMENT N/A Page 2 of 2 ADMINISTRATION COMMITTEE Meath,Dare TOBA.of Dir. 06/11/14 O6/25/14 AGENDA REPORT Item Number Item Number 6 Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: PROPOSED FY 2014-15 AND 2015-16 BUDGET GENERAL MANAGER'S RECOMMENDATION Approve proposed Operating, Capital, DebUCOP Service and Self-Insurance Budgets for FY 2014-15 and 2015-16 as follows: 2014-15 2015-16 Net Operations, Maintenance &Working Capital $152,500,120 $155,004,500 Worker's Compensation Self Insurance 700,000 700,000 General Liability and Property Self-Insurance 1,501,200 1,611,200 Net Capital Improvement Program 186,485,000 206,087,000 Debt/COP Service 86,070,000 86,714,000 Long-Term Debt Reduction 125,000,000 - Intra-District Joint Equity Purchase/Sale(l) 2,152,000 1,115,000 TOTAL $554.408.320 $451.231.700 (')Cash to Revenue Area 14 (RA14) in exchange for capital assets to Consolidated Revenue Area 15 (RA15). SUMMARY The FY 2014-15 and 2015-16 Proposed Budget is enclosed for the Committee's consideration. The Budget has been presented to the Operations Committee at the regular June meeting in order to allow each Standing Committee an opportunity to review the proposal prior to the June Board meeting. Although each Committee has had an opportunity to review the proposal, it remains the responsibility of the Administration Committee to recommend approval. The Administration Committee is requested to recommend that the Board of Directors approve this budget. PRIOR COMMITTEE/BOARD ACTIONS N/A Page 1 of 2 ADDITIONAL INFORMATION N/A CEQA N/A BUDGET/PURCHASING ORDINANCE COMPLIANCE N/A ATTACHMENTS The following attachment(s) is included in hard copy and may also be viewed on-line at the OCSD website(www.ocsd.coml with the complete agenda package: Proposed FY 2014-15 and 2015-16 Budget Page 2 of 2 ADMINISTRATION COMMITTEE Neebng Dare To ad.of Dir. 06,11,14 -- AGENDA REPORT Item Number Item Numbe Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Nick Arhontes, Director of Facilities Support Services SUBJECT: INFORMATIONAL PRESENTATION ON THE COLLECTION FACILITIES GENERAL MANAGER'S RECOMMENDATION Information Only. SUMMARY As part of the ongoing Board Member Orientation effort, OCSD staff will provide a general presentation on specific topics that the Board of Directors requested via a survey conducted in October 2013. Each month a different topic will be presented to both the Operations Committee and Administration Committee. This presentation will provide a brief and general overview of the regional collection facilities serving member cities and agencies and routing flows to Plants 1 and 2 for treatment and reclamation. More detailed presentations on particular areas of interest within the collection facilities will be scheduled for future dates. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION The following informational presentations have been provided to both Operations and Administration Committees: • February— OCSD Budget and Finances • March —Water Quality and OCSD's Disinfection Program • April — Community Outreach Program • May- Reserves, Investments and Financial Policies CEQA N/A BUDGET/PURCHASING ORDINANCE COMPLIANCE N/A Page 1 of 2 ATTACHMENT: The following attachment(s) are included in hard copy and may also be viewed on-line at the OCSD website(www.ocsd.coml with the complete agenda package and attachments: • General Map of Orange County Joint Outfall Sewer from 1941 Sewer Survey by Orange County Health Department Page 2 of 2 —... - LCxverY Lin• - _ —. _...__ � _ �„•. 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Y J r_� E+ /o--- c.1/er/nnror Pl Je,O•LW.xT P/wr w/rn i -- � ,r �, i --J.nh An:ro Fiay Carp. P GA .A,EN GROVE SAN/TARY O/SX� /DN<.a cry rye..J000 6-. Jo/a cn/•./wm / -Tr•• Jr m4, I CnN/C/YrNww Jv J MESMy M _ • C/TY.,5ANTA ANA Y y.- 1 /DI/C.ECw.AN•aI OCO k � f -- N � N• aaaHCONM.w.s.prl.Y ak ' 1 ___ S•• Jao/I,CM"/mM asNnM1'Sk � h � F f.`J AJa.D/-aa'd•rN/F.WSJM"a/I } EUCL/O-VERANO SL OUTFALL �{pA Fc/bw ✓U/ue F/•rer Ca N SNp - O./eJ S ORANOE CMWrY JOINT OUTC//n Aw, d 3 E9" Ere rC..Ry ENT'LroANT \ Ma,.R ap cwaa/ry- r wrd GENERAL MAP R• ✓-• Z eoo/e. cH aoola.CCZIIe./rar, ORANGE COUNTY ✓OINT OUTFALL 3 /n O XOW/NO ONTFALL TO OCEAN CONNECTED L/T/EJ& 9AN/TARY O/JTq/C1JbfO4YAT/ONJ \ S/ZE• LENGrIlA SLOPE OFALL OUTFALLS \\fI AN-S/•••.WxM1 M•Nw L0CAT/ON L{"THE SEWA6E TREATMENTiYANT ANO PUMP/NO CNLOR/NAT/OYd SCOTPLNRCYPLANT3 LOCAT/ON OFMErER STAT/ON; SEWAGE SAHPL/N6 EN/uur f AYxvNr Ja,d S•ny. Po/NrJ A Cq/T/CAL /NONSTR/EJ /9}/-OgANGE COUNTY JO/NTOUTFALG SEWER SORYENHN OCEAN OUTFAL L BY ORANGE COUNTY NEALTN OERIRTMENT wpI GYw4 OACN N R/MBALL-SAN/T,,AY EM9/NI1R 3/00 a"A' I.-JOM/LC Fr.-fE'Q I. P/ S•xaa.RxnY Oner.ryi /n t0 q:er�\ � Ty ADMINISTRATION COMMITTEE Neebng Dare To ad.of Dir. 06,11,14 -- AGENDA REPORT Item Number Item Number e Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Rob Thompson, Director of Engineering SUBJECT: PRETREATMENT PROGRAM AND INDUSTRIAL PERMITTING GENERAL MANAGER'S RECOMMENDATION Information Only. SUMMARY The Orange County Sanitation District's (OCSD) Pretreatment Program regulates Orange County dischargers to ensure incoming wastewater meets OCSD standards before plant treatment. The program is federally mandated by the Clean Water Act and authorized by the California State Water Resources Control Board to reduce metals and other compounds that are not otherwise removed in the treatment process. Publicly owned treatment works (POTWs) like OCSD are required to implement the National Pretreatment Program, a component of the National Pollutant Discharge Elimination System (NPDES) through which OCSD is permitted to discharge to the ocean. Industrial Pretreatment requires OCSD to issue permits and monitor the industrial users in its service area, controlling the source and quality of the wastewater the plants receive for ocean discharge or water recycling. This information item will provide an overview of OCSD's Industrial Pretreatment Program with an emphasis on permitting, monitoring, and enforcement. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION N/A CECA N/A ATTACHMENT N/A RT:JC:jb:gc Page 1 of 1 ORANGE COUNTY SANITATION DISTRICT Agenda Terminology Glossary Glossary of Terms and Abbreviations AQMD Air Quality Management District ASCE American Society of Civil Engineers BOD Biochemical Oxygen Demand CARB California Air Resources Board CASA California Association of Sanitation Agencies CCTV Closed Circuit Television CEQA California Environmental Quality Act CRWQCB California Regional Water Quality Control Board CWA Clean Water Act CWEA California Water Environment Association EIR Environmental Impact Report EMT Executive Management Team EPA U.S. Environmental Protection Agency FOG Fats, Oils, and Grease FSSD Facilities Support Services Department gpd Gallons per day GWR System Groundwater Replenishment System (also called GWRS) ICS Incident Command System IERP Integrated Emergency Control Plan LOS Level of Service MGD Million gallons per day NACWA National Association of Clean Water Agencies NPDES National Pollutant Discharge Elimination System NWRI National Water Research Institute O&M Operations and Maintenance OCCOG Orange County Council of Governments OCHCA Orange County Health Care Agency OCSD Orange County Sanitation District OCWD Orange County Water District GOBS Ocean Outfall Booster Station OSHA Occupational Safety and Health Administration POTW Publicly Owned Treatment Works ppm Parts per million RFP Request For Proposal RWQCB Regional Water Quality Control Board SARFPA Santa Ana River Flood Protection Agency Glossary of Terms and Abbreviations SARI Santa Ana River Inceptor SARWQCB Santa Ana Regional Water Quality Control Board SAWPA Santa Ana Watershed Project Authority SCADA Supervisory Control and Data Acquisition system SCAP Southern California Alliance of Publicly Owned Treatment Works SCAQMD South Coast Air Quality Management District SOCWA South Orange County Wastewater Authority SSMP Sanitary Sewer Management Plan SSO Sanitary Sewer Overflow SWRCB State Water Resources Control Board TDS Total Dissolved Solids TMDL Total Maximum Daily Load TSS Total Suspended Solids WDR Waste Discharge Requirements WEF Water Environment Federation WERF Water Environment Research Foundation Activated-sludge process — A secondary biological wastewater treatment process where bacteria reproduce at a high rate with the introduction of excess air or oxygen, and consume dissolved nutrients in the wastewater. Benthos— The community of organisms, such as sea stars, worms and shrimp, which live on, in, or near the seabed, also know as the benthic zone. Biochemical Oxygen Demand (BOD)—The amount of oxygen used when organic matter undergoes decomposition by microorganisms. Testing for BOD is done to assess the amount of organic matter in water. Biosolids — Biosolids are nutrient rich organic and highly treated solid materials produced by the wastewater treatment process. This high-quality product can be recycled as a soil amendment on farm land or further processed as an earth-like product for commercial and home gardens to improve and maintain fertile soil and stimulate plant growth. Capital Improvement Program (CIP) — Projects for repair, rehabilitation, and replacement of assets. Also includes treatment improvements, additional capacity, and projects for the support facilities. Coliform bacteria—A group of bacteria found in the intestines of humans and other animals, but also occasionally found elsewhere used as indicators of sewage pollution. E. coli are the most common bacteria in wastewater. Collections system — In wastewater, it is the system of typically underground pipes that receive and convey sanitary wastewater or storm water. Certificate of Participation (COP) —A type of financing where an investor purchases a share of the lease revenues of a program rather than the bond being secured by those revenues. Glossary of Terms and Abbreviations Contaminants of Potential Concern (CPC) — Pharmaceuticals, hormones, and other organic wastewater contaminants. Dilution to Threshold (D!f) — the dilution at which the majority of the people detect the odor becomes the DrT for that air sample. Greenhouse gases — In the order of relative abundance water vapor, carbon dioxide, methane, nitrous oxide, and ozone gases that are considered the cause of global warming ("greenhouse effect"). Groundwater Replenishment (GWR) System — A joint water reclamation project that proactively responds to Southern California's current and future water needs. This joint project between the Orange County Water District and the Orange County Sanitation District provides 70 million gallons a day of drinking quality water to replenish the local groundwater supply. Levels of Service (LOS)—Goals to support environmental and public expectations for performance. NDMA— N-Nitrosodimethylamine is an N-nitrosoamine suspected cancer-causing agent. It has been found in the Groundwater Replenishment System process and is eliminated using hydrogen peroxide with extra ultra-violet treatment. National Biosolids Partnership (NBP) — An alliance of the National Association of Clean Water Agencies (NACWA) and Water Environment Federation (WEF), with advisory support from the U.S. Environmental Protection Agency (EPA). NBP is committed to developing and advancing environmentally sound and sustainable biosolids management practices that go beyond regulatory compliance and promote public participation in order to enhance the credibility of local agency biosolids programs and improved communications that lead to public acceptance. Plume—A visible or measurable concentration of discharge from a stationary source or fixed facility. Publicly-owned Treatment Works (POTW)— Municipal wastewater treatment plant. Santa Ana River Interceptor (SARI) Line — A regional brine line designed to convey 30 million gallons per day (MGD) of non-reclaimable wastewater from the upper Santa Ana River basin to the ocean for disposal, after treatment. Sanitary sewer — Separate sewer systems specifically for the carrying of domestic and industrial wastewater. Combined sewers carry both wastewater and urban run-off. South Coast Air Quality Management District (SCAQMD) — Regional regulatory agency that develops plans and regulations designed to achieve public health standards by reducing emissions from business and industry. Secondary treatment — Biological wastewater treatment, particularly the activated-sludge process, where bacteria and other microorganisms consume dissolved nutrients in wastewater. Sludge—Untreated solid material created by the treatment of wastewater. Total suspended solids (TSS)—The amount of solids floating and in suspension in wastewater. Trickling filter — A biological secondary treatment process in which bacteria and other microorganisms, growing as slime on the surface of rocks or plastic media, consume nutrients in wastewater as it trickles over them. Glossary of Terms and Abbreviations Urban runoff — Water from city streets and domestic properties that carry pollutants into the storm drains, rivers, lakes, and oceans. Wastewater—Any water that enters the sanitary sewer. Watershed —A land area from which water drains to a particular water body. OCSD's service area is in the Santa Ana River Watershed.