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HomeMy WebLinkAbout07-25-2012 Board Meeting Agenda 07/25/12 OCSD Board of Directors’ Agenda Page 1 of 6 Orange County Sanitation District Regular Meeting of the Board of Directors Wednesday, July 25, 2012 6:30 P.M. Board Room 10844 Ellis Avenue Fountain Valley, CA 92708 (714) 593-7130 AGENDA INVOCATION AND PLEDGE OF ALLEGIANCE: (Gail Eastman, City of Anaheim) DECLARATION OF QUORUM: ROLL CALL: PUBLIC COMMENTS: If you wish to speak, please complete a Speaker’s Form (located at the table outside of the Board Room) and give it to the Clerk of the Board. Speakers are requested to limit comments to three minutes. REPORTS: The Chair and the General Manager may present verbal reports on miscellaneous matters of general interest to the Directors. These reports are for information only and require no action by the Directors.  Secondary Treatment Update CLAIMS: 1. Ratify payment of claims of the District, by roll call vote, as follows: Claims Paid for the Period Ending: 06/15/12 06/30/12 Totals $7,386,336.60 $9,185,194.47 DIRECTORS: Pursuant to Government Code Section 84308, you are required to disclose any campaign contribution greater than $250 received in the past twelve months from any party to a contract involving OCSD. This requires that you identify the contributor by name. Further, you may not participate in the decision making process to award a contract to such party. For reference, you are directed to the Register of Warrants as to all current contractors/vendors with OCSD. For the specifics of Government Code Section 84308, please see your Director’s Handbook or call the office of General Counsel. 07/25/12 OCSD Board of Directors’ Agenda Page 2 of 6 CONSENT CALENDAR: Consent Calendar Items are considered to be routine and will be enacted, by the Board of Directors, after one motion, without discussion. Any items withdrawn from the Consent Calendar for separate discussion will be considered in the regular order of business. 2. Receive and file the Orange County Sanitation District Directors’ Committee Assignments for 2012-2013. 3. Approve minutes for the Regular Board Meeting held on June 27, 2012. 4. A. Approve Plans and Specifications for Activated Sludge Plant 1 Waste Sludge Pump Downsizing, Project No. FE10-18, on file at the office of the Clerk of the Board; B. Receive and file bid tabulation and recommendation; C. Award a construction contract to W. M. Lyles, Co. for Activated Sludge Plant 1 Waste Sludge Pump Downsizing, Project No. FE10-18, for a total amount not to exceed $158,030; and, D. Approve a contingency of $23,705 (15%). 5. Approve a 1.5% rate adjustment based on the Consumer Price Index for the purchase of Green Acres Project Water. 6. A. Approve the eighth amended Joint Powers Agreement confirming the creation of the agency known as Southern California Coastal Water Research Project (SCCWRP) Authority for the term July 1, 2013 through June 30, 2017. B. Approve annual funding in the amount of $400,000 per year for SCCWRP during the term of this agreement. C. Approve Resolution No. OCSD 12-09, Eighth Amended Joint Powers Agreement confirming the creation of an agency known as Southern California Coastal Water Research Project. 7. A. Receive and file complaint in the case Vallejo Gallery LLC v. OCSD, et al.; and, B. Authorize the General Counsel to appear and represent the District’s interests. STEERING COMMITTEE: 8. Approve minutes of the June 27, 2012, Steering Committee Meeting. 07/25/12 OCSD Board of Directors’ Agenda Page 3 of 6 ADMINISTRATION COMMITTEE: 9. Approve minutes of the July 11, 2012, Administration Committee Meeting. 10. A. Adopt Resolution No. OCSD 12-10, authorizing the execution and delivery by the 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 Wastewater Refunding Revenue Obligations, Series 2012B, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount of not to exceed $90,000,000, 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. Recommend to the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate amount of not to exceed $90,000,000. 11. Adopt Resolution No. OCSD 12-11, Authorizing the Orange County Sanitation District’s Treasurer to Invest and/or Reinvest District’s Funds; Adopting District’s Investment Policy Statement and Performance Benchmarks for FY 2012-13; and Repealing Resolution No. OCSD 11-12. * * * * * * * * * * * * * * * * * * * * * ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION The members of the Orange County Sanitation District Board of Directors are each being compensated $212.50 for the Board Meeting; there is no additional compensation for the Financing Corporation Meeting. CALL TO ORDER: Board of Directors, Orange County Sanitation District Financing Corporation. ROLL CALL: APPROVAL OF MINUTES: If no corrections or amendments are made, the minutes for the meeting held on February 22, 2012, will be deemed approved and be so ordered by the Chair. 07/25/12 OCSD Board of Directors’ Agenda Page 4 of 6 ACTION ITEM: Adopt Resolution No. FC-18, authorizing the execution and delivery by the 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 Wastewater Refunding Revenue Obligations, Series 2012B, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount of not to exceed $90,000,000, 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. (See Agenda Report for Item No. 10) Adjourn, Board of Directors, Orange County Sanitation District Financing Corporation. * * * * * * * * * * * * * * * * * * Reconvene, Board of Directors, Orange County Sanitation District GWRS STEERING COMMITTEE 12. Receive and file minutes of the Groundwater Replenishment System Steering Committee meeting held on October 10, 2011. 13. Receive and file minutes of the Groundwater Replenishment System Steering Committee meeting held on January 9, 2012. 14. Receive and file minutes of the Groundwater Replenishment System Steering Committee meeting held on April 9, 2012. CLOSED SESSION: During the course of conducting the business set forth on this agenda as a regular meeting of the Board, the Chair may convene the Board in closed session to consider matters of pending real estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, 54957 or 54957.6, as noted. Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employment actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Board during a permitted closed session and are not available for public inspection. At such time as the Board takes final action on any of these subjects, the minutes will reflect all required disclosures of information. Convene in closed session. 07/25/12 OCSD Board of Directors’ Agenda Page 5 of 6 (1) CONFERENCE WITH LEGAL COUNSEL RE. EXISTING LITIGATION (Subdivision (a) of Section 54956.9) Case: Santa Ana Watershed Project Authority v. Orange County Sanitation District, Judicial Arbitration and Mediation Services, Reference No. 1210030062 Reconvene in regular session. Consideration of action, if any, on matters considered in closed session. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: Adjourn the Board meeting until the next regular Meeting on August 22, 2012, at 6:30 p.m. 07/25/12 OCSD Board of Directors’ Agenda Page 6 of 6 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. Agenda 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. Maria E. Ayala Clerk of the Board (714) 593-7130 mayala@ocsd.com For any questions on the agenda, Committee members may contact staff at: General Manager Jim Ruth (714) 593-7110 jruth@ocsd.com Assistant General Manager Bob Ghirelli (714) 593-7400 rghirelli@ocsd.com Assistant General Manager Jim Herberg (714) 593-7300 jherberg@ocsd.com Director of Facility Support Services Nick Arhontes (714) 593-7210 narhontes@ocsd.com Director of Finance and Administrative Services Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Director of Human Resources Jeff Reed (714) 593-7144 jreed@ocsd.com Director of Operations & Maintenance Ed Torres (714) 593-7080 etorres@ocsd.com Page 1 of 1 BOARD OF DIRECTORS Meeting Date To Bd. of Dir. 07/25/12 AGENDA REPORT Item Number Item Number 1 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: PAYMENT OF CLAIMS OF THE ORANGE COUNTY SANITATION DISTRICT GENERAL MANAGER'S RECOMMENDATION Ratify Payment of Claims of the District by Roll Call Vote. CONFLICT OF INTEREST NOTIFICATION Pursuant to Government Code Section 84308, you are required to disclose any campaign contribution greater than $250 received in the past twelve months from any party to a contract involving the Orange County Sanitation District. Further, you may not participate in the decision making process to award a contract to such party. For reference, you are directed to the Register of Warrants as to all current contractors/vendors with the District. In general, you must disclose the basis of the conflict by identifying the name of the firm or individual who was the contributor. For the specifics of Government Code Section 84308, please see your Director’s Handbook or call the office of General Counsel. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION See attached listing. ATTACHMENTS 1. Copies of Claims Paid reports from 6/01/12 – 6/15/12 and 6/16/12 – 6/30/12 fin/210/mm Page 1 of 7 EXHIBIT A 6/21/2012 Vendor Warrant No.Amount Description Accounts Payable Warrants A W Chesterton 48723 3,456.48 Repair & Maintenance Services and/or Supplies A W Chesterton 48883 3,814.04 Repair & Maintenance Services and/or Supplies Abel Scale, Inc.48724 3,266.98 Repair & Maintenance Services and/or SuppliesAccuStandard48885266.80 Laboratory Services & Supplies A-Check America, Inc.48884 708.75 Human Resources Services Aerotek 48725 1,868.40 Professional Services/Temporary Services Agilent Technologies, Inc.48886 1,712.11 Laboratory Services & SuppliesAgo IndustriesDBA So-Cal Sweeping 48826 980.00 Street Sweeping ServicesAgo IndustriesDBA So-Cal Sweeping 48985 2,940.00 Street Sweeping Services Airgas Safety, Inc.48726 8,224.61 Safety, Security, Health Equipment, Supplies, and Services Airgas Safety, Inc.48887 10,856.73 Safety, Security, Health Equipment, Supplies, and ServicesAirgas West 48727 197.32 Repair & Maintenance Services and/or SuppliesAirgas West 48888 2,177.13 Repair & Maintenance Services and/or Supplies All American Sewer Tools 48889 3,004.22 Repair & Maintenance Services and/or Supplies American Express 48866 33,215.32 Purchasing Card Program for Miscellaneous Parts and SuppliesAmerican Express TVL Related Svcs Co., Inc.48890 1,973.60 Purchasing Card Program for Miscellaneous Travel ExpensesAmerican Society for Public Admin.48728 122.00 Professional Organization Amtech Elevator Services 48891 1,035.00 Miscellaneous Services AppleOne Employment Service 48729 6,225.00 Professional Services/Temporary ServicesAppleOne Employment Service 48892 2,025.00 Professional Services/Temporary ServicesApplied Industrial Technology 48730 189.63 Repair & Maintenance Services and/or Supplies ARB/PERP - Air Resources Board 48856 45.00 Governmental Agency Fees & Charges ARB/PERP - Air Resources Board 48863 45.00 Governmental Agency Fees & Charges Argus-Hazco 48731 1,117.10 Repair & Maintenance Services and/or SuppliesArizona Instruments, L.L.C.48893 21.25 Electrical/Electronic Equipment, Parts & Repairs Ashbrook Simon Hartley Operations, L.P.48867 50,460.00 Repair & Maintenance Services and/or Supplies Association of California Cities 48732 125.00 Professional Organizations, Meeting/Training/Membership Dues AT & T Mobility II, L.L.C.48734 99.98 TelecommunicationsAT & T Mobility II, L.L.C.48735 7,989.97 Telecommunications AT & T Universal Biller 48733 8,161.71 Telecommunications AT & T Universal Biller 48894 121.83 Telecommunications Atlas Underground, Inc.48713 67,540.00 Repair & Maintenance Services and/or SuppliesAwards & Trophies Company 48736 34.34 Awards and Framing ServicesAwards & Trophies Company 48895 47.41 Awards and Framing Services AWWA 48896 68.50 Professional Organizations Meeting/Training/Membership Bank of New York Mellon Trust 48868 27,309.15 Professional Services - FinancialBattery Systems, Inc.48738 77.54 Repair & Maintenance Services and/or SuppliesBC Wire Rope & Rigging 48739 1,200.00 Tools & Supplies Black & Veatch Corporation 48714 69,008.15 Professional Services/Engineering Design Services Black & Veatch Corporation 48714 93,375.78 Professional Services/Engineering Design ServicesBlack & Veatch Corporation 48869 133,818.94 Professional Services/Engineering Design ServicesBongarde Holdings, Ltd.48740 4,799.00 Professional Organizations Meeting/Training/Membership Bonterra Consulting, L.L.C.48741 2,270.90 Professional Services/Engineering Design Services Brown & Caldwell 48742 6,641.60 Professional Services/Engineering Design ServicesBuchalter Nemer 48897 330.00 Professional Legal ServicesBurlington Safety Laboratory of CA, Inc.48743 237.00 Safety, Security, Health Equipment, Supplies, and Services C.A. Short Company 48744 85.12 Safety, Security, Health Equipment, Supplies, and Services CAL/OSHA 48746 1,125.00 Professional Organizations Meeting/Training/Membership California Barricade Rentals 48898 3,175.00 Miscellaneous Services Claims Paid From 6/1/12 to 6/15/12 fin/210/mm Page 2 of 7 EXHIBIT A 6/21/2012 Vendor Warrant No.Amount Description Claims Paid From 6/1/12 to 6/15/12 California BP LLC and California BI LLC 48715 29,906.29 Sewer User Refund California Dept. of Child Support 48899 2,137.47 Judgments Payable California Kist LLC 48900 1,553.84 Repair & Maintenance Services and/or Supplies Camali Corp.48747 500.00 Repair & Maintenance Services and/or SuppliesCarollo Engineers 48870 52,011.51 Professional Services/Engineering Design Services Carollo Engineers 48901 23,849.08 Professional Services CDW Government, Inc.48716 221,833.43 Computers, Software/Hardware City of Fullerton 48920 7.00 Water UseCity of Huntington Beach 48780 23.53 Water UseCity of Huntington Beach 48935 9,442.02 Water Use City of Newport Beach 48795 467.20 Water Use Clean Harbors Environmental Services 48748 2,758.41 Grit & Screenings; Hazard Waste DisposalCompressor Components of California 48902 4,700.00 Repair & Maintenance Services and/or SuppliesConnell Chevrolet\GEO 48903 311.86 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Consolidated Electrical Distributors 48904 56.94 Electrical/Electronic Equipment, Parts & Repairs Construction Management Services Co. LLC 48905 8,411.60 Professional Services/Consultant Secondary Activated SludgeConsumers Pipe & Supply Co.48749 26.31 Repair & Maintenance Services and/or SuppliesControlled Motion Solutions 48750 208.39 Repair & Maintenance Services and/or Supplies Cooperative Personnel Services 48909 418.80 Human Resources Services Corner Bakery Café (CBC)48751 164.86 Catering ServicesCorporate Image Maintenance, Inc.48906 11,110.00 Janitor & Household Service & SuppliesCounty of Orange Auditor Controller 48907 1,365.00 Governmental Agency Fees & Charges County of Orange Auditor Controller 48908 1,230.00 Governmental Agency Fees & Charges Court Order 48943 2,179.38 Judgments Payable Court Order 48949 150.00 Judgments PayableCourt Order 48973 108.00 Judgments Payable Court Order 49011 912.50 Judgments Payable CR&R, Inc.48910 648.90 Waste Disposal Crane Veyor Corp.48752 2,092.11 Repair & Maintenance Services and/or SuppliesCS-AMSCO 48753 123.71 Repair & Maintenance Services and/or Supplies CSI Services, Inc.48911 359.00 Professional Services Culligan of Orange County 48754 60.40 Repair & Maintenance Services and/or Supplies CWEA Membership 48755 132.00 Professional Organizations Meeting/Training/MembershipCWEA Membership 48912 132.00 Professional Organizations Meeting/Training/MembershipDavid Gutoff 48913 225.00 Laboratory Services & Supplies David R. Heinz 49018 161.40 Meeting/Training Expense Reimbursement David Wheeler Pest Control, Inc.48756 1,320.00 Pest Control ServicesDon F. Stokes 49024 100.00 Meeting/Training Expense ReimbursementDudek & Associates, Inc.48757 4,175.59 Professional Services/Engineering Design Services Economy Restaurant Equipment & Supply 48758 398.68 Repair & Maintenance Services and/or Supplies Employee Benefits Specialists, Inc.48717 790,655.04 Reimbursed Prepaid Employee Medical & Dependent CareEmployee Benefits Specialists, Inc.48914 13,833.91 Reimbursed Prepaid Employee Medical & Dependent CareEnchanter, Inc.48759 1,140.00 Vessel Services - Monitoring Vessel Nerissa Environmental Engineering & Contracting 48760 4,860.00 Professional Services/Specialty Course Audits Environmental Resource Associates 48915 1,053.07 Laboratory Services & SuppliesEwing Irrigation 48916 161.63 Irrigation Repair & Maintenance Services and/or SuppliesFedex Corporation 48761 36.13 Freight Services Fisher Scientific 48917 955.01 Laboratory Services & Supplies Fountain Valley AAA Auto Spa 48762 1,526.00 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Fox Meter, Inc.48918 972.80 Repair & Maintenance Services and/or Supplies fin/210/mm Page 3 of 7 EXHIBIT A 6/21/2012 Vendor Warrant No.Amount Description Claims Paid From 6/1/12 to 6/15/12 Franchise Tax Board 48763 11,576.00 Judgments Payable Franchise Tax Board 48919 1,140.57 Judgments Payable Frank I. Benest 48764 10,395.78 Professional Organizations Meeting/Training/Membership Ganahl Lumber Company 48765 478.14 Facilities, Maintenance, Services & SuppliesGarratt Callahan Company 48921 5,533.43 Chemicals, Water/Wastewater Treatment Gates Fiberglass Installers 48922 7,662.38 Repair & Maintenance Services and/or Supplies General Petroleum 48923 6,586.47 Fuel and Lubricants George L. Robertson 49023 209.41 Meeting/Training Expense ReimbursementGerardo Amezcua 49013 190.00 Meeting/Training Expense ReimbursementGHD, L.L.C.48766 6,300.00 Professional Services/Engineering Design Services Glens Alignment & Brake Service 48767 110.00 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Glens Alignment & Brake Service 48924 110.00 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesGlobal Environmental Network Inc.48768 795.00 Safety, Security, Health Equipment, Supplies, and ServicesGolden State Overnight Delivery Service 48769 6.18 Courier Services Golden State Overnight Delivery Service 48925 381.85 Courier Services Golden West Window Service 48770 2,847.00 Facilities, Maintenance, Services & SuppliesGolden West Window Service 48926 350.00 Facilities, Maintenance, Services & SuppliesGrainger, Inc.48771 2,783.18 Repair & Maintenance Services and/or Supplies Grainger, Inc.48927 5,762.06 Repair & Maintenance Services and/or Supplies Graybar Electric Company 48772 824.08 Electrical/Electronic Equipment, Parts & RepairsGraybar Electric Company 48928 2,574.79 Electrical/Electronic Equipment, Parts & RepairsGRM Information Management Services 48929 46.72 Miscellaneous Services & Supplies H.H. Fremer Architects, Inc.48773 8,652.10 Construction Hach Company 48930 181.89 Laboratory Services & Supplies Harrington Industrial Plastics, Inc.48774 374.33 Repair & Maintenance Services and/or SuppliesHarrington Industrial Plastics, Inc.48931 3,731.72 Repair & Maintenance Services and/or Supplies Hewlett Packard Company 48871 51,129.86 Computers, Software/Hardware Hill Brothers 630 56,485.29 Chemicals, Water/Wastewater Treatment HILLCO Fastener Warehouse, Inc.48932 302.73 Repair & Maintenance Services and/or SuppliesHills Boat Service, Inc.48775 907.34 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Home Depot 48776 65.17 Miscellaneous Parts and Supplies Home Depot 48933 65.57 Miscellaneous Parts and Supplies Hotsy Equipment Company 48777 134.00 Repair & Maintenance Services and SuppliesHub Auto Supply 48778 289.24 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesHub Auto Supply 48934 682.33 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Humantech, Inc.48779 845.00 Professional Organizations Meeting/Training/Membership Hyatt Legal Plans 48936 1,691.00 Professional Services - LegalIndiana Child Support Bureau 48937 290.00 Judgments PayableIndustrial Fabrics Corp.48781 13,173.17 Repair & Maintenance Services and/or Supplies Industrial Filter Manufacturers, Inc.48782 62.72 Repair & Maintenance Services and/or Supplies Industrial Threaded Products, Inc.48938 1,172.86 Repair & Maintenance Services and/or SuppliesInland Litho 48783 1,185.25 Printing and Delivery ServicesInsight Public Sector, Inc.48784 9,383.84 Computers, Software/Hardware Integrated Process Technologies, Inc.48939 1,708.40 Repair & Maintenance Services and/or Supplies Interstate Batteries of Cal Coast 48940 967.30 Repair & Maintenance Services and/or SuppliesIntl. Union of Oper. Eng. AFL CIO Local 501 48941 4,936.62 Dues DeductionsIronman Parts & Services 48785 225.74 Repair & Maintenance Services and/or Supplies Jamison Engineering Contractors, Inc.48786 1,933.00 Professional Services/Construction Support Services Jamison Engineering Contractors, Inc.48942 13,570.56 Professional Services/Construction Support Services Jays Catering 48787 690.95 Catering Services fin/210/mm Page 4 of 7 EXHIBIT A 6/21/2012 Vendor Warrant No.Amount Description Claims Paid From 6/1/12 to 6/15/12 JCI Jones Chemicals, Inc.633 17,813.77 Chemicals, Water/Wastewater Treatment JCI Jones Chemicals, Inc.635 27,315.61 Chemicals, Water/Wastewater Treatment Jeanie M. Fields 48859 184.58 Meeting/Training Expense Reimbursement Jerry F. Evangelista 48858 768.57 Meeting/Training Expense ReimbursementKanawha Insurance Company 48944 2,172.41 Voluntary Benefits - SSTD Insurance Kelly Paper 48945 118.08 Office Supplies Kemira Water Solutions 631 159,560.12 Chemicals, Water/Wastewater Treatment Kemira Water Solutions 636 198,097.85 Chemicals, Water/Wastewater TreatmentKenny/Jenks Consultants, Inc.48946 15,142.93 Professional Services 7-49Kevin R. Peckham 48861 130.00 Meeting/Training Expense Reimbursement Kiewit Infrastructure West Co.48880 312,686.00 Construction Kiewit/Mass, A Joint Venture 48722 146,724.65 ConstructionKiewit/Mass, A Joint Venture 48878 291,891.30 ConstructionKoff & Associates, Inc.48947 1,050.00 Professional Services/Comp & Class Study Kurt M. Rathert 49022 170.00 Meeting/Training Expense Reimbursement Lance Soll and Lunghard 48788 3,810.75 Professional Services - AuditingLaurie J. Klinger 49019 160.94 Meeting/Training Expense ReimbursementLee & Ro, Inc.48789 5,471.52 Professional Services/Engineering Design Services Lionakis 48790 3,131.10 Professional Services/Architectural and Landscaping Consulting Services Lionakis 48948 5,090.80 Professional Services/Architectural and Landscaping Consulting ServicesLopez Consulting Group, L.L.C.48791 20,000.00 Professional Services/I.T. Ludolph T. Lorrimer 48860 186.94 Meeting/Training Expense Reimbursement Ludolph T. Lorrimer 49021 324.06 Meeting/Training Expense Reimbursement Ludwig Lapus 48864 1,066.72 Meeting/Training Expense Reimbursement Magnolia Air Compressor Company Inc.48872 29,260.30 Repair & Maintenance Services and/or SuppliesMalcolm Pirnie, Inc.48950 20,645.42 Professional Services/Engineering Design Services Manley's Boiler, Inc.48873 66,202.00 Repair & Maintenance Services and Supplies Marc A. Larson 49020 190.00 Meeting/Training Expense Reimbursement Mark A. Esquer 48857 259.97 Meeting/Training Expense ReimbursementMarvac Electronics 48951 71.06 Electrical/Electronic Equipment, Parts & Repairs Mass Electric Construction CO 48881 31,172.10 Construction Mass Electric Construction CO 48882 59,684.20 Construction McMaster-Carr Supply Co.48952 528.38 Repair & Maintenance Services and/or SuppliesMerrill F. Seiler 48862 338.62 Meeting/Training Expense ReimbursementMetroHM USA 48953 1,736.65 Laboratory Services & Supplies Michael I. Gold 49017 224.12 Meeting/Training Expense Reimbursement Mohammad A. Babaie Livari 48737 180.00 Meeting/Training Expense ReimbursementMoore Medical Inc.48792 2,495.12 Medical SuppliesMoore Medical Inc.48954 14.41 Medical Supplies Morrow Meadows Corp.48879 292,412.25 Construction MTM Recognition Corporation 48793 610.89 Service AwardsMTM Recognition Corporation 48955 311.53 Service AwardsMunicipal Equipment Maintenance Association 48794 75.00 Professional Organizations Meeting/Training/Membership Neal Supply Co.48956 1,270.33 Repair & Maintenance Services and/or Supplies Nexus Is, Inc.48718 82,680.61 Electrical/Electronic Equipment & Parts - ITNickell Metal Spray 48796 2,040.00 Repair & Maintenance Services and/or SuppliesNinyo & Moore 48957 19,496.50 Professional Services/Geotech & Material Testing NORLAB 48958 218.00 Laboratory Services & Supplies OCEA 48959 672.75 Dues Deductible OCECO INC 48797 11,085.00 Repair & Maintenance Services and/or Supplies fin/210/mm Page 5 of 7 EXHIBIT A 6/21/2012 Vendor Warrant No.Amount Description Claims Paid From 6/1/12 to 6/15/12 OCECO INC 48960 484.50 Repair & Maintenance Services and/or Supplies Office Depot 48798 540.06 Office Supplies Office Depot 48961 121.30 Office Supplies Olin Corporation 48962 7,947.70 Chemicals, Water/Wastewater TreatmentOneSource Distributors, Inc.48799 893.38 Electrical/Electronic Equipment, Parts & Repairs OneSource Distributors, Inc.48963 1,909.51 Electrical/Electronic Equipment, Parts & Repairs Oracle Corporation 48964 3,374.52 Computer Applications & Services Orange County Auto Parts 48965 594.44 Truck SuppliesOrange County United Way 48966 40.00 Employee ContributionsOrange County Vector Control District 48800 72.69 Pest Control Oxygen Service Company 48801 1,023.12 Laboratory Services & Supplies Oxygen Service Company 48967 515.11 Laboratory Services & SuppliesParker Supply Company 48968 1,087.53 Miscellaneous Parts and SuppliesParkhouse Tire, Inc.48802 401.37 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Patrick B. Carnahan 49014 150.00 Meeting/Training Expense Reimbursement Patrick M. Carrillo 48745 200.00 Meeting/Training Expense ReimbursementPatriot Video Productions 48803 460.02 Miscellaneous ServicesPeace Officers Council of CA 48969 2,254.00 Dues Deductions, Supervisors & Professionals Performance Pipeline Technologies 48804 9,269.33 Professional Services/CCTV Inspection/Sewerline Cleaning Performance Pipeline Technologies 48874 58,257.90 Professional Services/CCTV Inspection/Sewerline CleaningPolydyne, Inc.632 65,953.68 Chemicals, Water/Wastewater TreatmentPolydyne, Inc.637 49,512.21 Chemicals, Water/Wastewater Treatment Postmaster 48970 210.00 Postage Primrose Ice Co., Inc.48805 210.00 Water & Ice Services Procare Work Injury Center 48806 1,160.00 Medical ServicesProject Management Institute 48971 164.00 Professional Organizations Meeting/Training/Membership Projectline Technical Services, Inc.48807 9,022.00 Professional Services/Engineering Design Services Propipe Professional Pipe Services 638 9,530.42 Professional Services/CCTV Sewerline Inspections Prudential Insurance Company of America 48719 42,744.15 BenefitsPrudential Overall Supply 48972 4,251.10 Uniforms Q Air - Calif. Div. Pump Engineering 48808 735.69 Repair & Maintenance Services and Supplies Quinn Power Systems 48809 2,625.88 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Rand McNally 48974 9,210.00 Software Maintenance AgreementRBF Consulting 48810 14,907.00 Professional Services/Engineering Design ServicesRed Wing Shoes 48811 848.39 Safety, Security, Health Equipment, Supplies, and Services Reliastar 48975 3,727.09 Voluntary Employee Life & Cancer Insurance Restek Corp.48976 574.34 Laboratory Services & SuppliesRoyale Cleaners 48812 188.70 Miscellaneous ServicesRPM Electric Motors 48813 3,502.70 Repair & Maintenance Services and/or Supplies RSA Soil Products 48814 2,574.38 Miscellaneous Parts and Supplies RSC Equipment Rental 48977 789.29 Tools & SuppliesSan Diego/Orange Fluid System Technologies, Inc.48978 3,722.85 Repair & Maintenance Services and/or SuppliesSancon Engineering, Inc.48815 4,180.00 Repair & Maintenance Services and/or Supplies SARBS 48865 250.00 Professional Organizations Meeting/Training/Membership SCAMIT 48816 105.00 Professional ServicesSCE48817996.20 Repair & Maintenance Services and/or SuppliesSCE48979747.16 Repair & Maintenance Services and/or Supplies Schwing Bioset 634 82.47 Repair & Maintenance Services and/or Supplies Schwing Bioset 639 5,923.06 Repair & Maintenance Services and/or Supplies Securitas Security Services USA, Inc.48875 28,316.83 Safety, Security, Health Equipment, Supplies, and Services fin/210/mm Page 6 of 7 EXHIBIT A 6/21/2012 Vendor Warrant No.Amount Description Claims Paid From 6/1/12 to 6/15/12 SETAC 48818 140.00 Professional Organizations Meeting/Training/Membership Shamrock Supply Co., Inc.48819 2,208.10 Repair & Maintenance Services and/or Supplies Shamrock Supply Co., Inc.48980 4,402.13 Repair & Maintenance Services and/or Supplies Shureluck Sales & Engineering 48820 322.28 Repair & Maintenance Services and/or SuppliesShureluck Sales & Engineering 48981 4,592.63 Repair & Maintenance Services and/or Supplies Siemens Technology 48822 2,242.12 Air Conditioner Automation System Siemens Water Technologies Corp.48821 229.59 Repair & Maintenance Services and/or Supplies Siemens Water Technologies Corp.48982 1,362.88 Repair & Maintenance Services and/or SuppliesSimon L. Watson 49025 402.09 Meeting/Training Expense ReimbursementSimplex, Inc.48823 4,809.90 Repair & Maintenance Services and/or Supplies Smith Paint and Supply 48824 139.74 Painting Services and Supplies Snap On Industrial 48983 852.38 ToolsSnap-On Equipment 48825 4,509.35 Repair & Maintenance Services and/or SuppliesSo. Cal Gas Company 48984 20,756.30 Utilities South Coast Air Quality Management Dist.48827 10,845.21 Governmental Agency Fees & Charges Southern California Edison 48986 1,310.71 UtilitiesSparklett-Dallas 48987 1,353.60 Miscellaneous ServicesStaples489885,308.34 Office Supplies Summit Steel 48828 499.96 Repair & Maintenance Services and/or Supplies Sunset Industrial Parts 48829 4,520.45 Repair & Maintenance Services and/or SuppliesSunset Industrial Parts 48989 368.99 Repair & Maintenance Services and/or SuppliesSynagro West, Inc.48830 15,715.70 Biosolids Management Tektronix Inc 48990 127.42 Instrument Repairs & Calibration Services TestAmerica Ontario 48991 1,918.00 Laboratory Services & Supplies Tetra Tech, Inc.48831 16,543.91 Professional Services/Engineering Design ServicesSThe Creative Group 48832 9,670.75 Professional Services/Temporary Services The Creative Group 48992 1,533.00 Professional Services/Temporary Services The Standard Insurance Company 48833 2,472.50 Disability Insurance Theodore Robins Ford 48834 20.18 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesThermo Electron Corp.48993 1,418.29 Laboratory Services & Supplies Thomas D. Dodderer 49016 190.00 Meeting/Training Expense Reimbursement Thompson Industrial Supply, Inc.48835 5,001.76 Repair & Maintenance Services and/or Supplies Thompson Industrial Supply, Inc.48994 1,399.57 Repair & Maintenance Services and/or SuppliesTiano Construction 48995 720.00 Facilities, Maintenance, Services & SuppliesToshiba Business Solutions USA Inc.48836 257.31 Computers, Software/Hardware & Managed Services Toshiba International Corp.48996 780.00 Electrical/Electronic Equipment, Parts & Repairs Townsend Public Affairs 48997 7,500.00 Professional Services - State Legislative AdvocacyTranscat488375,003.60 Repair & Maintenance Services and/or SuppliesTremco Incorporated 48998 590.00 Repair & Maintenance Services and/or Supplies Truck & Auto Supply, Inc.48999 371.31 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Tule Ranch/Magan Farms 48720 153,139.89 Biosolids ManagementTW Telecom Holdings, Inc.48838 5,288.96 TelecommunicationsUltra Scientific 49000 2,561.16 Laboratory Services & Supplies Underground Service Alert of So. Calif 49001 1,264.50 Professional Services - Dig Alert Notification Service Union Bank of California 48839 858.24 Banking ServicesUnion Bank of California 49002 2,160.00 Annual Administrative Fee for Series 2007A Certificates of ParticipationUnited Parcel Service 48840 155.81 Freight Services United Parcel Service 49003 112.04 Freight Services United Power Service, Inc.49004 494.00 Electrical/Electronic Equipment, Parts & Repairs US Commposting Council 49005 500.00 Professional Organizations Meeting/Training/Membership fin/210/mm Page 7 of 7 EXHIBIT A 6/21/2012 Vendor Warrant No.Amount Description Claims Paid From 6/1/12 to 6/15/12 US Equipment Co., Inc.48841 3,329.35 Repair & Maintenance Services and/or Supplies US Peroxide, L.L.C.48721 278,567.21 Chemicals, Water/Wastewater Treatment US Peroxide, L.L.C.48876 122,929.97 Chemicals, Water/Wastewater Treatment USC 48842 12,526.40 Professional Services/StudiesValin Corporation 49006 1,012.34 Repair & Maintenance Services and/or Supplies Verizon California 48843 632.58 Telecommunications Verizon Wireless 48844 1,047.21 Telecommunications Verne's Plumbing 48845 4,850.00 Plumbing Services & SuppliesVerne's Plumbing 49007 4,194.00 Plumbing Services & SuppliesVertex, Inc.48846 5,880.00 Computer Applications and Services Village Nurseries 48847 273.62 Repair & Maintenance Services and/or Supplies Vision Financial Corporation 48848 1,224.24 Employee Voluntary BenefitsVortex Corp.49008 1,143.60 Repair & Maintenance Services and/or SuppliesVoyager Fleet Systems, Inc.48877 30,950.39 Autos, Trucks & Marine Equipment, Parts, Accessories & Services VWR Scientific Products 48849 5,956.13 Laboratory Services & Supplies Wastewater Technology Trainers 48850 495.00 Professional Organizations Meeting/Training/MembershipWater Environment Federation 48851 870.00 Meeting RegistrationWaters Corporation 49009 1,990.04 Laboratory Services & Supplies Wells Fargo Bank Escrow 23518600 48855 7,722.35 Construction, Retention Wells Fargo Bank Escrow 23861100 Kiewit 49012 15,362.70 Construction, RetentionWest Coast Arborists, Inc.48852 1,400.00 Landscape Maintenance ServicesWetLabs, Inc.48853 625.00 Laboratory Services & Supplies William D. Cassidy 49015 125.00 Professional Organizations Meeting/Training/Membership Xerox Corporation 48854 106.98 Computers, Software/Hardware & Managed Services Xyon Business Solutions, Inc.49010 10,240.00 Professional Services/Temporary Services Total Accounts Payable - Warrants $ 5,025,759.95 Payroll Disbursements Employee Paychecks 49275 - 49301 4,645.92$ Interim Payroll - ARBA (6/01/12)* Employee Paychecks 49303 - 49304 2,514.27 Interim Payroll - Terminations Regular Hours (6/04/12)Employee Paychecks 49305 2,823.11 Interim Payroll - Terminations Payout Leave (6/04/12)Employee Paychecks 49306 - 49365 102,065.58 Biweekly Payroll (6/13/12) Employee Paychecks 49366 161.35 Interim Payroll - OCERS Reimbursement (6/12/12) Employee Paychecks 49367 - 49368 5,133.54 Interim Payroll - Resignation & Retirement Regular Leave (6/14/12) Employee Paychecks 49369 5,895.08 Interim Payroll - Retirements Payout Leave (6/14/12)Direct Deposit Statements 321591 - 321750 27,649.66 Interim Payroll - ARBA (6/01/12) Direct Deposit Statements 321751 - 322324 1,397,185.60 Biweekly Payroll (6/13/12) Total Payroll Disbursements $ 1,548,074.11 *Check number 49302 used in prior period. Wire Transfer Payments OCSD Payroll Taxes & Contributions 784,729.42$ Biweekly Payroll (6/13/12)Intercare Insurance Services 27,772.52 Workers' Compensation Services (6/14/12) Total Wire Transfer Payments $ 812,501.94 Total Claims Paid 6/01/12 - 6/15/12 7,386,336.00$ fin/210/mm Page 1 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Accounts Payable Warrants Abel Scale, Inc.49214 870.00$ Repair & Maintenance Services and/or SuppliesAccent Awnings 49215 4,250.00 Repair & Maintenance Services and/or SuppliesACCU Sludge 49216 1,278.82 Laboratory Services & Supplies AccuStandard 49042 99.95 Laboratory Services & Supplies Accuvant, Inc.49217 10,839.78 Computer Applications & ServicesAdam Mann 49356 750.00 Video Contest WinnerAdvanced Infrastructure Technologies 49218 1,798.78 Mechanical Parts & Supplies Air Liquide America Specialty Gases LLC 49219 199.97 Laboratory Services & Supplies Airgas Safety, Inc.49043 3,735.08 Safety, Security, Health Equipment, Supplies, and ServicesAirgas Safety, Inc.49220 3,020.85 Safety, Security, Health Equipment, Supplies, and ServicesAirgas West 49044 1,869.07 Repair & Maintenance Services and/or Supplies Alan's Lawn & Garden Center, Inc.49045 193.62 Repair & Maintenance Services and/or Supplies Allied Packing & Rubber, Inc.49046 73.34 Repair & Maintenance Services and/or Supplies American Public Works Association 49047 650.00 Professional Organizations Meeting/Training/MembershipAquatic Biosystems, Inc.49221 303.00 Laboratory Services & Supplies ARB/PERP - Air Resources Board 49194 1,150.00 Governmental Agency Fees & Charges Arizona Instruments, L.L.C.49049 200.00 Electrical/Electronic Equipment, Parts & Repairs Ashbrook Simon Hartley Operations, L.P.49222 15,956.65 Repair & Maintenance Services and/or SuppliesAT & T 49213 233.09 Telecommunications AT & T Long Distance.49050 11.28 Telecommunications AT&T Teleconference Services 49051 196.80 Telecommunications Awards & Trophies Company 49052 88.36 Awards and Framing ServicesAwards & Trophies Company 49223 53.88 Awards and Framing ServicesBanner Occupational Health 49224 185.00 Human Resources Services Basler Electric 49225 1,277.16 Electrical/Electronic Equipment, Parts & Repairs Battery Systems, Inc.49053 31.57 Repair & Maintenance Services and/or SuppliesBeach Wire and Cable 49226 2,206.29 TelecommunicationsBell Pipe & Supply Co.49054 534.01 Repair & Maintenance Services and/or Supplies Black & Veatch Corporation 49026 129,227.45 Professional Services/Engineering Design Services Black & Veatch Corporation 49026 39,073.36 Professional Services/Engineering Design ServicesBlack & Veatch Corporation 49026 28,345.49 Professional Services/Engineering Design ServicesBLX Group 49227 2,250.00 Professional Financial Services Bornemann Pumps, Inc.49055 347.78 Pump Supplies Borthwick, Guy, Thibault, Inc.49228 4,000.00 Professional ServicesBrandon Metcalf 49359 500.00 Video Contest WinnerBrea Imperial, Inc. 49056 2,500.00 Miscellaneous Services Brea Imperial, Inc. 49229 2,500.00 Miscellaneous Services Brithinee Electric 49230 2,277.76 Electrical/Electronic Equipment, Parts & Repairs Brooks Instrument Div. Emerson Electric 49057 3,504.91 Instrument Parts & Supplies Brown & Caldwell 49027 81,686.52 Professional Services/Engineering Design Services Brown & Caldwell 49195 123,710.84 Professional Services/Engineering Design Services Burlington Safety Laboratory of CA, Inc.49058 52.44 Safety, Security, Health Equipment, Supplies, and Services California Barricade Rentals 49059 4,049.53 Miscellaneous ServicesCalifornia Dept. of Child Support 49232 2,137.47 Judgments Payable California Relocation Services, Inc.49060 585.00 Miscellaneous Services - Moving/Relocation California Relocation Services, Inc.49233 135.00 Miscellaneous Services - Moving/Relocation Camali Corp.49061 3,022.46 Repair & Maintenance Services and/or SuppliesCambridge Isotope Labs 49062 503.81 Laboratory Services & Supplies Claims Paid From 6/16/12 to 6/30/12 fin/210/mm Page 2 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Claims Paid From 6/16/12 to 6/30/12 Carollo Engineers 49196 44,048.70 Professional Services/Engineering Design Services CDW Government, Inc.49197 26,446.64 Computers, Software/HardwareCETAC Technologies, Inc.49063 153.00 Laboratory Services & SuppliesCity of Huntington Beach 49281 213.78 Water Use City of Irvine 49203 124,113.06 Permit Fee City of Newport Beach 49305 1,713.99 Water UseCity of Westminster 49234 25.80 Water UseCompressor Components of California 49235 7,984.28 Repair & Maintenance Services and/or Supplies Constellation Newenergy Gas Division LLC 49236 9,851.16 Natural Gas Consumers Pipe & Supply Co.49064 5,732.84 Repair & Maintenance Services and/or SuppliesConsumers Pipe & Supply Co.49237 2,508.54 Repair & Maintenance Services and/or SuppliesControl Concepts Corp 49279 5,007.84 Electrical Parts & Supplies Converse Consultants 49065 3,700.00 Professional Services/Professional Services/Materials & Geotechnical Testing Cooperative Personnel Services 49069 1,569.50 Human Resources Services Corner Bakery Café (CBC)49066 834.56 Catering ServicesCorporate Image Maintenance, Inc.49028 36,005.00 Janitor & Household Service & Supplies Corporate Image Maintenance, Inc.49239 495.00 Janitor & Household Service & Supplies CORRPRO Companies, Inc.49029 38,769.50 Professional Services/Temporary Services Cortech Engineering 49067 972.39 Repair & Maintenance Services and/or SuppliesCounty of Orange Auditor Controller 49068 1,350.00 Governmental Agency Fees & Charges County of Orange Auditor Controller 49240 1,680.00 Governmental Agency Fees & Charges County of Orange Auditor Controller 49241 825.00 Governmental Agency Fees & Charges County of Orange Auditor Controller 49242 1,185.00 Governmental Agency Fees & ChargesCounty of Orange Auditor Controller 49243 1,140.00 Governmental Agency Fees & ChargesCounty of Orange Auditor Controller 49244 1,050.00 Governmental Agency Fees & Charges Court Order 49292 2,179.38 Judgments Payable Court Order 49295 150.00 Judgments PayableCourt Order 49320 108.00 Judgments PayableCourt Order 49350 912.50 Judgments Payable CSI Services, Inc.49070 4,308.00 Professional Services CSI Services, Inc.49245 718.00 Professional ServicesC-Temp International 49231 62.91 Repair & Maintenance Services and/or SuppliesCulligan of Orange County 49246 288.39 Repair & Maintenance Services and/or Supplies Curt V. Shelp 49188 250.00 Meeting/Training Expense Reimbursement CWEA Membership 49247 132.00 Professional Organizations Meeting/Training/MembershipDavid M. Chafe 49180 1,101.67 Meeting/Training Expense ReimbursementDavid Wheeler Pest Control, Inc.49248 1,200.00 Pest Control Services DDB Engineering, Inc.49071 6,269.40 Professional Services - Advocacy Deborah L. Lindel 49183 123.75 Meeting/Training Expense Reimbursement Delta Q, Inc.49249 394.87 Repair & Maintenance Services and/or SuppliesDesert Pumps & Parts, Inc.49072 3,694.98 Repair & Maintenance Services and/or Supplies Desert Pumps & Parts, Inc.49250 211.68 Repair & Maintenance Services and/or Supplies Detection Instruments Corporation 49198 45,691.73 Electrical/Electronic Equipment, Parts & Repairs Digital Map Products 49073 3,000.00 GIS Parcel & Related Data ServicesDionex Corporation 49251 4,721.17 Laboratory Services & Supplies DME, Inc.49252 785.98 Repair & Maintenance Services and/or Supplies Dudek & Associates, Inc.49253 22,582.93 Professional Services/Engineering Design Services Duro-Sense Corporation 49254 934.15 Electrical/Electronic Equipment, Parts & RepairsDyntek Services, Inc.49255 11,000.00 Computer Applications & Services fin/210/mm Page 3 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Claims Paid From 6/16/12 to 6/30/12 Eaton Corporation 49074 3,760.00 Repair & Maintenance Services and/or Supplies Embark Consulting, LLC 49256 5,941.28 Professional Services/SCADA Software Maintenance SupportEmbee Performance LLC 49257 296.31 Repair & Maintenance Services and/or SuppliesEmployee Benefits Specialists, Inc.49075 1,589.50 Reimbursed Prepaid Employee Medical & Dependent Care Employee Benefits Specialists, Inc.49258 13,833.91 Reimbursed Prepaid Employee Medical & Dependent Care Enchanter, Inc.49076 1,900.00 Vessel Services - Monitoring Vessel NerissaEnertech Environmental 49030 530,255.02 Biosolids ManagementENS Resources, Inc.49259 7,500.00 Professional Services - Federal Advocacy Environmental Engineering & Contracting 49260 1,800.00 Professional Services/Specialty Course Audits Environmental Express, Inc.49077 646.97 Laboratory Services & SuppliesEwing Irrigation 49078 533.98 Irrigation Repair & Maintenance Services and/or SuppliesExpert Infocad Corporation 49079 430.00 Computer Applications & Services Fedex Corporation 49080 56.32 Freight Services Fedex Corporation 49261 187.81 Freight Services Ferguson Waterworks 49081 85.98 Repair & Maintenance Services and/or SuppliesFerguson Waterworks 49262 817.30 Repair & Maintenance Services and/or Supplies First American Corelogic 49238 155.50 Software Maintenance Agreement Fisher Scientific 49082 283.10 Laboratory Services & Supplies Fisher Scientific 49263 18,083.86 Laboratory Services & SuppliesFleetmatics USA, LLC 49083 150.00 Professional Services - Legal/Employee Relations Fountain Valley Paints, Inc.49264 388.12 Facilities, Maintenance, Services & Supplies Franchise Tax Board 49265 972.75 Judgments Payable Franklin Covey 49084 13.11 Office SuppliesFuller Truck Accessories 49085 777.61 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesGarratt Callahan Company 49086 808.48 Chemicals, Water/Wastewater Treatment Garratt Callahan Company 49266 2,977.65 Chemicals, Water/Wastewater Treatment George L. Robertson 49187 555.56 Meeting/Training Expense ReimbursementGetinge Castle 49267 2,175.17 Laboratory Services & SuppliesGlens Alignment & Brake Service 49087 129.00 Autos, Trucks & Marine Equipment, Parts, Accessories & Services GMR Transcription 49088 120.25 Professional Services - Transcription GMR Transcription 49268 379.25 Professional Services - TranscriptionGolden State Overnight Delivery Service 49089 348.94 Courier ServicesGolden State Overnight Delivery Service 49269 35.97 Courier Services Golden West Machine, Inc.49270 4,043.81 Repair & Maintenance Services and/or Supplies Golden West Window Service 49090 3,000.00 Facilities, Maintenance, Services & SuppliesGolden West Window Service 49271 1,245.00 Facilities, Maintenance, Services & SuppliesGrainger, Inc.49091 986.61 Repair & Maintenance Services and/or Supplies Grainger, Inc.49272 3,477.35 Repair & Maintenance Services and/or Supplies Graybar Electric Company 49092 2,827.15 Electrical/Electronic Equipment, Parts & Repairs Graybar Electric Company 49273 517.09 Electrical/Electronic Equipment, Parts & RepairsGuarantee Records Management 49093 599.12 Professional Services - Document Storage & Shredding Guidance Software, Inc.49094 13,895.39 Computer Applications & Services Haaker Equipment Company 49274 315.88 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Hach Company 49095 214.42 Laboratory Services & SuppliesHandy Hose Services 49275 527.06 Repair & Maintenance Services and/or Supplies Harrington Industrial Plastics, Inc.49096 670.30 Repair & Maintenance Services and/or Supplies Hasco Oil Co., Inc.49276 681.36 Fuel and Lubricants Hasler, Inc.49097 64.65 Postage Meter RentalHelix Electric, Inc.49036 170,995.10 Construction fin/210/mm Page 4 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Claims Paid From 6/16/12 to 6/30/12 Hewlett Packard Company 49199 32,432.42 Computers, Software/Hardware Hi Standard Automotive, L.L.C.49098 416.87 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesHill Brothers 641 78,407.49 Chemicals, Water/Wastewater TreatmentHome Depot 49099 484.04 Miscellaneous Parts and Supplies Home Depot 49277 256.78 Miscellaneous Parts and Supplies Hub Auto Supply 49100 1,473.84 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesHub Auto Supply 49280 850.79 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesHuls, Michael R 49354 195.00 Meeting/Training Expense Reimbursement IDEXX Distribution, Inc.49282 678.83 Laboratory Services & Supplies Indiana Child Support Bureau 49283 290.00 Judgments PayableIndustrial Electric Machinery LLC 49101 2,245.01 Repair & Maintenance Services and/or SuppliesInnovyze, Inc. 49200 51,801.75 Software Maintenance Agreement International Business Machines 49201 36,650.80 Computer Applications & Services International Institute of Municipal Clerks 49284 260.00 Professional Organizations Meeting/Training/Membership International Public Mgmt. Assoc.49285 149.00 Professional Organizations Meeting/Training/MembershipIntl. Union of Oper. Eng. AFL CIO Local 501 49286 4,912.37 Dues Deductions IPMC c/o Parsons 49202 422,107.00 Professional Services/Temporary Services Ironman Parts & Services 49287 78.18 Repair & Maintenance Services and/or Supplies Irvine Ranch Water District 49102 11.19 Water UseIrvine Ranch Water District 49288 314.63 Water Use J F Shea Construction, Inc.49041 270,199.95 Construction J F Shea Construction, Inc.49210 752,502.55 Construction J R Filanc Construction 49038 735,806.93 Construction Jamison Engineering Contractors, Inc.49290 8,323.18 Professional Services/Construction Support ServicesJays Catering 49103 707.11 Catering Services Jays Catering 49291 658.62 Catering Services JCI Jones Chemicals, Inc.640 11,087.86 Chemicals, Water/Wastewater TreatmentJCI Jones Chemicals, Inc.644 17,781.57 Chemicals, Water/Wastewater TreatmentJeff W. Woodward 49191 190.00 Meeting/Training Expense Reimbursement Jerry F. Evangelista 49352 125.00 Meeting/Training Expense Reimbursement JG Tucker And Son, Inc.49289 833.07 Safety, Security, Health Equipment, Supplies, and ServicesJohnstone Supply 49104 669.38 Repair & Maintenance Services and/or SuppliesJustin Arakaki 49357 1,000.00 Video Contest Winner Justin Lee 49358 250.00 Video Contest Winner Kemira Water Solutions 642 112,937.12 Chemicals, Water/Wastewater TreatmentKenneth L. Hernandez 49181 1,231.96 Meeting/Training Expense ReimbursementKiewit Infrastructure West Co.49039 310,790.60 Construction Kiewit/Mass, A Joint Venture 49105 10,216.97 Construction Kwen T Tjen 49189 170.00 Meeting/Training Expense Reimbursement Labware, Inc.49106 6,000.00 Repair & Maintenance Services and/or SupplieLabware, Inc.49204 35,959.80 Repair & Maintenance Services and/or Supplie Lee & Ro, Inc.49107 5,103.88 Professional Services/Engineering Design Services Lee & Ro, Inc.49293 4,063.60 Professional Services/Engineering Design Services Liberty Mutual Claims 49108 4,600.03 InsuranceLiberty Mutual Claims 49294 1,498.64 Insurance Madankumar B. Patel 49355 125.00 Meeting/Training Expense Reimbursement Mail Dispatch, LLC 49110 314.70 Mail Delivery Service Mark S. Roberts 49186 151.00 Meeting/Training Expense ReimbursementMarvac Electronics 49111 70.32 Electrical/Electronic Equipment, Parts & Repairs fin/210/mm Page 5 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Claims Paid From 6/16/12 to 6/30/12 Masis V. Yegazarian 49109 1,063.20 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Maxim Security Systems 49296 1,325.08 Safety, Security, Health Equipment, Supplies, and ServicesMay T. Kyi 49182 127.10 Meeting/Training Expense ReimbursementMcMaster-Carr Supply Co.49112 581.82 Repair & Maintenance Services and/or Supplies McMaster-Carr Supply Co.49297 1,020.40 Repair & Maintenance Services and/or Supplies Measurement Control Systems, Inc.49113 1,415.79 Repair & Maintenance Services and SuppliesMichael Asner Consulting 49114 5,453.74 Professional ServicesMichael I. Gold 49353 206.61 Meeting/Training Expense Reimbursement Michael I. Zedek 49192 125.00 Meeting/Training Expense Reimbursement Michael J. Barrett 49351 190.00 Meeting/Training Expense ReimbursementMine Safety Appliance 49115 9,767.41 Electrical/Electronic Equipment, Parts & RepairsMission Abrasive & Janitorial Supplies 49116 53.60 Janitorial & Household Services & Supplies MJL Consulting 49031 27,201.88 Professional Services/Annual Contract Painting MJL Consulting 49298 6,591.37 Professional Services/Annual Contract Painting Moore Medical Inc.49299 502.85 Medical SuppliesMorgan Company (WRM, Inc)49300 498.02 Autos, Trucks & Marine Equipment, Parts, Accessories & Services MSC Industrial Supply Co.49301 353.35 Repair & Maintenance Services and/or Supplies MTM Recognition Corporation 49117 86.22 Service Awards NATEC International, Inc.49118 650.00 Professional Organizations Meeting/Training/MembershipNEAC Compressor Services USA Inc.49302 26.44 Repair & Maintenance Services and/or Supplies Neal Supply Co.49303 3,893.60 Repair & Maintenance Services and/or Supplies NetworkFleet, Inc.49304 4,723.86 Software Maintenance Agreement New Pig 49119 220.41 Repair & Maintenance Services and/or SuppliesNorman A. Traub Associates 49120 3,000.00 Legal ServicesNortheast Laboratory Services, Inc.49121 322.60 Laboratory Services & Supplies Northern Hydraulics, Inc.49278 1,943.48 Electrical Parts & Supplies NRG Engine Services, L.L.C.49032 33,464.69 Repair & Maintenance Services and/or SuppliesOCB Reprographics 49048 13,933.19 Printing/Reprographics ServicesOCEA49306672.75 Dues Deductible Office Depot 49122 550.87 Office Supplies OneSource Distributors, Inc.49123 2,417.46 Electrical/Electronic Equipment, Parts & RepairsOrange County Sanitation District 49134 904.99 Petty Cash ExpenseOrange County United Way 49307 40.00 Employee Contributions Orange County Vector Control District 49125 145.38 Pest Control Oxygen Service Company 49126 440.76 Laboratory Services & SuppliesOxygen Service Company 49308 1,270.22 Laboratory Services & SuppliesPacific Mechanical Supply 49127 2,113.25 Repair & Maintenance Services and/or Supplies Pacific Mechanical Supply 49309 6,381.96 Repair & Maintenance Services and/or Supplies Pacific Parts and Controls, Inc.49310 433.56 Repair & Maintenance Services and/or Supplies Parker Supply Company 49128 2,657.76 Miscellaneous Parts and SuppliesParker Supply Company 49311 4,099.72 Miscellaneous Parts and Supplies Parkhouse Tire, Inc.49129 850.74 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Parkson Corporation 49312 238.68 Mechanical Parts & Supplies Partsmaster 49130 176.69 Repair & Maintenance Services and/or SuppliesPC Mall Gov 49131 7,158.54 Software Maintenance Agreement PCS Express, Inc.49132 148.65 Courier Services Peace Officers Council of CA 49313 2,254.00 Dues Deductions, Supervisors & Professionals Performance Pipeline Technologies 49133 2,184.06 Professional Services/CCTV Inspection/Sewerline CleaningPerformance Pipeline Technologies 49314 4,625.00 Professional Services/CCTV Inspection/Sewerline Cleaning fin/210/mm Page 6 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Claims Paid From 6/16/12 to 6/30/12 PL Hawn Company, Inc.49135 3,880.51 Repair & Maintenance Services and/or Supplies PL Hawn Company, Inc.49315 223.17 Repair & Maintenance Services and/or SuppliesPolydyne, Inc.643 116,215.94 Chemicals, Water/Wastewater TreatmentPonton Industries, Inc.49136 5,588.74 Laboratory Services & Supplies Ponton Industries, Inc.49316 5,488.79 Laboratory Services & Supplies Primrose Ice Co., Inc.49137 262.50 Water & Ice ServicesPriority Mailing Systems, L.L.C.49138 8,087.00 Postage/Scale Machine - Maintenance/Software UpdateProjectline Technical Services, Inc.49139 19,914.00 Professional Services/Engineering Design Services Projectline Technical Services, Inc.49317 2,873.50 Professional Services/Engineering Design Services Projects Partners 49205 27,876.00 Professional Services/Temporary Employment ServicesPrudential Overall Supply 49140 1,299.05 UniformsPSI4931840.48 Repair & Maintenance Services and/or Supplies PSOMAS 49319 11,000.00 Computer Applications & Services Pump Action 49141 399.28 Oil Filters Rachel J. Van Exel 49190 190.07 Meeting/Training Expense ReimbursementRainbow Disposal Co.49142 3,493.81 Waste Disposal Rainin Instrument, L.L.C.49321 736.20 Laboratory Services & Supplies Rapid Technologies, Inc. 49143 8,847.93 Software Maintenance Agreement RBF Consulting 49322 11,334.38 Professional Services/Engineering Design ServicesRBF Consulting 49322 5,783.50 Professional Services/Engineering Design Services Recycle Away LLC 49323 243.80 Minor Equipment/Furniture & Fixtures Rende Consulting Group, Inc. 49144 2,400.00 Professional Services/Engineering Services Wintersburg Channel Restek Corp.49324 1,217.37 Laboratory Services & SuppliesRisk and Insurance Management Society, Inc.49145 625.00 Professional OrganizationRMS Engineering & Design, Inc.49146 155.00 Professional Services/Engineering Design Services Roto Rooter NOC#11 49325 178.75 Repair & Maintenance Services and/or Supplies Ryan Herco Products Corp.49147 1,297.42 Repair & Maintenance Services and/or SuppliesRyan Johnston 49360 500.00 Video Contest WinnerS. S. Mechnical Corporation 49148 24,921.00 Construction S. S. Mechnical Corporation 49212 29,079.70 Construction Safety-Kleen 49149 334.45 Repair & Maintenance Services and/or SuppliesSancon Engineering, Inc.49206 31,756.00 Repair & Maintenance Services and/or SuppliesSCAP493263,000.00 Professional Organizations Meeting/Training/Membership Dues SGE, Inc.49150 129.30 Laboratory Services & Supplies SHRM 49327 180.00 Professional OrganizationShureluck Sales & Engineering 49151 506.21 Repair & Maintenance Services and/or SuppliesSiemens Water Technologies Corp.49152 68.86 Repair & Maintenance Services and/or Supplies SKC West, Inc.49328 2,183.54 Laboratory Services & Supplies Snap On Industrial 49153 240.28 Tools South Coast Air Quality Management Dist.49207 38,544.86 Governmental Agency Fees & ChargesSouthern California Edison 49033 286,171.56 Utilities Stantec Consulting Services, Inc.49154 3,747.00 Professional Services/Surveying Stantec Consulting Services, Inc.49329 8,244.00 Professional Services/Surveying Summit Steel 49155 2,237.36 Repair & Maintenance Services and/or SuppliesSuper Chem Corporation 49156 1,048.95 Repair & Maintenance Services and/or Supplies Synagro West, Inc.49208 692,068.06 Biosolids Management Teledyne/ISCO 49330 1,083.91 Laboratory Services & Supplies Terra Renewal, L.L.C.49209 53,672.65 Grit & Screenings DisposalTestAmerica Ontario 49331 892.50 Laboratory Services & Supplies fin/210/mm Page 7 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Claims Paid From 6/16/12 to 6/30/12 The Creative Group 49157 1,759.00 Professional Services/Temporary Services The Orange County Register 49124 7,134.00 Notices & AdsThermo Electron Corp.49158 207.96 Laboratory Services & SuppliesThompson Industrial Supply, Inc.49159 87.73 Repair & Maintenance Services and/or Supplies Thompson Industrial Supply, Inc.49332 2,042.40 Repair & Maintenance Services and/or Supplies Tiano Construction 49160 1,400.00 Facilities, Maintenance, Services & SuppliesTime Warner Communications 49333 59.17 TelecommunicationsTortuga Pool Service 49161 930.00 Repair & Maintenance Services and/or Supplies Tremco Incorporated 49162 4,740.00 Repair & Maintenance Services and/or Supplies Tropical Plaza Nursery, Inc.49334 14,727.50 Landscape Maintenance ServicesTruck & Auto Supply, Inc.49163 2,171.63 Autos, Trucks & Marine Equipment, Parts, Accessories & ServicesTruck & Auto Supply, Inc.49335 67.41 Autos, Trucks & Marine Equipment, Parts, Accessories & Services Tule Ranch/Magan Farms 49034 213,923.95 Biosolids Management U Line 49336 295.62 Miscellaneous Parts and Supplies UC Regents CPER 49164 162.80 Books & PublicationsUltra Scientific 49337 201.45 Laboratory Services & Supplies Union Bank Escrow No#23861 49211 118,116.75 Construction Union Bank of California 49165 767.25 Banking Services Union Bank of California Escrow 49193 14,221.05 Construction, RetentionUnited Parcel Service 49166 28.89 Freight Services United Parcel Service 49338 924.91 Freight Services UPS Ground Freight, Inc.49167 503.65 Freight Services UPS Ground Freight, Inc.49339 25.25 Freight ServicesUSA Mobility Wireless, Inc.49168 423.09 TelecommunicationsValin Corporation 49169 855.99 Repair & Maintenance Services and/or Supplies Vapex Products, Inc.49170 4,078.00 Electrical/Electronic Equipment, Parts & Repairs Vapex Products, Inc.49340 6,017.66 Electrical/Electronic Equipment, Parts & RepairsVerne's Plumbing 49341 1,715.00 Plumbing Services & SuppliesVillage Nurseries 49171 21.44 Repair & Maintenance Services and/or Supplies Vortex Corp.49172 355.30 Repair & Maintenance Services and/or Supplies Vortex Corp.49172 1,649.95 Repair & Maintenance Services and/or SuppliesVortex Corp.49342 2,114.25 Repair & Maintenance Services and/or SuppliesVossler & Company 49173 424.85 Repair & Maintenance Services and/or Supplies Washington Q. Nguyen 49185 2,696.35 Meeting/Training Expense Reimbursement Water Environment Federation 49343 399.00 Professional Organizations Meeting/Training/MembershipWaxie Sanitary Supply 49174 1,025.69 Janitor & Household Service & SuppliesWaxie Sanitary Supply 49344 1,543.49 Janitor & Household Service & Supplies Weck Laboratories, Inc.49345 1,216.00 Laboratory Services & Supplies Wells Fargo Bank 49179 16,357.40 Construction, Retention West Coast Arborists, Inc.49346 17,600.00 Landscape Maintenance ServicesWest Coast Safety Supply Co.49347 2,901.83 Safety, Security, Health Equipment, Supplies, and Services West Lite Supply Company, Inc.49175 485.53 Electrical/Electronic Equipment, Parts & Repairs William M. Moline 49184 190.00 Meeting/Training Expense Reimbursement Woodruff Spradlin & Smart 49035 51,073.71 Professional Services - LegalXerox Corporation 49176 19,396.32 Computers, Software/Hardware & Managed Services Xyon Business Solutions, Inc.49348 5,120.00 Professional Services/Temporary Services Yale/Chase Materials Handling, Inc.49349 793.90 Electrical/Electronic Equipment, & Electric Cart Parts & Repairs Yardley-Zaretsky, Inc.49177 315.00 Professional Services P1-11024 Hour Fire Protection, Inc.49178 3,000.00 Repair & Maintenance Services and/or Supplies fin/210/mm Page 8 of 8 EXHIBIT B 7/6/2012 Vendor Warrant No.Amount Description Claims Paid From 6/16/12 to 6/30/12 Total Accounts Payable - Warrants $ 6,745,134.31 Payroll Disbursements Employee Paychecks 49370 - 49406 83,817.16$ Biweekly Payroll (6/27/12)Employee Paychecks 49407 - 49432 4,435.92 Interim Payroll - ARBA (6/29/12)* Employee Paychecks 49434 2,139.38 Interim Payroll - Employee payout- noted incorrectly as on-leave (6/28/12) Direct Deposit Statements 322325 - 322882 1,407,056.13 Biweekly Payroll (6/27/12) Direct Deposit Statements 322883 - 323045 28,264.66 Interim Payroll - ARBA (6/27/12) Total Payroll Disbursements $ 1,525,713.25 *Check number 49433 issued to clear offset to 457, zero dollar check Wire Transfer Payments OCSD Payroll Taxes & Contributions 799,246.17$ Biweekly Payroll (6/27/12) Bank of America/Lloyds 115,100.74 Series 2000A&B COPs Standby Purchase Agreement Commitment Fee Total Wire Transfer Payments $ 914,346.91 Total Claims Paid 6/16/12 - 6/30/12 9,185,194.47$ C:\Users\Ayalam\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\H08015NK\Condensed Committee List 2012 07 17.docx 07/13/12 ORANGE COUNTY SANITATION DISTRICT CURRENT COMMITTEES STEERING COMMITTEE (7) Troy Edgar, Board Chair John Anderson, Board Vice-Chair Tom Beamish, Chair, Operations Committee Brad Reese, Chair, Administration Committee Larry Crandall, Past Board Chair John Nielsen, Vice-Chair, Operations Committee John Withers, Vice-Chair, Administration Committee ADMINISTRATION COMMITTEE (13) Brad Reese, Chair (Villa Park) John Withers, Vice Chair (IRWD) Joe Carchio (Huntington Beach) Larry Crandall (Fountain Valley) Jon Dumitru (Orange) Jim Ferryman (CMSD) Jeffrey Lalloway (Irvine) Prakash Narain (Cypress) Janet Nguyen (Board of Supervisors) Sal Tinajero (Santa Ana) Mark Waldman (La Palma) Troy Edgar, Board Chair (Los Alamitos) John Anderson, Board Vice Chair (Yorba Linda) OPERATIONS COMMITTEE (14) Tom Beamish, Chair (La Habra) John Nielsen, Vice Chair (Tustin) Bill Dalton (Garden Grove) Gail Eastman (Anaheim) Michael Levitt (Seal Beach) Scott Nelson (Placentia) Joy Neugebauer (MCSD) Sharon Quirk-Silva, (Fullerton) Steven Rosansky (Newport Beach) Don Schweitzer (Brea) David Shawver (Stanton) Fred Smith (Buena Park) Troy Edgar, Board Chair (Los Alamitos) John Anderson, Board Vice Chair (Yorba Linda) GWRS JOINT COOPERATIVE STEERING COMMITTEE Larry Crandall (GWRS Board Vice-Chair) Troy Edgar Jim Ferryman (A1) – John Anderson (A2) – Tom Beamish (A3) – Mark Waldman AUDIT AD HOC COMMITTEE (4) John Anderson, Board Vice-Chair (Yorba Linda) John Nielsen (Tustin) Troy Edgar, Board Chair (Los Alamitos) Mark Waldman (La Palma) Board Delegate to Santa Ana River Flood Protection Agency (SARFPA) - Jim Ferryman Board Delegate to Council of Governments (COG) – Mark Waldman Board Delegate to National Water Research Institute (NWRI) – Jim Ferryman Page 1 of 2 BOARD OF DIRECTORS Meeting Date To Bd. of Dir. 07/25/12 AGENDA REPORT Item Number Item Number 4 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Jim Herberg, Assistant General Manager CIP Project Manager: Wendy Sevenandt SUBJECT: ACTIVATED SLUDGE PLANT 1 WASTE SLUDGE PUMP DOWNSIZING, PROJECT NO. FE10-18 GENERAL MANAGER'S RECOMMENDATION A. Approve Plans and Specifications for Activated Sludge Plant 1 Waste Sludge Pump Downsizing, Project No. FE10-18, on file at the office of the Clerk of the Board; B. Receive and file bid tabulation and recommendation; C. Award a construction contract to W. M. Lyles, Co. for Activated Sludge Plant 1 Waste Sludge Pump Downsizing, Project No. FE10-18, for a total amount not to exceed $158,030; and, D. Approve a contingency of $23,705 (15%). SUMMARY This project replaces two pumps with two smaller pumps including the associated piping, appurtenances, variable frequency drives, electrical components, and instrumentation. The work includes adding an independent circuit breaker for a third pump to improve reliability for the waste activated sludge pumping system. The Orange County Sanitation District (Sanitation District) advertised for bids on May 21 and May 28, 2012. Seven sealed bids were received on June 21, 2012. The bids were evaluated in accordance with the Sanitation District’s policies and procedures. W. M. Lyles, Co. was deemed the lowest responsive, responsible bidder. Staff recommends awarding a construction contract to W. M. Lyles, Co. for Activated Sludge Plant 1 Waste Sludge Pump Downsizing, Project No. FE10-18, for a total amount not to exceed $158,030. Page 2 of 2 Summary information on the bid opening for Activated Sludge Plant 1 Waste Sludge Pump Downsizing, Project No. FE10-18, is as follows: Project Budget $655,000 Construction Contract Budget $390,000 Engineer’s Estimate $194,000 Lowest Responsive, Responsible Bid $158,030 High Bid $255,000 Bidders Amount of Bid Maintenance Turnaround Services $255,000 Caliagua $223,900 Mehta Mechanical Co., Inc., dba MMC $221,551 Metro Builders and Engineers Group Ltd. $207,672 O’Connell Engineering & Construction, Inc. $197,000 J. F. Shea Construction, Inc. $184,000 W.M. Lyles, Co. $158,030 ADDITIONAL INFORMATION None. PRIOR COMMITTEE/BOARD ACTIONS N/A CEQA Notice of Exemption was filed on October 27, 2011. BUDGET/DELEGATION OF AUTHORITY COMPLIANCE This recommendation complies with authority levels of the Sanitation District’s Delegation of Authority. This item has been budgeted and the budget is sufficient for the recommended action (FY2012-13, Section 8 – Page 95). Date of Approval Contract Amount Contingency 07/25/12 $158,030 $23,705 (15%) JH:WS:dm BOARD OF DIRECTORS Meeting Date To Bd. of Dir. 07/25/12 AGENDA REPORT Item Number Item Number 5 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Ed Torres, Director of Operations and Maintenance SUBJECT: GREEN ACRES PROJECT (GAP) WATER GENERAL MANAGER'S RECOMMENDATION Approve a 1.5% rate adjustment based on the Consumer Price Index for the purchase of Green Acres Project Water. SUMMARY Since 1991, the Orange County Water District (OCWD) has provided Green Acres Project (GAP) water for irrigation and industrial uses to several local cities. However, the largest consumer is the District, using approximately four million gallons each day, primarily for cooling the Central Generation engines that provide power to operate the treatment facilities. The May 2010 agreement with OCWD provides approximately one million gallons each day at no cost, with the remainder paid at a rate that increases/decreases each year “by the lower of (i) the change in the U.S. Consumer Price Index for Los Angeles- Riverside- Orange County for the preceding year or (ii) 2.5%.” The rate per acre-foot (325,900 gallons) for 2012-13 is $184.69 which includes a 1.5% increase from FY2011-12. Project J-109, Cengen Cooling Water System Replacement, scheduled for completion in June 2013, will save approximately $500,000 annually by decreasing water usage. PRIOR COMMITTEE/BOARD ACTIONS None ADDITIONAL INFORMATION $184.69 per acre-foot equates to $566.72 per million gallons. (There are 325,900 gallons in an acre foot.) CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE This item has been budgeted in the Joint Operating budget, Line Items 123 and 124. The GAP Water increase is usually approved as part of the Budget Approval. The FY2012-13 Budget did not include the GAP Water line item as a contract >$100,000 so it must be approved as a separate item by the Board. Page 1 of 2 BOARD OF DIRECTORS Meeting Date To Bd. of Dir. 07/25/12 AGENDA REPORT Item Number Item Number 6 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Ed Torres, Director of Operations and Maintenance SUBJECT: Joint Powers Agreement, Southern California Coastal Water Research Project (SCCWRP) Authority GENERAL MANAGER'S RECOMMENDATION A. Approve the eighth amended Joint Powers Agreement confirming the creation of the agency known as Southern California Coastal Water Research Project (SCCWRP) Authority for the term July 1, 2013 through June 30, 2017. B. Approve annual funding in the amount of $400,000 per year for SCCWRP during the term of this agreement. C. Approve Resolution No. OCSD 12-09, Eighth Amended Joint Powers Agreement confirming the creation of an agency known as Southern California Coastal Water Research Project. SUMMARY On April 18, 2012, the Board of Directors voted to continue participation in the Joint Powers Agreement (JPA) that forms the Southern California Coastal Water Research Project (SCCWRP) Authority. One provision of the renewed agreement, to change the name of the Southern California Coastal Water Research Project to the Southern California Coastal Waters Research Partnership, was subsequently not approved by other member agencies. Therefore, staff is requesting Board approval of the JPA based on SCCWRP’s original name. PRIOR COMMITTEE/BOARD ACTIONS September 2008 – Resolution of the OCSD Board of Directors No. OCSD 08-16. Approved Seventh Amended Joint Powers Agreement Reconfirming the Creation on an agency known as Southern California Coastal Water Research Project (SCCWRP) Authority. ADDITIONAL INFORMATION New provisions in this authorization not affected by other member agencies: · Establishes a requirement of two-thirds (2/3) of SCCWRP Commission representatives to vote to adopt changes to permanent representatives of the Page 2 of 2 SCCWRP Commission, the hiring of an Executive Director and approval of salaries and benefits for SCCWRP staff. · Associate Commission Members would change from no voting status to having a one-quarter (1/4) vote. The Ventura County Watershed Protection District, the Los Angeles County Flood Control District, the County of Orange and the County of San Diego are Associate members; each Associate member provides $100,000 in funding to SCCWRP each year. CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE This request complies with authority levels of the Sanitation District’s Delegation of Authority. This item has been budgeted. (Line item: Section __, Page __). Project contingency funds (will or will not) be used for this (type of document, i.e. amendment). Date of Approval Contract Amount Contingency 07/25/12 $1,600,000.00 N/A 1 EIGHTH AMENDED JOINT POWERS AGREEMENT CONFIRMING THE CREATION OF AN AGENCY KNOWN AS SOUTHERN CALIFORNIA COASTAL WATER RESEARCH PROJECT AUTHORITY This Amended Joint Powers Agreement which confirms the creation of an agency known as SOUTHERN CALIFORNIA COASTAL WATER RESEARCH PROJECT AUTHORITY, commonly known as SCCWRP, is made and entered into effective the first day of July, 2013, by and between the City of Los Angeles, a municipal corporation ("Los Angeles"), the Orange County Sanitation District, a special district ("Orange County District"), the City of San Diego, a municipal corporation ("San Diego") and County Sanitation District No. 2 of Los Angeles County, a special district ("Los Angeles County District"), hereinafter "Signatories" (collectively) or "Signatory" (individually). WHEREAS, the Signatories entered into a Seventh Amended Joint Powers Agreement confirming the creation of an agency known as Southern California Coastal Water Research Project Authority, effective July 1, 2009; WHEREAS, it is the desire of the Signatories to provide for the continuation of SCCWRP pursuant to this Eighth Amended Joint Powers Agreement ("Agreement"): NOW, THEREFORE, the Signatories hereto do agree as follows: 1. PURPOSE This Agreement provides for the continuation of a public entity separate and apart from the Signatories to this Agreement to administer this Agreement, the purpose of which is to increase the scientific knowledge of how treated wastewater discharges, stormwater discharges and other human activities interact to affect Southern California’s coastal aquatic ecological systems, and thereby to ensure protection of these resources. 2. CREATION OF SCCWRP Pursuant to Article 1, Chapter 5, Division 7, Title 1 Government Code (Sections 6500 et seq.), the parties hereby confirm the existence of an agency as a public entity, separate and apart from the Signatories to this Agreement to be known as SOUTHERN CALIFORNIA COASTAL WATER RESEARCH PROJECT AUTHORITY (hereinafter "SCCWRP"). Such agency shall, through the Commission referred to below, administer and execute this Agreement. 2 3. ORGANIZATION SCCWRP shall be governed by a ten-member Commission composed of representatives of public bodies with accountability for water quality management and aquatic protection in the Southern California Bight as follows: (a) Associate Director, Water Division, U.S. Environmental Protection Agency, Region IX; (b) Deputy Director, Division of Water Quality, California State Water Resources Control Board; (c) Executive Officer, Regional Water Quality Control Board - Los Angeles Region; (d) Executive Officer, Regional Water Quality Control Board - Santa Ana Region; (e) Executive Officer, Regional Water Quality Control Board - San Diego Region; (f) Director, Bureau of Sanitation, City of Los Angeles; (g) Chief Engineer and General Manager, County Sanitation District No. 2 of Los Angeles County; (h) Assistant General Manager, Orange County Sanitation District; (i) Director of Public Utilities, City of San Diego; and (j) Assistant Deputy Secretary for Ocean and Coastal Matters, California Natural Resources Agency, California Ocean Protection Council. The Commission shall meet at least four times each calendar year and at such other appropriate intervals as are necessary to conduct the business of SCCWRP. All such meetings shall be subject to the Ralph M. Brown Act, commencing with Section 54950 of the Government Code of the State of California. Five members shall constitute a quorum and a simple majority vote of that quorum shall be required for action to be taken. A staff designee may be appointed as an alternate by the person holding the offices set forth above and shall act as a member of the Commission in place of such officer during his or her absence, inability or refusal to act and shall serve indefinitely at the pleasure of the appointing officer and until a successor is appointed, or until such designee dies, becomes incapacitated or resigns. Such designation shall be in writing and shall be delivered to the Executive Director at the offices of SCCWRP. Upon the concurrence of two-thirds vote of the members of the Commission, public bodies of the Commission may designate a new permanent representative. 3 The Commission shall, at its first meeting and thereafter at its first meeting following July 1 of each succeeding year, elect a Chair and Vice-Chair from among its members. The Vice -Chair shall assume the responsibilities of the Chair in the absence of the Chair and the Chair’s alternate. The Commission members shall serve for a term identical to the term of this Agreement, and such term shall be extended automatically as the Agreement is extended. The Commission members shall not be entitled to compensation for attendance or expenses. Administrative and purchasing policies and procedures shall be established by the Commission and shall comply with the law of the State of California. The debts, liabilities and obligations of SCCWRP shall not constitute the debts, liabilities or obligations of any of the Commission members or members of any Advisory Board of SCCWRP. Such debts, liabilities or obligations shall be those of SCCWRP. Upon the concurrence of two-thirds vote of the members of the Commission, other public agencies having a power common to the Signatories may be added as parties to this Agreement and each such party shall acknowledge its agreement to the terms hereof by executing this Agreement upon authorization of its governing Board. Such additional agency or agencies shall have responsibilities identical to those of the Signatories as set forth in paragraph 4 hereof; and the Chief Executive Officer thereof, together with his or her designee, shall be a member and alternate member of the Commission with those powers conferred upon the Signatories. The financial contribution required of such additional agency or agencies shall be determined by a majority of the Commission members representing the Signatories. 4. COMMISSION RESPONSIBILITIES The responsibilities of the Commission shall include, but not be limited to, the following: (a) Establishing and appointing members of advisory boards, committees, other like groups and consultants as it deems appropriate to further the purposes of this Agreement; (b) Hiring an Executive Director and establishing his or her responsibilities in addition to those detailed herein. Two-thirds vote of the members of the Commission shall be required for hiring the Executive Director; (c) Overseeing development and approving SCCWRP’s Research Plan; (d) Approving the SCCWRP’s Annual Operating Budget, recognizing that the contributions of the Signatories shall be as provided in Section 8 hereof and taking into account other projected sources of income; 4 (e) Reviewing and approving, on an annual basis, the salaries and benefits for the Executive Director and other staff. Two-thirds vote of the members of the Commission including two-thirds of the signatories shall be required for adoption; (f) Conducting a performance review of the Executive Director on an annual basis; (g) Reviewing the financial status of SCCWRP; (h) Establishing objectives, priorities, policies, guidelines, and other such responsibilities as may be appropriate from time to time; and (i) Taking such further action as it deems appropriate to carry out the purposes of this Agreement. 5. ASSOCIATE COMMISSION MEMBERS Associate Commission members attend and participate fully in Commission meetings, and are entitled to one-quarter vote. Associate Commission members shall have responsibilities identical to those of the Signatories as set forth in Section 4 above. Upon execution of the attached Associate Commission Member Agreement, SCCWRP’s Associate Commission members shall be composed of representatives of public bodies with accountability for water quality management and aquatic protection as follows: Ventura County Watershed Protection District; Los Angeles County Flood Control District; County of Orange; and County of San Diego. Upon concurrence of two-thirds vote of the members of the Commission, other public agencies having a power common to the Signatories may be invited to become Associate Commission Members of the agency. Each party shall acknowledge its agreement to the terms set forth in an associate Commission member agreement. Thereupon the Chief Executive Officer thereof, or substitute representative pursuant to Section 3, or his or her designee as an alternate, shall serve as members of the Commission. 6. ADVISORY BOARDS The Commission may from time to time appoint one or more advisory boards to assist in carrying out the objectives of SCCWRP. The Commission shall determine the purpose and need for such board(s) and the necessary qualifications for individuals appointed to the board(s). 5 Each member of the advisory board(s) shall be entitled to compensation for his or her consulting services as established by the Commission from time to time. In addition, each member of the advisory board(s) shall be entitled to reimbursement for actual expenses reasonably and necessarily incurred, as well as travel and per diem expenses in an amount or at a rate established from time to time by the Commission. 7. EXECUTIVE DIRECTOR The Commission shall appoint an Executive Director under whose general supervision and control SCCWRP shall be conducted. In accordance with paragraph 4(b) the Executive Director shall be appointed by the Commission and shall serve at the pleasure of the Commission. The Executive Director's compensation shall be set at a level that adequately takes into consideration factors including, but not limited to, the proficiency with which the agency is directed, the degree of satisfactory progress in completing the approved research plan, success in obtaining outside funding and success in managing SCCWRP's budget. 8. EXECUTIVE DIRECTOR'S RESPONSIBILITIES The Executive Director's responsibilities shall include, but not be limited to: (a) Developing recommended research priorities and objectives for consideration by the Commission and directing research programs; (b) Reviewing and editing reports and manuscripts produced by SCCWRP's scientific staff; (c) Managing day-to-day operations; (d) Managing the personnel activities of SCCWRP as is necessary to fulfill the purposes of this Agreement, subject to such periodic review and approval as the Commission deems appropriate; (e) Delegating such authority as is necessary to staff to insure the smooth operation of the organization: (f) Securing outside grants and other funding in support of SCCWRP's research objectives; (g) Entering into contracts and agreements on behalf of SCCWRP in accordance with the policies and procedures governing purchases of supplies, equipment and services adopted from time to time by the Commission and in accordance with the provisions of Section 9 regarding grants and contracts; 6 (h) Providing reports to the Commission on the status of research in progress, Annual Operating Budgets (actual versus budgeted) and cash flow analysis; (i) Having charge of handling and having access to any property of SCCWRP upon the filing of a fidelity bond in the amount of Fifty Thousand Dollars ($50,000); and (j) Acting as Secretary to SCCWRP until such time as the Commission appoints another person to this office. 9. FUNDING Signatories shall provide annual funding in the amount of $400,000 on July 1 of each year for SCCWRP during the term of this agreement. Associate Commission members of the agency will be required to provide annual funding on July 1 of each year in the amount of $100,000. The fiscal year (FY) is defined as being from July 1 of the current calendar year to and including June 30 of the following calendar year. As a condition to the addition of any public agency as party to this Agreement pursuant to paragraph 3 hereof, the public agencies which are then signatories to this Agreement may, by a vote of their Commission representatives, modify the funding set forth above in a manner which takes into account the financial needs of SCCWRP, provided that funding of any existing signatory shall not exceed that set forth above. In such event, all new and existing Signatories, through their Commission representatives, shall execute a supplement to this Agreement entitled Supplement To Funding Pursuant to Paragraph 9 and shall attach it to this Agreement. It is further agreed that SCCWRP, through its Executive Director, shall use its best efforts in procuring sources of income other than contributions from the Signatories. Such sources include, but are not limited to, income from grants or contracts from federal and state agencies. Grants and contracts may be entered into by the Executive Director, or Deputy Director in his/her absence, to the limit of One Hundred Thousand Dollars ($100,000) per individual agreement and any grant or contract in excess of said sum but no more than Two Hundred and Fifty Thousand Dollars ($250,000) may be entered into by the Executive Director, or Deputy Director in his/her absence, provided it is approved by the Chair of the Commission prior to acceptance and execution by the Executive Director or Deputy Director. Any grant or contract in excess of Two Hundred and Fifty Thousand Dollars ($250,000) shall require the prior express approval of the members of the Commission. The Commission shall yearly, on or before June 30, adopt and issue an estimated Annual Operating Budget that projects the funds necessary to maintain and operate SCCWRP for the forthcoming fiscal year being from July 1 of the current calendar year to and including June 30 of the following calendar year. The Budget shall, among other things, contain a statement of anticipated outside sources of revenue and shall not exceed the sum of the total contributions by the signatories, as hereinabove provided, plus the outside revenue. 7 In the event that any Signatory is unable or unwilling to pay to SCCWRP the funding attributable to it for the upcoming fiscal year as set forth above, then such Signatory shall notify in writing each of the other Signatories and SCCWRP of its inability no later than February 1. Such Signatory shall thereupon be deemed to have withdrawn from this Agreement and SCCWRP created hereby, effective as of July 1 of such year. SCCWRP shall continue in effect and all provisions hereof shall be binding except that the maximum net funds which may be requested of the Signatories shall not be increased above the individual agency contributions set forth above, unless otherwise agreed to by all of the remaining Signatories. In the absence of such notification, each Signatory shall be deemed to have consented to such expenditure and the amount thereof shall, on July 1, become an enforceable obligation of each Signatory to the extent permitted by law. Nothing in this Agreement shall preclude a Signatory from advancing all or a portion of its contribution to SCCWRP. None of the Signatories to this Agreement shall be entitled by virtue of withdrawal to receive any payment of money or share of assets of SCCWRP except as may be agreed upon by the remaining Signatories. 10. TERM AND TERMINATION This Amended Joint Powers Agreement shall remain in full force and effect from July 1, 2013 through June 30, 2017 inclusive. In the event that any Signatory chooses to withdraw from SCCWRP, then such Signatory shall notify in writing each of the other Signatories and SCCWRP of its decision, no later then February 1. Such Signatory shall thereupon be deemed to have withdrawn from this Agreement and SCCWRP created hereby effective as of June 30 of such year. SCCWRP shall continue in effect and all provisions hereof shall be binding upon and inure to the benefit of the remaining Signatories. In the event that any non-Signatory agency of the Commission chooses to withdraw from SCCWRP, then such Commission agency shall notify SCCWRP of its decision in writing at least thirty (30) days prior to the date of anticipated withdrawal. Such Commission agency shall be thereupon deemed withdrawn from participation on the date specified in this notice provided such notice is given at least 30 days prior to the anticipated withdrawal and SCCWRP. SCCWRP shall continue in effect and be governed by the remaining Commission members. 11. SCOPE AND CONDUCT OF SCCWRP The scope of SCCWRP's research work shall be reviewed and approved annually by the Commission, which shall seek the advice and counsel of the Executive Director and any other outside advisors deemed necessary or appropriate. 8 The mechanism for review shall be a working research plan, revised annually or as otherwise necessary as determined by the Commission, stating the overall goals and objectives and including an outline of the known current and anticipated future year's research, staffing and funding necessary to successfully achieve the research objectives of this Agreement. The Commission shall, from time to time, but not less than once each year, submit a report to the governing bodies of each of the Signatories of this Agreement that shall include, but not be limited to, a summary of research accomplishments during the past year, discussion of research in progress and a financial statement. 12. AGENCIES OF SCCWRP The Executive Director is hereby appointed the Treasurer of SCCWRP and shall be responsible for the disposition of the funds of SCCWRP. The Executive Director is also appointed Auditor of SCCWRP. The Treasurer and Auditor shall make such reports and cause such audits of the accounts and records of SCCWRP to be made as are required by law. The Commission shall employ such legal counsel as it determines shall best serve the interests of SCCWRP. SCCWRP shall be strictly accountable for all funds and shall report all receipts and disbursements. The manner of exercising the common power provided for herein shall be subject to the restrictions on the manner of exercising such power of the Los Angeles County District. 13. ACCOUNTING SCCWRP shall establish and maintain such funds and accounts as may be required by good accounting practice. The Treasurer of SCCWRP shall have custody of the funds of SCCWRP and disbursement shall be made by the Treasurer in accordance with applicable procedures. Any earnings on the funds of SCCWRP shall be credited to and be a part of the funds of SCCWRP. The fiscal year of SCCWRP shall begin on the first day of July of each year and shall end on the thirtieth day of June of the following. The Auditor shall contract with an independent certified public accountant to make an annual audit of the account and records of SCCWRP. A report thereof shall be filed as a public record with each of the Signatories and also with the County Auditor of the Counties of Los Angeles, Orange and San Diego. Such report shall also be filed with the Secretary of the State of California and shall be filed within twelve (12) months of the end of the fiscal year under such examination. 9 The cost of the audit shall be a debt of SCCWRP. 14. POWERS AND DUTIES OF SCCWRP SCCWRP shall and is hereby authorized in its own name to do all things necessary and desirable (subject to the limitations provided in this Agreement) to carry out the purposes of this Agreement, including, but not limited to, the following: (a) To make and enter into contracts; (b) To employ agents and employees; (c) To acquire, construct, manage, maintain or operate any buildings, works or improvements; (d) To acquire, hold or dispose of property; (e) To incur debts, liabilities and obligations which shall not constitute the debts, liabilities or obligations of any of the Signatories or any of the Commission members; and (f) To sue and be sued in its own name. 15. DISPOSITION OF PROPERTY AND SURPLUS FUND At the termination of this Agreement, any and all property, funds, assets and interests therein of SCCWRP shall become the property of and be distributed to such of the Signatories as are then members of SCCWRP, or their successors, in the same proportion as the then Signatories, or their successors, have contributed to the total cost of the agency. 16. PRIVILEGES AND IMMUNITIES All of the privileges and immunities from liability, exemptions from laws, ordinances and rules, all pension, relief, disability, workers compensation and other benefits which apply to the activities of officers, agents or employees of any of the public agencies which are signatory to this Agreement when performing their respective functions within the territorial limits of their respective public agencies, shall apply to them to the same degree and extent while engaged in the performance of any of their functions and duties extra-territorially under the provisions of this Agreement. 17. MISCELLANEOUS The section headings herein are for convenience only and are not to be construed as modifying or governing the language in the section referred to. 18. SUCCESSORS 10 This agreement shall be binding upon and shall inure to the benefit of the successors of the parties. 19. INDEMNIFICATION AND LIABILITY INSURANCE SCCWRP shall carry during the entire term of this Agreement, liability insurance coverage, naming all Signatories and others including Commission members as additional insured parties, in such kind and amounts as the Commission may from time to time determine to be appropriate. Such cost shall be a debt of SCCWRP. SCCWRP shall indemnify and hold harmless each Commission agency, its officers, agents, and employees, including each agency representative from and against all claims, demands or liability, including legal costs, arising out of or encountered in connection with this Agreement and the activities conducted hereunder and shall defend them and each of them against any claim, cause of action, liability, or damage resulting therefrom. 20. DISCLAIMER Approval of research work by the Commission is not intended in any way to bind, commit or unduly influence decisions of the Signatory or non-Signatory members of the Commission. The findings, conclusions and recommendations of SCCWRP shall not be construed necessarily as the position of any Signatory or non-Signatory member of the Commission. 21. COUNTERPART This Agreement may be signed in several counterparts, each of which shall be deemed an original and all of which shall constitute but one and the same agreement. IN WITNESS THEREOF, the parties have executed this Eighth Amended Agreement on the dates hereafter set forth. CITY OF LOS ANGELES, a municipal corporation By: _______________________________ DATED: __________________________ ATTEST: _________________________ APPROVED AS TO FORM AND CONTENT: By: _______________________________ 11 ORANGE COUNTY SANITATION DISTRICT, a special district By: _______________________________ DATED: __________________________ ATTEST: _________________________ APPROVED AS TO FORM AND CONTENT: By: _______________________________ [Signatures Continue] 12 CITY OF SAN DIEGO, a municipal corporation By: _______________________________ DATED: __________________________ ATTEST: _________________________ APPROVED AS TO FORM AND CONTENT: By: _______________________________ 13 COUNTY SANITATION DISTRICT No. 2 OF LOS ANGELES COUNTY, a special district By: _______________________________ DATED: __________________________ ATTEST: _________________________ APPROVED AS TO FORM AND CONTENT: By: _______________________________ (End of Signatures) 866412.1 5 5 5 AN T O N B O U L E V A R D,SU I T E 12 0 0 C O S T A ME S A ,C A 9 2 6 26 - 7 6 70 (714) 558-7000 DIRECT DIAL: (714) 415-1006 DIRECT FAX: (714) 415-1106 E-MAIL: bhogin@wss-law.com M E M O R A N D U M TO: Honorable Members of the Board of Directors Orange County Sanitation District FROM: Bradley R. Hogin, Esq. General Counsel DATE: July 13, 2012 RE:Vallejo Gallery, LLC v. Orange County Sanitation District Orange County Superior Court, Case No. 30-2012-00570950-CU-EO-CJC On May 21, 2012, Vallejo Gallery, LLC, filed a lawsuit in Orange County Superior Court against OCSD, Malcolm Pirnie, Inc., and Kiewit Infrastructure West Co. The complaint alleges a single cause of action for inverse condemnation. Vallejo Gallery served the complaint on OCSD on June 25, 2012. The lawsuit relates to the Rocky Point Pump Station project (the "Project"). Co- Defendant Malcolm Pirnie, Inc., an engineering firm, designed the Project. Co-Defendant Kiewit Infrastructure West, a construction firm, was the general contractor. Vallejo Gallery operates as a maritime-themed art gallery adjacent to the Project site. The Project included temporary fencing and barricades in front of the gallery to shield pedestrians from construction activities. The complaint alleges that the fencing and barricades, and certain traffic control measures, impaired access to the art gallery over an 8 month period. The complaint further alleges that this impairment constitutes a taking and that Vallejo Gallery is entitled to damages in an unidentified amount. Please let me know if you have any questions or comments. Page 1 of 4 ADMINISTRATION COMMITTEE Meeting Date 07/11/12 To Bd. of Dir. 07/25/12 AGENDA REPORT Item Number 2 Item Number 10 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2012B GENERAL MANAGER'S RECOMMENDATION A. Adopt Resolution No. OCSD 12-10, authorizing the execution and delivery by the 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 Wastewater Refunding Revenue Obligations, Series 2012B, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount of not to exceed $90,000,000, 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 of not to exceed $90,000,000 SUMMARY On August 31, 2000, the Sanitation District issued $218,600,000 of Refunding Certificates of Participation, Series 2000-A and 2000-B (2000 COPs) to refund $80,500,000 of Certificates of Participation (Capital Improvement Program, 1990-92 Series A), $15,395,000 of Certificates of Participation (Capital Improvement Program, 1990-92 Series B), and $83,800,000 of Certificates of Participation (Capital Improvement Program, 1990-92 Series C). The 2000 COPs are variable rate obligations with interest resetting on a daily basis. Currently, there are $91,900,000 of the 2000 COPs outstanding supported by a bank liquidity facility from Lloyds TSB Bank plc (Lloyds Bank). The current bank liquidity facility expires on August 24, 2012 and Lloyds Bank is not renewing any existing commitments as it is no longer in the municipal bank credit business. In May 2012, the Administration Committee and the Board authorized the General Manager to pursue a fixed rate refunding of the 2000 COPs. Approval of the Page 2 of 4 recommended actions and the associated legal documents will enable staff to complete the refunding process. PRIOR COMMITTEE/BOARD ACTIONS May 2012 – The Board 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 the outstanding $91,900,000 of COP Series 2000-A and 2000-B. February 2012 – The Board adopted Resolution No. OCSD 12-04, authorizing the execution and delivery by the Sanitation 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 2012A, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount of not to exceed $110,000,000, 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. ADDITIONAL INFORMATION The Sanitation District currently has 11 series of debt issuances outstanding in the par amount of $1.336 billion. The following table lists each issuance, the outstanding amount, and the interest rate mode. Outstanding Par Amount(1) Interest Rate Mode Series 2012A(2) $ 100,645,000 Fixed Rate Series 2011B(3) 143,205,000 Fixed Rate (one-year) Series 2011A Refunding(2)(4) 147,595,000 Fixed Rate Series 2010C(5) 157,000,000 Fixed Rate Series 2010A(5) 80,000,000 Fixed Rate Series 2009A(5) 191,265,000 Fixed Rate Series 2008B Refunding(6) 26,550,000 Fixed Rate Series 2008A Refunding(6) 25,710,000 Fixed Rate Series 2007B(5) 279,250,000 Fixed Rate Series 2007A Refunding(4) 92,845,000 Fixed Rate Series 2000 Refunding(7) 91,900,000 Daily Variable Rate Total : $1,335,965,000 (1) As of July 1, 2012 (2) Refunded a portion of COP Series 2003 (3) Series 2011B are fixed one-year certificate of anticipation notes (CANS), that refunded the Series 2010B CANS, that refunded the Series 2009B CANS, that refunded the 2008C CANS Page 3 of 4 that were issued to refund the Series 2006 Daily Variable Rate that were supported by a weak liquidity facility bank. (4) Refunded a portion of Series 2000 COPs (5) New money debt issue (6) Series 2008B and Series 2008A refunded the Series 1993 and Series 1992 Synthetic Variable-to-Fixed Rate Debt issues that were supported by a failing insurance provider. Series 1993 and 1992 refunded the Series 1986 and a portion of the Series “B” COPs. (7) Series 2000 COPs refunded the Series A, B, and C issued between 1990 and 1992. Legal Authorization and Approvals The Board of Directors and the Financing Corporation will each be required to adopt separate Resolutions to complete this refunding. Drafts of these two Resolutions are available for review on the Sanitation District’s webpage, as described in the “Attachments” section below. 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 2012B, evidencing principal in an aggregate amount not to exceed $90,000,000 as stated 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 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 WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2012B, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $90,000,000, 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 2012B, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO Page 4 of 4 EXCEED $90,000,000 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 access the market and it is expected to provide the lowest interest cost for this given structure. July Ø Board considers approval of legal and disclosure documents Ø Financing Corporation considers approval of legal and disclosure documents Ø Rating agency discussions Ø Publish Notice of Intention to Sell August Ø Marketing and sale through a competitive bid process Ø Closing Ø Begin debt administration CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS The following bond documents may be viewed as part of the complete Administration Committee Meeting agenda package on OCSD’s webpage at the following link: http://www.ocsd.com/index.aspx?page=107 1. Sanitation District Resolution 2. Corporation Resolution 3. Draft Trust Agreement 4. Draft Installment Purchase Agreement 5. Draft Continuing Disclosure Agreement 6. Draft Preliminary Official Statement 7. Draft Official Notice Inviting Bids 8. Draft Notice of Intention to Sell JDR:LT:MW/jmf 52126043.3 RESOLUTION NO. OCSD 12-10 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 AND A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2012B, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $90,000,000, 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 Refunding Certificates of Participation, Series 2000-A and Series 2000-B (the “Prior Certificates”), evidencing direct, undivided fractional interests in the Prior Installment Payments; WHEREAS, the District desires to refinance the Prior Project by 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 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”); 52126043.3 2 WHEREAS, the Corporation intends to assign without recourse certain of its rights under and pursuant to the Installment Purchase Agreement to U.S. Bank National Association, 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 2012B (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, 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; 52126043.3 3 (d) the Notice Inviting Bids; (e) the Preliminary Official Statement; and (f) the Continuing Disclosure Agreement; and 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 $90,000,000, shall not result in a true interest cost for the Installment Payments in excess of 2.9% and shall not result in a final Installment Payment later than February 1, 2031. 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 $90,000,000, 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. 52126043.3 4 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 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 52126043.3 5 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 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 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 12. 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 13. This Resolution shall take effect immediately upon its adoption. 52126043.3 6 PASSED AND ADOPTED at a regular meeting held on July 25, 2012. Chair ATTEST: Clerk of the Board APPROVED: General Counsel Orange County Sanitation District 52126043.3 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 12-__ was passed and adopted at a regular meeting of said Board on the 25th day of July, 2012, 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 25th day of July, 2012. Clerk of the Board of Directors Orange County Sanitation District 52126042.3 RESOLUTION NO. FC-18 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 2012B, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $90,000,000 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 Refunding Certificates of Participation, Series 2000-A and Series 2000-B (the “Prior Certificates”), evidencing direct, undivided fractional interests in the related Prior Installment Payments; WHEREAS, the District desires to refinance the Prior Project by 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 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”); 52126042.3 2 WHEREAS, the Corporation intends to assign without recourse certain of its rights under and pursuant to the Installment Purchase Agreement to U.S. Bank National Association, 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 2012B (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; and 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 $90,000,000, shall not result in a true interest cost for the Installment Payments in excess of 2.9% and shall not result in a final Installment Payment later than February 1, 2031. 52126042.3 3 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 $90,000,000, 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. 52126042.3 4 PASSED AND ADOPTED at a meeting held on July 25, 2012. President, Orange County Sanitation District Financing Corporation ATTEST: Clerk of the Board, Orange County Sanitation District Financing Corporation APPROVED: General Counsel, Orange County Sanitation District Financing Corporation 52126042.3 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 25th day of July, 2012, 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 25th day of July, 2012. Clerk of the Board of Directors Orange County Sanitation District Financing Corporation DRAFT OF 06/28/12 52126025.3 TRUST AGREEMENT by and among U.S. BANK NATIONAL ASSOCIATION, as Trustee, ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION and ORANGE COUNTY SANITATION DISTRICT Dated as of August 1, 2012 Relating to $__________ Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2012B TABLE OF CONTENTS Page 52126025.3 i ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01. Definitions........................................................................................................ 2 Section 1.02. Definitions in Installment Purchase Agreement .............................................. 9 Section 1.03. Equal Security .................................................................................................. 9 ARTICLE II 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 Section 4.02. 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 TABLE OF CONTENTS (continued) Page 52126025.3 ii Section 5.03. 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 Section 6.05. 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 VII DEFAULT AND LIMITATIONS OF LIABILITY Section 7.01. Action upon Event of Default ........................................................................ 24 Section 7.02. Other Remedies of the Trustee ...................................................................... 25 Section 7.03. 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 VIII 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 and 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 TABLE OF CONTENTS (continued) Page 52126025.3 iii 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 Section 11.11. Notices ........................................................................................................... 37 Section 11.12. Effective Date ................................................................................................ 38 Section 11.13. Execution in Counterparts.............................................................................. 38 EXHIBIT A – FORM OF REVENUE OBLIGATION 52126025.3 TRUST AGREEMENT THIS TRUST AGREEMENT (this “Trust Agreement”), dated as of August 1, 2012, is made by and among U.S. BANK NATIONAL ASSOCIATION, 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 Refunding Certificates of Participation, Series 2000-A and Series 2000-B (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 all of the Prior Project (the “Project”) by prepaying the remaining Prior Installment Payments, and the interest thereon to the date of prepayment, thereby causing the Prior Certificates to be retired; WHEREAS, to provide the funds necessary to 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 2012B (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; 52126025.3 2 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 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. 52126025.3 3 “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, 2013. “Closing Date” means August __, 2012. “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. “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: 52126025.3 4 (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) are 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, 2013. “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. 52126025.3 5 “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 L.L.P. 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. “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; 52126025.3 6 (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-1”, 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 are 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 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 52126025.3 7 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 Trustee 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-1” by Moody’s (including funds for which the Trustee or an affiliate provides investment advice or similar services); (11) Deposits with the Local Agency Investment Fund of the State, as may otherwise be permitted by law; and (12) Shares in the Franklin Adjustable U.S. Government Securities Fund or any other similar fund having at least $1,000,000,000 in assets and invested solely in securities directly guaranteed by the U.S. government or its agencies and rated “AAAf” by S&P or a comparable rating by Moody’s. “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. “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. 52126025.3 8 “Prior Certificates” means all of the District’s Refunding Certificates of Participation, Series 2000-A and Series 2000-B, currently outstanding in the aggregate principal amount of $86,600,000. “Prior Trust Agreement” means the Trust Agreement, dated as of August 1, 2000, 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 U.S. Bank National Association, 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 2012B, 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 division of The McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, 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, 2012, 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 U.S. Bank National Association, 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 instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. 52126025.3 9 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 $__________ 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 2012B” 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 Obligation shall evidence interest from such Interest Payment Date, or unless such date of execution shall be on or prior to January 15, 2013, in which case such Revenue Obligation shall represent interest from the Closing Date. Notwithstanding, the foregoing, if, as shown by the 52126025.3 10 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 (February 1) Principal Component Interest 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 of Interest. 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. 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. 52126025.3 11 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 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 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 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. 52126025.3 12 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. 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 52126025.3 13 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. (f) 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 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. 52126025.3 14 (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 (ii) 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 name 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. 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 proceeds of sale thereof. 52126025.3 15 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 $__________) 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 Prior Trustee for deposit in the Prepayment Account of the Installment Payment Fund established under the Prior Trust Agreement the amount of $__________, to apply, together with other monies released from the Prior Trust Agreement, such amounts to the purchase of the Prior Certificates from the provider of the Standby Agreement (as defined in the Prior Trust Agreement), and upon such purchase, to retire the Prior Certificates. 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, 2023 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, 2023 are subject to optional prepayment prior to their stated Principal Payment Dates, on any date on or after February 1, 2022, 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 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 52126025.3 16 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. 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 52126025.3 17 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 Pledge. 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 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. 52126025.3 18 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, 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 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 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 52126025.3 19 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. Brokerage 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, such statements will be delivered via the Trustee’s Online Trust and Custody Service and upon electing such service, paper statements will be provided only upon request. The District waives the right to receive brokerage confirmations of securities transactions effected by the Trustee 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 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 52126025.3 20 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 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). 52126025.3 21 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 L.L.P. or any other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the District and reasonably satisfactory to and approved by the Trustee. “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 Fulbright & Jaworski L.L.P. or any other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the District and reasonably satisfactory to and approved by the Trustee. “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. “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. 52126025.3 22 (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 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 52126025.3 23 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(g). 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 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 52126025.3 24 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. (j) 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. 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. 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 52126025.3 25 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. 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 52126025.3 26 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. 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. 52126025.3 27 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 hereunder, 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. 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. 52126025.3 28 ARTICLE VIII 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 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 52126025.3 29 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 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, including but not limited to 52126025.3 30 costs and expenses incurred in defending against any claim or liability, which are not due to its negligence or willful misconduct. Section 8.04. 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. 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. 52126025.3 31 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 Supplement. (a) 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 consent of the Trustee, or (iv) amend this Section without the prior written consent of the Owners of all Revenue Obligations then Outstanding. (b) 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, 52126025.3 32 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. Disqualified 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 Replacement 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. 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. 52126025.3 33 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 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. 52126025.3 34 (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 Trustee and 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 Government 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. 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 52126025.3 35 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 attorney 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 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, 52126025.3 36 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 term 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 11.08. 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 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. 52126025.3 37 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 If to the Trustee: U.S. Bank National Association 633 West Fifth Street 24th Floor Los Angeles, California 90071 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, 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 52126025.3 38 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.] 52126025.3 39 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 (S E A L) Attest: By: ______________________________ Clerk of the Board of Directors U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Officer 52126025.3 A-1 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 2012B Such revenue obligations are certificates of participation evidencing direct, undivided fractional interests in the Installment Purchase Agreement, dated as of August 1, 2012, 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 ___, 2012 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, 2012 (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 U.S. Bank National Association, 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, 2012 (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. 52126025.3 A-2 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 2012B (the “Revenue Obligations”) evidencing principal in the aggregate amount of $__________, 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 52126025.3 A-3 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 1 and August 1 of each year, commencing on February 1, 2013 (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 furnished 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 52126025.3 A-4 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 (“Authorized 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. 52126025.3 A-5 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 terms 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 __, 2012 U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Officer 52126025.3 A-6 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 name(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: _______________________ Note: Signature(s) must be guaranteed by an eligible guarantor. Note: The signature(s) on this Assignment must correspond 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. DRAFT OF 06/28/12 52126017.3 INSTALLMENT PURCHASE AGREEMENT by and between ORANGE COUNTY SANITATION DISTRICT and ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION Dated as of August 1, 2012 Relating to $__________ Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2012B TABLE OF CONTENTS Page 52126017.3 -i- 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 III 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 Section 3.03. 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 Section 4.02. Notice ................................................................................................... 7 Section 4.03. Discharge of Obligations ..................................................................... 7 ARTICLE V 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. Indemnification 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 Section 6.03. Non-Waiver.......................................................................................... 9 Section 6.04. Remedies Not Exclusive ...................................................................... 9 ARTICLE VII AMENDMENTS ........................................................................................... 10 Section 7.01. Amendments ...................................................................................... 10 TABLE OF CONTENTS (continued) Page 52126017.3 -ii- ARTICLE VIII MISCELLANEOUS ...................................................................................... 11 Section 8.01. Liability of District Limited ............................................................... 11 Section 8.02. Limitation of Rights ........................................................................... 11 Section 8.03. Assignment ........................................................................................ 11 Section 8.04. 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 52126017.3 INSTALLMENT PURCHASE AGREEMENT THIS INSTALLMENT PURCHASE AGREEMENT (this “Installment Purchase Agreement”), dated as of August 1, 2012, 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”). W I T N E S S E T H: 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 Refunding Certificates of Participation, Series 2000-A and Series 2000-B (the “Prior Certificates”), evidencing direct, undivided fractional interests in the related Prior Installment Payments; WHEREAS, the District desires to refinance the Prior Project (the “Project”) by prepaying the remaining Prior Installment Payments, and the interest thereon to the dates of prepayment, thereby causing the remaining Prior Certificates to be prepaid; WHEREAS, to provide the funds necessary to 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 U.S. Bank National Association, as trustee (the “Trustee”); 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 52126017.3 2 District, the Trustee has agreed to execute and deliver the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012B (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 __, 2012. “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. “Installment Payment Dates” means each February 1, commencing February 1, ____. 52126017.3 3 “Installment Purchase Agreement” means this Installment Purchase Agreement, dated as of August 1, 2012, 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, 2013. “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 2012B, 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, 2012, 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 terms. “Trustee” means U.S. Bank National Association, 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. 52126017.3 4 ARTICLE II PURCHASE OF PROJECT BY, AND SALE THEREOF TO, THE CORPORATION; PAYMENT OF PURCHASE PRICE Section 2.01. Acquisition of the Project. 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, 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 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 Project, the amount of $____________, which amount shall be paid from the proceeds of the Revenue Obligations. ARTICLE III PURCHASE OF PROJECT BY, AND SALE THEREOF TO, THE DISTRICT; INSTALLMENT PAYMENTS Section 3.01. Purchase and Sale of Project. 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 IV 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: 52126017.3 5 Payment Date Installment Payment Interest on Installment Payment Total Interest Rate 02/01/2013 08/01/2013 02/01/2014 08/01/2014 02/01/2015 08/01/2015 02/01/2016 08/01/2016 02/01/2017 08/01/2017 02/01/2018 08/01/2018 02/01/2019 08/01/2019 02/01/2020 08/01/2020 02/01/2021 08/01/2021 02/01/2022 08/01/2022 02/01/2023 08/01/2023 02/01/2024 08/01/2024 02/01/2025 08/01/2025 02/01/2026 08/01/2026 02/01/2027 08/01/2027 02/01/2028 08/01/2028 02/01/2029 08/01/2029 02/01/2030 08/01/2030 02/01/2031 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 52126017.3 6 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. Obligation 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 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 Agreement. 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 52126017.3 7 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. Discharge 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 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 52126017.3 8 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 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 52126017.3 9 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, 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. 52126017.3 10 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. (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 terms 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. 52126017.3 11 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. 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 52126017.3 12 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: U.S. Bank National Association 633 West Fifth Street 24th Floor Los Angeles, California 90071 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 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 52126017.3 13 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. [Remainder of page intentionally left blank] 52126017.3 14 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 (S E A L) Attest: By: Clerk of the Board of Directors ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION By: Treasurer 52126017.3 A-1 EXHIBIT A DESCRIPTION OF PROJECT An allocable portion of $___________ to the following: DRAFT OF 06/28/12 52126041.3 CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this “Disclosure Agreement”), dated as of August 1, 2012, 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 DIGITAL ASSURANCE CERTIFICATION LLC, as Dissemination Agent (the “Dissemination Agent”). WITNESSETH: WHEREAS, the District has caused to be executed and delivered the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012B (the “Revenue Obligations”), evidencing principal in the aggregate amount of $__________, pursuant to a Trust Agreement, dated as of the date hereof (the “Trust Agreement”), by and among U.S. Bank National Association, as trustee (the “Trustee”), the Orange County Sanitation District Financing Corporation (the “Corporation”) and the District; and WHEREAS, this Disclosure Agreement is being executed and delivered by the District and the Dissemination Agent for the benefit of the owners and beneficial owners of the Revenue Obligations and in order to assist the purchaser of the Revenue Obligations in complying with the Rule (as defined herein); NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Trust Agreement or, if not defined therein, in the Master Agreement, dated as of August 1, 2000, by and between the District and the Corporation. In addition, the following capitalized terms shall have the following meanings: “Annual Report” means any Annual Report provided by the District pursuant to, and as described in, Sections 2 and 3 hereof. “Annual Report Date” means the date in each year that is eight months after the end of the Fiscal Year, which date, as of the date of this Disclosure Agreement, is March 1. “Disclosure Representative” means the Director of Finance and Administrative Services of the District, or such other officer or employee of the District as the District shall designate in writing to the Dissemination Agent and the Trustee from time to time. “Dissemination Agent” means an entity selected and retained by the District, or any successor thereto selected by the District. The initial Dissemination Agent shall be Digital Assurance Certification LLC. “EMMA” shall mean Electronic Municipal Market Access system, maintained on the internet at http://emma.msrb.org by the MSRB. “Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30, or any twelve-month or fifty-two week period hereafter selected by the District, with notice of such selection or change in fiscal year to be provided as set forth herein. 52126041.3 2 “Listed Events” means any of the events listed in Section 4 hereof and any other event legally required to be reported pursuant to the Rule. “MSRB” means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the SEC to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the SEC, filings with the MSRB are to be made through EMMA. “Official Statement” means the Official Statement, dated August __, 2012, relating to the Revenue Obligations. “Participating Underwriter” means any of the original purchaser(s) of the Revenue Obligations required to comply with the Rule in connection with the offering of the Revenue Obligations. “Repository” means, until otherwise designated by the SEC, EMMA. “Rule” means Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934, as the same has been or may be amended from time to time. “SEC” shall mean the United States Securities and Exchange Commission. Section 2. Provision of Annual Reports. (a) The District shall provide, or shall cause the Dissemination Agent to provide, to MSRB, through EMMA, not later than 15 days prior to the Annual Report Date, an Annual Report which is consistent with the requirements of Section 3 of this Disclosure Agreement. The Annual Report must be submitted in electronic format, accompanied by such identifying information as provided by the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 3 of this Disclosure Agreement. Not later than 15 Business Days prior to such date, the District shall provide the Annual Report to the Dissemination Agent. If the Fiscal Year changes for the District, the District shall give notice of such change in the manner provided under Section 4(e) hereof. (b) If by 15 Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, through EMMA, the Dissemination Agent has not received a copy of the Annual Report the Dissemination Agent shall contact the District to determine if the District is in compliance with subsection (a). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine the electronic filing address of, and then-current procedures for submitting Annual Reports to, the MSRB each year prior to the date for providing the Annual Report; and 52126041.3 3 (ii) (if the Dissemination Agent is other than the Trustee), to the extent appropriate information is available to it, file a report with the Authority certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. Section 3. Content of Annual Reports. The District’s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to subsection (a) of Section 2 hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) The principal evidenced by the Revenue Obligations Outstanding as of the January 1 next preceding the Annual Report Date and the principal amount of other Senior Obligations outstanding as of the January 1 next preceding the Annual Report Date. (c) A summary report showing in reasonable detail Revenues, Operating Revenues, Maintenance and Operation Costs, Net Revenues, Net Operating Revenues and debt service with respect to the Senior Obligations for the Fiscal Year ended the June 30 next preceding the Annual Report Date. (d) An update, for the Fiscal Year ended the June 30 next preceding the Annual Report Date, of the information contained in the Official Statement in Table Nos. 2, 4, 6 (only with respect to information on 6 under the headings Fiscal Year and Sewer Service Charge), 8 (not to include projections), 9, 10, 11, 12, 13, 14 and 16. (e) In addition to any of the information expressly required to be provided under subsections (a), (b), (c) and (d) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the District is an “obligated person” (as defined by the Rule), which are available to the public on EMMA or filed with the SEC. The District shall clearly identify each such document to included by reference. Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 4, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Revenue Obligations, in a timely manner not more than ten (10) Business Days after the event: (1) principal and interest payment delinquencies; (2) defeasances; (3) tender offers; 52126041.3 4 (4) rating changes; (5) adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax- status of the Revenue Obligations; (6) unscheduled draws on the debt service reserves reflecting financial difficulties; (7) unscheduled draws on credit enhancements reflecting financial difficulties; (8) substitution of credit or liquidity providers or their failure to perform; or (9) bankruptcy, insolvency, receivership or similar proceedings. For these purposes, any event described in the immediately preceding paragraph (9) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District. (b) Pursuant to the provisions of this Section 4, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Revenue Obligations, if material: (1) mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination; (2) appointment of a successor or additional Trustee or the change of the name of a Trustee; (3) nonpayment related defaults; (4) modifications to the rights of Owners; (5) a notices of prepayment; or (6) release, substitution or sale of property securing repayment of the Revenue Obligations. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event, described in subsection (b) of this Section 4, the District shall as soon as possible determine if such event would be material under applicable federal securities law. 52126041.3 5 (d) If the District determines that knowledge of the occurrence of a Listed Event described in subsection (b) of this Section 4 would be material under applicable federal securities law, the District shall promptly notify the Dissemination Agent in writing and instruct the Dissemination Agent to report the occurrence to the Repository in a timely manner not more than ten (10) Business Days after the event. (e) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB. Section 5. Filings with the MSRB. All information, operating data, financial statements, notices and other documents provided to the MSRB in accordance with this Disclosure Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Revenue Obligations. If such termination occurs prior to the final maturity of the Revenue Obligations, the District shall give notice of such termination in the same manner as for a Listed Event under Section 4 hereof. Section 7. Dissemination Agent. The District may, from time to time, appoint or engage another Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent; provided it shall receive written notice of such designation at the time of such designation. Notwithstanding any other provision to this Disclosure Agreement to the contrary, the District may provide any Annual Report to Beneficial Owners by means of posting such Annual Report on an internet site that provides open access to Beneficial Owners. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District may amend this Disclosure Agreement, provided no amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made without the consent of such party, and any provision of this Disclosure Agreement may be waived if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to the District and the Dissemination Agent to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule. Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the District or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee, at the written direction of any Participating Underwriter or the holders of at least 25% of the aggregate amount of principal evidenced by Outstanding Revenue Obligations and upon being indemnified to its reasonable satisfaction, shall, or any holder or beneficial owner of the Revenue Obligations may, take such actions as may be necessary 52126041.3 6 and appropriate, including seeking mandate or specific performance by court order, to cause the District, Trustee or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the District, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement. Neither the Trustee nor the Dissemination Agent shall be responsible for the form or content of any Annual Report or notice of Listed Event. The Dissemination Agent shall receive reasonable compensation for its services provided under this Disclosure Agreement. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Revenue Obligations. Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Trustee, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Revenue Obligations, and shall create no rights in any other person or entity. Section 13. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 52126041.3 7 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. ORANGE COUNTY SANITATION DISTRICT By: Lorenzo Tyner Director of Finance and Administrative Services DIGITAL ASSURANCE CERTIFICATION LLC, as Dissemination Agent By: Authorized Representative Acknowledged and Accepted: U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Officer 52126041.3 A-1 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Orange County Sanitation District Name of Issue: Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012B Date of Execution and Delivery: August __, 2012 NOTICE IS HEREBY GIVEN that the Orange County Sanitation District (the “District”) has not provided an Annual Report with respect to the above-captioned Revenue Obligations as required by Section 6.09 of the Trust Agreement, dated as of August 1, 2012, by and among ______________, as Trustee, the Orange County Sanitation District Financing Corporation and the District. [The District anticipates that the Annual Report will be filed by ______________.] Dated: ORANGE COUNTY SANITATION DISTRICT By Title: cc: Trustee Dissemination Agent 52121526.4 Fulbright & Jaworski L.L.P. – Draft of 07/03/12 PRELIMINARY OFFICIAL STATEMENT DATED JULY __, 2012 NEW ISSUE—BOOK-ENTRY-ONLY RATINGS: S&P: “___” Fitch: “___” (See “RATINGS” herein.) In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel, under existing 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 distributable 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 tax preference for purposes of the federal alternative minimum tax. It is also the opinion of Special Counsel that under existing 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, “TAX MATTERS” herein. [District Logo] $____________* [DAC Logo] ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2012B Dated: Date of Delivery Due: as shown on the inside cover The $_________* Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012B (the “Revenue Obligations”) are 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, 2012 (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 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 to 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) purchase and retire all of the District’s Refunding Certificates of Participation, Series 2000-A and Series 2000-B, currently outstanding in the aggregate principal amount of $91,900,000 (collectively, the “Prior Certificates”), 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, 2013. 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. Th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t a n d t h e i n f o r m a t i o n c o n t a i n e d h e r e i n a r e su b j e c t t o c o m p l e t i o n o r a m e n d m e n t . U n d e r n o c i r c u m s t a n c e s s h a l l t h i s P r e l i m i n a r y O f f i c i a l St a t e m e n t c o n s t i t u t e a n o f f e r t o s e l l o r t h e s o l i c i t a t i o n o f a n o f f e r t o b u y , n o r s h a l l t h e r e b e a n y s a l e o f t h e s e s e c u r i t i e s in a n y j u r i s d i c t i o n i n w h i c h s u c h o f f er , s o l i c i t a t i o n o r s a l e wo u l d b e u n l a w f u l . 52121526.4 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 U.S. Bank National Association, 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 10:45 A.M. NEW YORK TIME ON AUGUST 2, 2012 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 L.L.P., Los Angeles, California, 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 __, 2012. Dated: August __, 2012 52121526.4 MATURITY SCHEDULE* February 1 Principal Amount Interest Rate Yield Price CUSIP† (Base No. 68428T) _______________________ * Preliminary, subject to change. † 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. 52121526.4 [MAP] 52121526.4 ORANGE COUNTY SANITATION DISTRICT Board of Directors Troy Edgar — (Chair) — Los Alamitos John Anderson — (Vice Chair) — Yorba Linda Gail Eastman — Anaheim Jon Dumitru — Orange Don Schweitzer — Brea Scott Nelson — Placentia Fred Smith — Buena Park Sal Tinajero — Santa Ana Prakash Narain — Cypress Michael Levitt — Seal Beach Larry Crandall — Fountain Valley David Shawver — Stanton Sharon Quirk-Silva — Fullerton John Nielsen – Tustin Bill Dalton — Garden Grove Brad Reese — Villa Park Joe Carchio — Huntington Beach James M. Ferryman — Costa Mesa Sanitary District Jeffrey Lalloway — Irvine John Withers — Irvine Ranch Water District Tom Beamish — La Habra Joy L. Neugebauer — Midway City Sanitary District Mark Waldman — La Palma Janet Nguyen — Member of the Orange County Steven Rosansky — Newport Beach Board of Supervisors Executive Management of the District James D. Ruth, General Manager Robert P. Ghirelli, D.Env., Assistant General Manager James Herberg, 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 Jeff Reed, Director of Human Resources Special Services Special Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P. Los Angeles, California District General Counsel Bradley R. Hogin Woodruff, Spradlin & Smart, a Professional Corporation Costa Mesa, California Financial Advisor Public Resources Advisory Group Los Angeles, California Trustee U.S. Bank National Association Los Angeles, California 52121526.4 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 52121526.4 - i - INTRODUCTION ......................................................................................................................... 1 General ............................................................................................................................... 1 The District ........................................................................................................................ 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 ................................................................................................ 4 General ............................................................................................................................... 4 Prepayment Provisions....................................................................................................... 5 SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS ............ 7 Installment Payments ......................................................................................................... 7 Available Funds of the District .......................................................................................... 8 Net Revenues ..................................................................................................................... 8 Rate Stabilization Account ................................................................................................ 9 Allocation of Revenues ...................................................................................................... 9 Rate Covenant .................................................................................................................. 10 Limitations on Issuance of Additional Obligations ......................................................... 11 Insurance .......................................................................................................................... 13 Allocation of Installment Payments ................................................................................. 13 THE DISTRICT ........................................................................................................................... 15 Background ...................................................................................................................... 15 Organization and Administration ..................................................................................... 16 Services ............................................................................................................................ 17 Service Area ..................................................................................................................... 17 Employees ........................................................................................................................ 18 Retirement Plan ................................................................................................................ 19 Other Post-Employment Benefits .................................................................................... 21 Risk Management ............................................................................................................ 21 Existing Facilities............................................................................................................. 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 Biosolids Management..................................................................................................... 26 Urban Runoff ................................................................................................................... 27 Integrated Emergency Response Program ....................................................................... 28 Five-Year Strategic Planning ........................................................................................... 29 TABLE OF CONTENTS (continued) Page 52121526.4 - iii - DISTRICT REVENUES .............................................................................................................. 29 Sewer Service Charges .................................................................................................... 29 Additional Revenues ........................................................................................................ 32 Wastewater Treatment History ........................................................................................ 33 Customers ........................................................................................................................ 33 Assessed Valuation .......................................................................................................... 36 Tax Levies and Delinquencies ......................................................................................... 36 Budgetary Process ............................................................................................................ 37 Reserves ........................................................................................................................... 38 Summary of Operating Data ............................................................................................ 39 Projected Operating Data ................................................................................................. 41 Management’s Discussion and Analysis of Operating Data............................................ 43 Investment of District Funds ............................................................................................ 44 FINANCIAL OBLIGATIONS .................................................................................................... 44 Existing Indebtedness ...................................................................................................... 44 Variable Rate Obligations ................................................................................................ 45 Anticipated Financings .................................................................................................... 45 Direct and Overlapping Bonded Debt.............................................................................. 46 THE CORPORATION ................................................................................................................ 46 LIMITATIONS ON TAXES AND REVENUES........................................................................ 46 Article XIIIA of the California Constitution ................................................................... 46 Legislation Implementing Article XIIIA ......................................................................... 47 Article XIIIB of the California Constitution .................................................................... 47 Proposition 1A ................................................................................................................. 48 Article XIIIC and Article XIIID of the California Constitution ...................................... 49 Other Initiative Measures ................................................................................................. 51 LEGAL MATTERS ..................................................................................................................... 51 FINANCIAL ADVISOR ............................................................................................................. 51 ABSENCE OF LITIGATION ..................................................................................................... 51 FINANCIAL STATEMENTS ..................................................................................................... 51 TAX MATTERS .......................................................................................................................... 52 CONTINUING DISCLOSURE ................................................................................................... 55 RATINGS .................................................................................................................................... 55 PURCHASE AND REOFFERING ............................................................................................. 56 MISCELLANEOUS .................................................................................................................... 56 TABLE OF CONTENTS (continued) Page 52121526.4 - iii - APPENDIX A – COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011 ......................................................................... 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 52121526.4 OFFICIAL STATEMENT $__________* ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2012B 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 – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Definitions” herein. General This Official Statement, including the cover page and all appendices hereto, provides certain information concerning the sale and delivery of $__________* aggregate principal amount of the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012B (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, 2012 (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. * Preliminary, subject to change. 52121526.4 2 The Revenue Obligations are to be executed and delivered pursuant to a Trust Agreement, dated as of August 1, 2012 (the “Trust Agreement”), by and among the District, the Corporation and U.S. Bank National Association, as trustee (the “Trustee”). Proceeds from the sale of the Revenue Obligations will be used to (i) purchase and retire all of the District’s Refunding Certificates of Participation, Series 2000- A and Series 2000-B, currently outstanding in the aggregate principal amount of $91,900,000 (collectively, the “Prior Certificates”) and (ii) 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, 2013. 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 turn, 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 207 million gallons per day (“mg/d”) of wastewater in Fiscal Year 2010-11. 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. 52121526.4 3 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 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 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 2011-12 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 are 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 U.S. Bank National Association, Los Angeles, California Attention: Corporate Trust. 52121526.4 4 REFUNDING PLAN In August 2000, the District caused the execution and delivery of the Prior Certificates pursuant to the terms of the Trust Agreement, dated as of August 1, 2000 (the “Prior Trust Agreement”), by and among the District, the Corporation and U.S. Bank National Association, as successor trustee thereunder (the “Prior Trustee”). The Prior Certificates were executed and delivered in the original aggregate principal amount of $218,600,000, of which $91,900,000 is currently outstanding. The payment of the purchase price of Prior Certificates that are tendered and not remarketed is supported by a Standby Certificate Purchase Agreement, dated as of August 1, 2010 (the “Standby Agreement”), by and between the District and Lloyds TSB Bank plc, acting through its New York Branch (the “Provider”). The Standby Agreement currently expires on August 24, 2012. Due to the expiration of the Standby Agreement, the Prior Certificates will be subject to mandatory tender for purchase by the Provider on August 17, 2012 (the “Mandatory Tender Date”). The District intends to effect the purchase and retirement of the Prior Certificates by depositing a portion of the proceeds of the Revenue Obligations, together with other available moneys released from certain funds and accounts established under the Prior Trust Agreement, with the Prior Trustee. The Prior Trustee shall hold such deposit uninvested and apply such deposit to purchase the Prior Certificates from the Provider on the Mandatory Tender Date. Upon the Prior Trustee’s purchase thereof from the Provider, the Prior Certificates shall be immediately retired. 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 $ Net Premium Amounts released from Prior Trust Agreement relating to Prior Certificates ____________ Total Sources $ Uses Deposit with Prior Trustee $ Initial Purchaser’s Discount Costs of Issuance(1) ____________ Total Uses $ ____________________ (1) Costs of Issuance include, among other things, fees of rating agencies, Special Counsel and Disclosure Counsel fees and expenses, and the initial fees of the Trustee. 52121526.4 5 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, 2013. 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, 2013, 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 U.S. Bank National Association, as 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 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, 2023 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, 2023 are subject to optional prepayment prior to their stated Principal Payment Dates, on any date on or after February 1, 2022, 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 52121526.4 6 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 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 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 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. 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 52121526.4 7 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 secured. 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. 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 52121526.4 8 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 June 30, 2011, the District’s Debt Service Required Reserves totaled $142 million, of which $90.2 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 June 30, 2011 were approximately $561 million. Available reserves at June 30, 2012 and June 30, 2013 are projected to be approximately $604 million and $561 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 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 52121526.4 9 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 for any period. Revenues will be decreased by the amounts, if any, transferred from the Revenue Account to the Rate Stabilization Account. There are presently no funds in the Rate Stabilization Account. 52121526.4 10 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 funds 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. In 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 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 52121526.4 11 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 $458 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 Operating Revenues which will result from the connection of existing residences or businesses to the Wastewater System within one year following completion of 52121526.4 12 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 year 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 are 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 (H) 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 funds 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 clause (L) of the definition of Assumed Debt Service). See APPENDIX C — “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Master Agreement” attached hereto for additional information. 52121526.4 13 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 1 are the principal and interest payments on the Revenue Obligations. Also set forth are the payments due on Existing Senior Obligations, including the Prior Certificates. [Remainder of page intentionally left blank.] 52121526.4 14 Table 1 Estimated Installment Payments Relating to the Revenue Obligations and Existing Senior Obligations of the District Fiscal Year Ending June 30 Installment Payments Relating to Revenue Obligations Other Senior Obligations(1)(2) Total Principal Interest Principal Interest(3) 2013(4) $ 23,965,000 $ 59,139,688 $ 83,104,688 2014 39,590,000 59,326,767 98,916,767 2015 27,875,000 58,164,761 86,039,761 2016 29,405,000 56,996,162 86,401,162 2017 35,575,000 55,617,062 91,192,062 2018 33,170,000 54,093,918 87,263,918 2019 36,815,000 52,362,497 89,177,497 2020 38,455,000 50,981,971 89,436,971 2021 44,615,000 49,615,889 94,230,889 2022 37,665,000 48,563,088 86,228,088 2023 39,375,000 46,861,499 86,236,499 2024 41,005,000 45,228,487 86,233,487 2025 42,875,000 43,369,859 86,244,859 2026 44,540,000 41,704,813 86,244,813 2027 48,730,000 39,682,614 88,412,614 2028 50,870,000 37,554,410 88,424,410 2029 53,090,000 35,329,926 88,419,926 2030 56,240,000 33,009,642 89,249,642 2031 69,270,000 30,564,068 99,834,068 2032 80,120,000 27,893,819 108,013,819 2033 95,965,000 24,154,486 120,119,486 2034 55,745,000 19,744,906 75,489,906 2035 58,240,000 16,995,732 75,235,732 2036 60,865,000 14,120,860 74,985,860 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 $1,335,965,000 $1,036,725,272 $2,372,690,272 ______________ (1) The District intends to refinance its Revenue Refunding Certificate Anticipation Notes, Series 2011B (“2011 Notes”) on or before their maturity on November 9, 2012. Assumes principal is amortized from 2022 through 2036 and an interest rate of 3% per annum. See “FINANCIAL OBLIGATIONS – Recent and Anticipated Financings” herein. (2) Includes payments with respect to the Prior Certificates, which are to be purchased and retired with the proceeds of the Revenue Obligations. See “REFUNDING PLAN” herein. (3) Assumes a per annum interest rate of 3% for all variable rate obligations. See “FINANCIAL OBLIGATIONS – Existing Indebtedness” and APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011” herein. (4) Excludes payments due prior to July 2, 2012. 52121526.4 15 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 more than 2.5 million people in the northern and central portion of the County by treating an average of 207 mg/d of wastewater in Fiscal Year 2010-11. 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 governance 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. See “FINANCIAL OBLIGATIONS – Existing Indebtedness” herein. 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 171 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. 52121526.4 16 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 D. Ruth. James D. Ruth is the District’s General Manager, and has served in that capacity since December 2005. Prior to that time, from January 2003 to October 2004, Mr. Ruth served as Chief Executive Officer for the County of Orange. Mr. Ruth had previously provided 22 years of service to the City of Anaheim as parks and recreation director, deputy city manager, assistant city manager and chief executive officer, a post he held for 11 years. Robert P. Ghirelli, D.Env. is an 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 Angeles/Ventura Region. James Herberg, P.E. is an Assistant General Manager of the District and has served in this capacity since February 2011. He previously held the position of Director of Engineering, and served in that capacity from November 2006 to June 2012. Prior to becoming Director of Engineering, he was the District’s Director of Operations and Maintenance. Mr. Herberg has over 20 years of experience in water and wastewater including project management, construction management, design, strategic planning, and operations & maintenance. 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 approximately 25 years of public and private sector experience in protecting public health and the environment. 52121526.4 17 Nick Arhontes, P.E. is the District’s Director of Facilities Support Services and has served the District since 1988. Mr. Arhontes has over 30 years of experience managing various engineered systems in the private and public sectors regionally, nationally, and internationally. 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 trunk 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 33 cities and various unincorporated areas of the County. The District serves a population of more than 2.5 million residents. 52121526.4 18 Set forth in Table 2 below are estimated populations of cities and unincorporated areas served by the District as of January 1, 2011. Table 2 Estimated Populations of Cities and Unincorporated Areas Served by the Orange County Sanitation District As of January 1, 2011 City Population Anaheim 341,034 Brea 40,065 Buena Park 80,868 Costa Mesa 110,146 Cypress 47,907 Fountain Valley 55,423 Fullerton 135,574 Garden Grove 171,327 Huntington Beach 190,377 Irvine 219,156 La Habra 60,432 La Palma 15,596 Los Alamitos 11,474 Newport Beach 85,376 Orange 136,995 Placentia 50,665 Santa Ana 325,228 Seal Beach 24,215 Stanton 38,317 Tustin 75,781 Villa Park 5,823 Westminster 89,937 Yorba Linda 64,855 Cities Subtotal 2,376,571 Unincorporated Areas (estimated) 81,000 Total 2,457,571 ____________________ Sources: State of California Department of Finance, Demographic Research Unit for city population data; Orange County Sanitation District for population of unincorporated areas. Employees As of June 1, 2012, the District had 584 represented and non-represented employees. Most of the District’s 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 Peace Officers Counsel of California representing the Supervisor Group and the Professional Group supervisory and professional employees since 1991. Total represented employees as of February 1, 2012 numbered 551 as follows: 94 were represented by the OCEA, 207 were represented by Local 501 and 250 were represented by the Supervisor and Professional Groups. The Supervisor and Professional Groups agreements with the District were renegotiated in 2011 and expire on June 30, 2013. The OCEA 52121526.4 19 and Local 501 agreements with the District were renegotiated in 2011 and expire on June 30, 2014. The District has historically enjoyed a good working relationship with its employee organizations and has experienced no work stoppages by represented personnel 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 District full-time employees, except the General Manager, participate in OCERS. Contributions are based on an OCERS actuarial-determined 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 or H member. 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. Effective July 1, 2005, employees retiring at age 55 or older receive 2.5% of their final compensation for every year of service. Plan G and H provide 2.5% of final average compensation per year of service at age 55. Plan B provides 1.667% per year of service at age 57.5. “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 and H 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 years of service are eligible to receive an annual retirement allowance, but at a reduced benefit for those employees retiring prior to age 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 is required to make periodic contributions to OCERS in amounts that are estimated to remain a constant percentage of covered employees’ compensation such that, when combined with covered employees’ contributions, they will fully provide for all covered employees’ benefits by the time they retire. 52121526.4 20 Set forth in Table 13 below is a current comparison of the District’s contributions to OCERS for Fiscal Years 2006-07 through 2010-11 and projected costs for Fiscal Years 2011-12 and 2012-13. Table 3 Orange County Sanitation District Comparison of District Contributions to OCERS for Fiscal Years 2006-07 through 2010-11 and Projected Contributions for Fiscal Years 2011-12 and 2012-13 Fiscal Year Rate(1) District Contributions 2006-07 19.78% $ 9,848,854 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(2) 25.68 16,346,155 2012-13(2) (3) 27.45 17,485,548 ____________________ (1) Required contribution as a percent of covered payroll. Includes amortization of Unfunded Actuarial Accrued Liability. (2) Projected. (3) Combined rate for Plans B, G and H. Source: Orange County Sanitation District. For Fiscal Years 2006-07 through 2010-11, 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, 2011, total payroll costs of employees covered by OCERS was $58,582,598. As of the December 31, 2011 valuation, OCERS has an aggregate UAAL ratio of 67.03%, for a total UAAL on an actuarial basis of $4.46 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 after qualifying public service of ten years. 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 $248,410 in ARBA benefits during Fiscal Year 2010-11. Effective August 1, 2011, ARBA benefits are 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, 2011, see Note 6 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2011 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. 52121526.4 21 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 l Agency.” According to the District’s actuary, Demsey Filliger Associates (the “Actuary”), the unfunded OPEB liability as of July 1, 2009 is approximately $8.8 million. [update in process, not yet complete] The ARC is $______ for Fiscal Year 2011-12. 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 5% 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-insured 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 is self-insured for all property damage from the perils of earthquakes. See “DISTRICT REVENUES – Reserves.” 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. 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 unrecorded claims as of June 30, 2012 that would materially affect the financial position of the District. For more information regarding the District’s insurance coverage as of June 30, 2011, see Note 1 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2011 set forth in Appendix A. Existing Facilities The District’s 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 outfall facilities. The District’s Wastewater System includes approximately 403 miles of sewers within 11 trunk sewer systems, 176 miles of local sewers located within a portion of Revenue Area No. 7, two treatment plants, two discharge outfalls 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 four miles from the coast, adjacent to the Santa Ana River. Secondary treatment capabilities are provided by a trickling filter plant and a conventional air activated sludge plant. Up to 105 mg/d of secondary treated 52121526.4 22 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. 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. Substantially all of the wastewater received by the District is sent to secondary treatment for further processing because of the recent completion of the secondary expansion at Treatment Plant No. 2. 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 current and future treatment capacities. Table 4 Wastewater System Treatment Capacities (mg/d) 2010-11 Actual Flows Existing Primary Treatment Capacity Existing Secondary Treatment Capacity(1) Total Planned Secondary Capacity(2) Plant No. 1 99 204 122 182 Plant No. 2 108 168 150 150 Aggregate Treatment 207 372 272 332 ____________________ (1) The existing secondary capacity is being expanded to meet secondary treatment standards by December 2012. (2) The District’s “Planned Total Capacity” is based on the 2009 Facilities Master Plan for planned capacity by 2020, which estimated the District’s requirements to meet future expected primary and secondary capacity demands. 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, rules 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 52121526.4 23 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 currently estimates that it will complete these improvements by December 2012 at a total capital improvement cost of $623.1 million. In the interim, the District operates the plants to maximize available secondary treatment and to reduce effluent biochemical oxygen demand and suspended solid discharges below currently allowed limits. 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 Consent Decree contains seven construction milestones and interim effluent limitations. The District is in compliance with the Consent Decree and has successfully completed five of the seven milestones within the specified deadlines required by the Consent Decree. The District expects to complete all seven milestones ahead of schedule, prior to December 31, 2012. 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 (PM10), carbon monoxide, lead, nitrogen dioxide, and sulfur dioxide). Criteria air pollutants cause 52121526.4 24 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. 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. 2009 Facilities Master Plan and Capital Improvement Program The District’s 2009 Facilities Master Plan (the “Master Plan”) was completed and adopted by the Board of Directors in December 2009 and has been updated from time to time. 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 District’s Board of Directors that are included in the District’s 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. A key component of the Master Plan was the updating of flow projections and the collection system hydraulic modeling. A capital improvement program was developed to implement the required sewer capacity and rehabilitation improvements through the year 2030. The District also annually reviews and validates its current Capital Improvement Program (“CIP”). The District expects to meet future demands on the Wastewater System through the CIP. This program has been 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 District’s 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; • Reduce fence line odor to levels that do not generate odor complaints; and 52121526.4 25 • Achieve full secondary treatment standards. The 2012 CIP Validation Study resulted in revisions to the CIP. The CIP currently consists of 146 individual capital projects through Fiscal Year 2030-31 with remaining outlays of $1.8 billion. Over the next five years, the CIP contemplates average annual capital expenditures of $154 million. Implementation of full secondary treatment standards is scheduled to be completed on or before December 31, 2012. Set forth in Table 5 below is a summary of total estimated capital costs for the CIP for Fiscal Years 2012-13 through 2030-31. Table 5 Capital Improvement Program – Estimated Capital Costs Fiscal Years 2012-13 through 2030-31 Project Cost Collection System Capacity $ 167,629,000 Collection System Repair, Rehabilitation, Replacement 310,816,000 Treatment Plant Capacity 199,053,000 Additional Secondary Treatment 131,968,000 Improved Treatment 136,157,000 Treatment Plant Repair, Rehabilitation, Replacement 702,797,000 Support Facilities 121,390,000 Total Validated Capital Improvement Program $1,769,810,000 ___________________ Source: 2011-12 Budget Update, Orange County Sanitation District. The CIP included budgeted expenditures of $133.9 million in Fiscal Year 2012-13. The largest cash outlay planned for plant facilities in Fiscal Year 2012-13 is $17.1 million for the Digester Rehabilitation at Reclamation Plant No. 1 (total project cost is expected to be $57.2 million). Final completion of this project anticipated in the Fall of 2012. The CIP’s largest collection system project for Fiscal Year 2012-13 is $5.6 million for the rehabilitation of the Newport Trunk Sewer and Force Mains, which is currently in design. 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 1 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 with an expected water production of 72,000 acre-feet per year once all secondary treatment facilities are online. In 2010, GWRS produced approximately 68,000 acre-feet. The Phase II expansion started construction in November 2011 to add approximately 33,000 acre-feet per year. The District expects the Phase II expansion to be completed in the fall of 2014. 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. 52121526.4 26 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. The District’s total estimated budget for this project is $1.1 million. 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 reasoning behind the decision to move to full secondary standards included (1) the possibility (no matter how remote) that bacteria from the ocean outfall may at times reach the shoreline, (2) upgraded treatment will aid additional water reclamation with the OCWD, and (3) the clearly stated public preference for upgrading wastewater treatment at the time. Following the determination by the Board of Directors in July 2002 to implement full secondary standards, staff prepared the Secondary Treatment NPDES Permit Application that was required to be submitted to the regional office of EPA and the RWQCB in December 2002. An NPDES permit has been issued to the District and the District is currently operating under the Consent Decree. See “THE DISTRICT – Permits, Licenses and Other Regulations.” In an effort to eliminate most bacteria from being released from the ocean outfall, in 2002 the District began to use chlorine bleach to disinfect the effluent and then apply sodium bisulfate to remove remaining chlorine prior to releasing the treated wastewater to the ocean. The District continues to take measures to limit the chlorine residual to a very low level prior to release. This mode of disinfection is expected to continue until the District’s secondary treatment facilities become operational. Beginning in Fiscal Year 2006-07, the addition of disinfection treatment required an annual outlay ranging from $5.3 million to $7.2 million for additional chemicals from the operating budget of the District. The District estimates that the remaining secondary treatment capacity projects will be completed by December 31, 2012 at a total cost of approximately $12.1 million. In the interim, the District will operate the plants to maximize available secondary treatment and to reduce effluent biochemical oxygen demand and suspended solid discharges below those currently allowed limits. Biosolids Management The District produces digested and dewatered biosolids for beneficial use. By 2013, the District’s biosolids production is anticipated to peak at approximately 788 tons per day (tpd) when new secondary treatment processes are fully operational, and then is projected to decline to approximately 710 tpd by 2017 when the IRWD’s solids processing facilities and the District’s biosolids centrifuges commence operations. The Fiscal Year 2012-13 budget for biosolids disposal is $20.4 million, and for Fiscal Year 2013-14 it is $21.4 million. 52121526.4 27 The District’s biosolids management portfolio is summarized below: Contractor Location Product Contract (Minimum tons per day and term) Current tons per day managed (approximate) Synagro Kern County, CA Compost 250 tpd – 10 years with two five-year renewals, expires 12/27/26 250 TPD Synagro La Paz County, AZ Compost 0 tpd – 10 years with two five-year renewals, expires 12/27/26 125 TPD Tule Ranch Yuma County, AZ Land application 0 tpd – Four (4) years expires 12/31/2012 350 TPD The District’s contractors provide back-up biosolids management options in Arizona that include compost, land application recycling and landfill disposal. Together, these options have the capacity to manage more than ten times the District’s daily biosolids production to ensure sustainable, consistent, and reliable operations. The District’s Long-Range Biosolids Management Plan (“LRBMP”) was approved by the Board in December 2003. The goal of the LRBMP was to develop a sustainable, reliable, and economical program for long-range biosolids management providing environmentally sound practices that meet the stringent federal, state, and local regulatory requirements. As a result of the LRBMP recommendations, two contracts were awarded. Synagro’s existing biosolids management contract was amended in April 2004, committing 250 tons per day of biosolids to be composted at Synagro’s South Kern Compost Manufacturing Facility, which started operations in late 2006. In May 2006, the District entered into a contract with EnerTech Environmental, Inc. to convert 225 tons of biosolids per day to a renewable fuel at EnerTech’s proposed facility in Rialto, California (the “Rialto Slurry-Carb facility”). The EnerTech solution is a new, patented heat treatment process that reduces the energy needs to dry the biosolids in a conventional dryer, which creates the fuel pellets. The renewable fuel pellets, called eFuel, are sold to cement manufacturers that use the pellets as fuel to heat their kilns, with the residual ash from the fuel combustion becoming part of the cement product. EnerTech started commissioning in October 2008 and was scheduled to complete the commissioning of the Rialto Slurry-Carb facility by June 11, 2012. Because EnerTech did not meet contract performance requirements, OCSD’s Board of Directors voted on June 28, 2012 to place EnerTech in default of their agreement and immediately cease sending biosolids to EnerTech. The loads previously sent to EnerTech will be split among the current compost and land application contracts. Under the 2011 Strategic Plan update, District staff is working with Orange County Waste & Recycling to negotiate an agreement to allow for the use of local landfills for biosolids management during our peak production period. Finalizing this agreement is the final step towards managing up to 12% of the District’s annual biosolids production locally at a slightly lower cost than land application in Arizona. Urban Runoff Recognizing that the beaches of Orange County were being affected by pollution carried by urban runoff, the Board of Directors, adopted a number of resolutions agreeing to temporarily accept dry weather urban runoff into the sewer system and established an aggregate 10 million gallons per day (“MGD”) capacity limit for urban runoff flows. The current policy adopted March 28, 2001, Resolution No. 01-07, declares 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 4 MGD calculated on a monthly average, or until the District modifies this provision. In June 52121526.4 28 2002, Assembly Bill 1892 amended the District’s charter to formally allow the diversion and management of dry weather urban runoff flows. 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. From January 1, 2011 through December 31, 2011, the daily average urban runoff flow ranged between 0.588 and 3.31 MGD with a cumulative total of 685 million gallons for this period. The daily average volume remained less than half of the 4 MGD fee threshold for eight months out of this twelve month period. At the existing operations and maintenance cost of $1,311.79 per million gallons (2010-11 rate), the District’s cost for treating the urban runoff discharge was $899,082. At both the 2010 and 2011 strategic plan workshops, the Board of Directors adopted a strategic plan initiative to implement full-cost recovery for all urban runoff administrative and treatment costs starting in Fiscal Year 2013-2014. Based on meetings with the member cities and other stakeholders on urban runoff, the Board Steering Committee directed staff to bring back this issue to the Board of Directors as part of the 2012 strategic planning process. 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 titled 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. 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. 52121526.4 29 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 disaster preparedness plan in the Strategic Plan investigates 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 also 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 Strategic Plan and the IERP can be reviewed at the District’s office. Five-Year Strategic Planning In November 2007, the Board of Directors adopted a new comprehensive strategic plan to steer the District’s efforts and engage the organization to envision 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 Plan”). Since 2007, approximately 79% percent of the strategic goals have been completed. Following a similar process used in the prior year up the General Manager’s Office initiated the planning effort with the Executive Management Team, then solicited input and ideas from managers and supervisors. In October 2011, the staff-generated ideas were presented at a workshop with the Board of Directors where the Board Members discussed and deliberated changes and additions to the plan. Driven by the District’s Mission, Vision and Core Values, the 2012 Strategic Plan Update continues an aggressive effort by the District to meet the sanitation, health, and safety needs of the more than 2.5 million people served while protecting the environment where we all live. As a result of the discussion at the October 2011, three new goals were added to the Strategic Plan, as follows: • Development of an updated five-year rate schedule to go into effect July 1, 2013. • Development of a direct charging mechanism to recover the cost of urban runoff treatment. • Determining the cause of benthic community changes near the ocean outfall and taking corrective action to return affected areas to normal conditions. This Strategic Plan continues to chart a focused roadmap of success for the future of the District. It addresses critical operations and construction issues, financial and budgeting challenges, and gives a clear and concise direction to staff, ratepayers, regulatory agencies, and the general public. 52121526.4 30 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. In 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. 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%. 52121526.4 31 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 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. Set forth in Table 6 below is a five-year comparison of the Sewer Service Charge rate for single family residences. Table 6 Annual Sewer Service Charges Single Family Residence Rate Five Year Rate Schedule Fiscal Years 2008-09 through 2012-13 Fiscal Year Sewer Service Charge Percent Increase 2008-09 $201.00 10.4% 2009-10 221.00 10.0 2010-11 244.00 10.4 2011-12 267.00 9.4 2012-13 294.00 10.1 _________________________ 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 projected SFR rate of $294 in Fiscal Year 2012-13 remains below the average annual sewer rate of $406 according to a Fiscal Year 2007-08 survey of 726 agencies encompassing all 58 counties in California conducted by the State Water Resources Control Board. 52121526.4 32 Table 7 Comparison of Total Sewer Service Charges For Single family Residences As of July 1, 2011 (Sacramento as of October 1, 2011) Entity Average Dry Weather Flow (mg/d)(3) Annual Sewer Service Charge(1) Treatment Level(2)(3) Collection Responsibility(3) Property Tax Income(3) City of San Diego 168 $608 2 Yes No City of Los Angeles 428 360 4 Yes No East Bay MUD 80 288 4 No Yes Sacramento 140 264 3 No Yes Orange County Sanitation District 221 267 2 No Yes Los Angeles County 497 143 4 No Yes ____________________ (1) Source: Information obtained from respective entities listed. (2) 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. “5” – Tertiary treatment. (3) 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 2010-11 were approximately $10.1 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 discussed under the caption “THE DISTRICT – 2009 Facilities Master Plan and Capital Improvement Program,” the 2012 CIP Validation Study developed the capital improvement program to ensure secondary treatment standards are met as quickly as possible while providing for increased flows and rehabilitation and refurbishment of existing facilities. As projected through Fiscal Year 2030-31, the cash flow needs of the CIP total approximately $1.8 billion. Over the next five years the CIP contemplates average annual capital expenditures of $187 million. This amount includes $770 million, or an average annual capital outlay of $154 million, in accordance with the 2012 CIP Validation Study. In addition, the CIP contemplates $164 million, or an annual average of $33 million, to finance projects currently unknown or unidentified as forecasted by the District’s 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. 52121526.4 33 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 $60.6 million in Fiscal Year 2006-07, $65.2 million in Fiscal Year 2007-08, $66.4 million in Fiscal Year 2008-09, $64.8 million in Fiscal Year 2009-10 and $64.3 million in Fiscal Year 2010-11. In Fiscal Years 2003-04 and 2004-05 the State implemented a two-year 40% secured property tax shift away from independent special districts due to the fiscal crisis occurring at that time. During the 2004-05 State Budget process, the State Legislature and the Governor enacted Senate Bill 1096 and Assembly Bill 2115, effectively shifting an additional $1.3 billion in local property tax revenues from counties, cities, special districts and redevelopment agencies to schools and community colleges. See “LIMITATIONS ON TAXES AND REVENUES –Proposition 1A.” Total assessed valuations increased in the 2005-06 Fiscal Year by 10.3% over the 2004-05 Fiscal Year, and the full value of these increases was received on all non-secured property tax distributions. The District received its full allotment of property tax revenues (no State property tax shift) beginning in Fiscal Year 2006-07. See Table 14 below. The District currently projects its property tax receipts to remain approximately level through Fiscal Year 2013-14. 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. 52121526.4 34 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 Certificates”) and the District’s Revenue Obligations, Series 2010C (the “2010C Certificates”), issued as “Build America Bonds,” the District will 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 Certificates and the 2010C Certificates will constitute Revenues as defined in the Master Agreement. In its financial reports, the District accounts for subsidy payments received in connection with the 2010A Certificates and the 2010C Certificates as a reduction in interest expense with respect to such obligations. Wastewater Treatment History The wastewater flows for Fiscal Year 2006-07 through Fiscal Year 2010-11 were 229 mg/d, 221 mg/d, 211 mg/d, 196 mg/d and 207 mg/d, respectively. The highest flow rate experienced was during El Niño 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 2006-07 through 2010-11 and the projected number of customers served by the District for the Fiscal Years 2011-12 through 2015-16, 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 amount 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. Table 8 Historical and Projected Equivalent Dwelling Units Fiscal Years 2006-07 through 2015-16 Fiscal Year Historical EDUs(1) Fiscal Year Projected EDUs 2006-07 907,986 2011-12 926,990(2) 2007-08 911,033 2012-13 929,401(3) 2008-09 921,782 2013-14 931,910(3) 2009-10 930,164 2014-15 934,519(3) 2010-11 924,622 2015-16 937,229(3) ____________________ (1) With respect to such Fiscal Years, presentation in the Statistical Section of the District’s Comprehensive Annual Financial Report set forth in Appendix A includes EDUs that equate to total Sewer Service Charge collections rather than levies. (2) EDUs projected in current budget as of June 2011. (3) EDU growth during the projection period is estimated at approximately 2.6% to 2.9% per annum. Source: Orange County Sanitation District. 52121526.4 35 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 2006-07 through 2010-11 ($ in Millions) Residential/Commercial Industrial Fiscal Year Number of Equivalent Single- Family Dwellings Total Revenue Percentage of Sewer Service Charge Revenues Number of Customer Accounts Total Revenue Percentage of Sewer Service Charge Revenues 2006-07 867,035 $143.8 91% 531 $13.4 9% 2007-08 875,739 159.4 93 520 12.1 7 2008-09 882,747 177.4 95 515 9.9 5 2009-10 875,442 193.5 95 487 10.8 5 2010-11 874,130 213.3 95 479 10.1 5 ____________________ Source: Orange County Sanitation District. Set forth in Table 10 below are the ten largest principal sewer service customers of the District for the Fiscal Year ended June 30, 2011. Table 10 Largest Principal Sewer Service Customers of the District for the Fiscal Year Ended June 30, 2011 User Sewer Service Charges Kimberly-Clark Worldwide, Inc. $ 1,533,243 MCP Foods, Inc. 1,036,648 Alstyle Apparel-A&G Inc. 909,188 Stremicks Heritage Foods, LLC 756,778 House Foods America Corp. 588,739 Pepsi-Cola Bottling Group 440,707 Jazz Semiconductor 344,671 Dean Foods Co. of CA Inc. 316,641 Schreiber Foods Inc. 298,157 Pulmuone Wildwood, Inc. 293,669 Total $6,518,441 ____________________ Source: Orange County Sanitation District. 52121526.4 36 Assessed Valuation The assessed valuation of property in the County is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Due to changes in assessment required under State Constitution Article XIIIA, the County assessment roll no longer purports to be proportional to market value. See “LIMITATIONS ON TAXES AND REVENUES” herein. Generally, property can be reappraised to market value only upon a change in ownership or completion of new construction. The assessed value of property that has not incurred a change of ownership or new construction must be adjusted annually to reflect inflation at a rate not to exceed 2% per year based on the State consumer price index. In the event of declining property value caused by substantial damage, destruction, economic or other factors, the assessed value must be reduced temporarily to reflect market value. For the definition of full cash value and more information on property tax limitations and adjustments, see “LIMITATIONS ON TAXES AND REVENUES” herein. The County Assessor determines and enrolls a value for each parcel of taxable real property in the County every year. The value review may result in a reduction in value. Taxpayers in the County also may appeal the determination of the County Assessor with respect to the assessed value of their property. Set forth in Table 11 below is a five-year history of assessed valuations in the District since Fiscal Year 2007-08. Table 11 Assessed Valuations of Property in the District Fiscal Years 2007-08 through 2011-12 ($ in Billions) Fiscal Year Value % Change 2007-08 $292.7 8.14% 2008-09 307.6 5.08 2009-10 305.2 (0.98) 2010-11 304.3 (0.27) 2011-12 308.7 1.43 ____________________ Source: Orange County Auditor-Controller. Tax Levies and Delinquencies Property taxes are 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 total 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 52121526.4 37 years, the County has experienced delinquencies of Sewer Service Charges in the District of approximately 2%. 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. Table 12 Total Property Tax and Sewer Service Charge Levies in the District for Fiscal Years 2007-08 through 2011-12 (In Thousands) Fiscal Year Total Tax and Sewer Service Charge Levy 2007-08 $228,622 2008-09 254,092 2009-10 272,050 2010-11 292,646 2011-12 315,186 ____________________ Source: Orange County Auditor-Controller’s Office. 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 52121526.4 38 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 $458 million for each year of the current 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 percent. 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, 2009, June 30, 2010 and June 30, 2011 and the District’s projected reserves at June 30, 2012, for each fund. Table 13 Cash Reserves June 30, 2009 through 2011 Unaudited June 30, 2012 (In Millions) Actual Projected 2009 (June 30) 2010 (June 30) 2011 (June 30) 2012 (June 30) Cash Flow Requirements Reserve — Operating Expenses $ 73 $ 78 $ 75 $ 76 Certificates of Participation Payments 84 92 97 92 Operating Contingencies Reserve 15 15 15 15 Capital Improvement Program Reserve 116 86 118 167 Catastrophe and Self Insurance 58 57 57 57 Capital Replacement and Refurbishment 55 56 57 59 Debt Service Required Reserves(1) 133 129 142 138 Overlapping Reserve Adjustment - (40) - - Total $534 $473 $561 $604 ____________________ (1) “Debt Service Required 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 June 30, 2011, $142 million of Debt Service Required Reserves were held in Obligation Reserve Funds, of which $90.2 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. 52121526.4 39 · 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 year 2020. Levels higher and lower than the target can be expected while the long-term 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 $6.26 billion. The initial reserve level for this fund was established at $50 million and is augmented by interest earnings and a portion of the annual Sewer Service Charges. · Debt Service Required Reserves include trustee-held amounts in any Obligation Reserve Fund and additional amounts held by the District for the payment of debt service in accordance with the District’s reserve policy. The District’s current policy is to maintain reserves (including trustee-held reserves) for debt service in the amount of 10% of the principal amount of the District’s outstanding debt obligations. · The Rate Stabilization Reserve accumulates all available funds which exceed the targets for all other reserves. The Rate Stabilization Reserve is a separate fund from the Rate Stabilization Account established under the Trust Agreement. There is currently no established target for this reserve and, because the reserves of all other funds have not been exceeded, the reserve level for this reserve fund is zero for Fiscal Year 2011-12. Summary of Operating Data Set forth in Table 14 below is a summary of historic operating results for the District for Fiscal Years 2007-08 through Fiscal Year 2010-11 and the projected operating results for Fiscal Year 2011-12. The information presented in the summary should be read in conjunction with the financial statements and notes. See APPENDIX A — “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011.” 52121526.4 40 Table 14 Summary of Historical District Revenues and Expenses and Other Financial Information For Fiscal Years 2007-08 through 2010-11 and Projected for Fiscal Year 2011-12 ($ in Millions) Audited Projected 2007-08 2008-09 2009-10 2010-11 2011-12 Revenues: Residential & Commercial Sewer Service Charges(1) Regional $159.4 $177.4 $193.5 $213.3 $226.0 Local - 5.6 5.6 5.7 5.7 Industrial Sewer Service Charges 12.1 9.9 10.8 10.1 9.5 Revenue Area No. 14 Fees 7.1 10.3 10.2 11.7 12.9 Ad Valorem Taxes 65.2 66.4 64.8 64.3 64.0 Interest Earnings 20.2 14.8 19.2 10.1 11.5 Other Revenues 6.9 5.8 12.5 5.8 3.9 Total Revenues $270.9 $290.2 $316.6 $321.0 333.5 Operations and Maintenance Expenses (2) 131.9 164.6(3) 138.1 138.9 144.2 Net Revenues $139.0 $125.6 $178.5 $182.1 $189.3 Debt Service $ 42.8 $ 57.6 $ 77.3 $ 83.6 $ 76.4 Coverage Ratios 3.25x 2.18x 2.31x 2.18x 2.48x CIP Outlay $259.4 $290.1 $251.1 $160.7 $101.7 Ending Reserves $425.0 $401.0 $344.0 $419.0 $603.9 ____________________________________ (1) 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. (3) During the Fiscal Year ended June 30, 2009, independent agreed-upon procedures were conducted on Revenue Area 14 to substantiate the IRWD’s owner equity interest in the District. As a result, a one-time other operating expense of $29 million was charged to the Consolidated Revenue Area for the year ended June 30, 2009. Source: Orange County Sanitation District. 52121526.4 41 Projected Operating Data Set forth in Table 15 below are projected operating results for the District for Fiscal Years 2012 13 through 2016-17. These projections assume the number of projects and scheduled build out set forth in the 2011 CIP Validation Study, and reflect the Board-approved rate increase of 10.1% in Fiscal Year 2012-13, the last Fiscal Year of the District’s approved rate schedule. For planning purposes, the following four years thereafter reflect projected rate increases of 4.0% for each year. Principal expenditure components of these projections are derived from the 2012 CIP Validation Study, which identified 146 individual capital projects with a 20-year projected outlay of $1.8 billion. Much of the construction is scheduled during the next five years, with average annual capital outlays of $187 million. The District’s CIP cash flow outlay for Fiscal Year 2011-12 is projected to be $101.7 million. The District’s CIP cash flow budget for Fiscal Year 2012-13 is $137.3 million. This CIP budget finances joint works treatment and disposal system improvement projects, and collection system improvement projects. The preparation of such projections was based upon certain assumptions and certain forecasts with respect to conditions that may occur in the future. While the District believes that these assumptions and forecasts are reasonable for the purposes of the projected selected operating data, it makes no representation that they will in fact occur. To the extent that actual future conditions differ from those assumed herein, the data will vary. [Remainder of page intentionally left blank.] 52121526.4 42 Table 15 Summary of Projected District Revenues and Expenses and Other Financial Information for Fiscal Years 2012-13 through 2016-17 ($ in Millions)(2) 2012-13 2013-14 2014-15 2015-16 2016-17 Revenues Residential & Commercial Sewer Service Charges $ 266.6 $ 282.2 $ 294.4 $ 307.2 $ 320.5 Industrial Sewer Service Charges 10.5 10.9 11.4 11.8 12.3 IRWD Assessments 14.6 14.9 16.0 16.2 11.4 SAWPA Assessments 4.5 4.7 4.9 5.1 5.3 Ad Valorem Taxes 64.0 64.0 67.2 70.6 74.1 Interest Earnings 12.1 14.8 17.1 16.6 15.7 Other Revenues 1.1 1.0 1.6 1.6 1.6 Total Revenues 373.4 392.5 412.6 429.1 440.9 Add: Build America Bonds Federal Subsidy 5.1 5.1 5.1 5.1 5.1 Operations and Maintenance Expenses (151.6) (155.8) (164.7) (172.7) (177.3) Net Revenues (1) $ 226.9 $ 241.8 $ 253.0 $ 261.5 268.7 Debt Service $ 82.6 $ 97.6 $ 84.9 $ 85.3 $ 90.1 Build America Bonds Federal Subsidy 5.1 5.1 5.1 5.1 5.1 Gross Debt Service $ 87.7 $ 102.7 $ 90.0 $ 90.4 $ 95.2 Coverage Ratios (1) 2.59x 2.35x 2.81x 2.89x 2.82x CIP Outlays $ 137.3 $ 174.4 $ 189.6 $ 194.4 $ 238.6 Debt Proceeds $ - $ - $ - - - Ending Reserves $ 613.6 $ 586.2 $ 568.1 $ 554.2 $ 507.7 _________________ (1) Calculated in accordance with the Master Agreement and the Installment Purchase Agreement. (2) Assumptions: a) Annual growth in equivalent dwelling units is projected to increase 0.25% over the next five years. b) The Residential and Commercial Sewer Service Charge and the Industrial Sewer Service Charges are forecasts are based on the total projected equivalent dwelling units, and the actual board approved annual rate increase in Fiscal Year 2012-13 of 10.1%. The following four years thereafter reflect rate increases projected at 4.0% for each 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 to remain level through Fiscal Year 2013-14, with 5% annual increases thereafter. e) Interest earnings are projected to average 2.5% of annual cash balances. f) Operating and Maintenance Expenses are forecasted with a base increase of 5.0% 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. 52121526.4 43 Management’s Discussion and Analysis of Operating Data The District’s Fiscal Year 2012-13 total operating, capital improvement, debt service, and other financing requirement budget is $377.8 million, a 6.9 percent decrease over the prior year budget of $405.7 million. The decrease in the Fiscal Year 2012-13 budget is primarily due to the timing of the construction schedules on the implementation of CIP validated capital projects of $1.3 billion over the next ten years. The District’s Fiscal Year 2012-13 budget includes $137.3 million in capital improvement outlays as the District moves towards reaching secondary treatment standards by the target date of December 31, 2012, as specified by the Board of Directors’ July 2002 resolution and in keeping with the terms and conditions of its ocean discharge permit and related Consent Decree. The Fiscal Year 2012-13 operations budget for the collection, treatment, and disposal of wastewater is $151.6 million, a decrease of $0.9 million or less than one percent from the prior year budget of $152.5 million. Although individual expense categories will increase or decrease slightly, the overall decrease to the operating budget is primarily attributable to a decrease in personnel costs of $3.3 million, or 3.4 percent, due to the retirement of many long-term employees and the time it takes to refill these vacant positions (25 retirees in Fiscal Year 2011-12 and 35 retirees in Fiscal Year 2010-11). As of March 31, 2012, there were 56 full-time equivalent (“FTE”) vacant positions, or 8.8 percent of total staffing. In addition, staffing levels were decreased from the Fiscal Year 2011-12 approved full-time equivalent positions of 637 to 627.5 or a reduction of 9.5 FTE positions. Disinfection chemicals are proposed to decrease $2.4 million, or 67.1 percent, due to the decrease in the usage of bleach to chlorinate or disinfect the outfall effluent at Plant No. 2 and in sodium bisulfite, used to de-chlorinate this same effluent. These reductions are due to the completion of the new trickling filters at Plant No. 2. These new facilities reduce the amount of bacteria in the effluent requiring less disinfection. Utility costs are proposed to decrease by $1.4 million, $1.1 million in electricity and $0.3 million in natural gas. Electricity has been reduced due to summer peak shavings that has reduced usage as well as the lower than expected increase in electrical rates. The demand for natural gas has been reduced due to tighter air emission requirements requiring the District to use more electricity instead to supplement the digester gas used to operate the central generation facilities. The repairs and maintenance budget has been reduced by $1.2 million due to newer plant facilities requiring less immediate maintenance. Conversely affecting these operating decreases, overhead cost allocation to the operating budget has increased by $6.7 million, or 27.4 percent due to the decrease in budgeted capital outlay in Fiscal Year 2012-13. In addition, solids removal has increased $1.9 million, or 10.1 percent, due to the increase in the average unit cost for the removal of solids. In preparation of the Fiscal Year 2012-14 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-year 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 2012-13 CIP cash flow budget was approved at $137.3 million. The Fiscal Year 2010-12 biennium CIP includes three projects totaling $627 million over the life of the CIP to upgrade the District’s treatment plants to meet secondary treatment standards. This incorporation of the 2009 Facilities Master Plan (the “Master Plan”) into the CIP includes the addition of 65 new CIP projects totaling $615.7 million through the year 2050. The 2012 validated CIP includes 91 large capital projects and 55 special projects with total outlays of $1.8 billion through the year 2030. Over this period, the CIP is expected to accomplish: · Completion of the final Consent Decree Project of Secondary Treatment Expansion; · Construction of two large biosolids projects; · Completion of planning studies to develop capacity, condition, level of service; business opportunity based on CIP projects; and 52121526.4 44 · Optimization of the production of “power” and “biosolids” at each of the treatment plants. The completion of the CIP Validation Study in 2009 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-35, increasing the sanitary sewer service charges by approximately 10 percent each year for a five-year period beginning in Fiscal Year 2008-09. These rate increases were approved by a vote of two-thirds of the members of the Board of Directors and are 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 $267 in Fiscal Year 2011-12 to $294 in Fiscal Year 2012-13, the last year of the five-year approved rate increases. 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 May 31, 2012, the District’s externally managed fund consisted of a short-term investment portfolio of $____ million with an average maturity of __ days, and a long-term investment portfolio of $_____ million with average maturities of 3.8 years. Investments consist of United States government securities, corporate bonds and commercial paper. The District’s portfolio contains no structured investment vehicles (“SIVs”) 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 110% 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 2, 2012. 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. 52121526.4 45 Table 16 Outstanding Senior Obligations As of July 2, 2012 Original Principal Amount Issue Date Outstanding Balance Final Maturity 2000 Certificates $ 218,600,000 08/31/00 $ 91,900,000(1) 08/01/30 2007A Certificates 95,180,000 05/22/07 92,845,000 02/01/30 2007B Certificates 300,000,000 12/20/07 279,250,000 02/01/37 2008A Certificates 77,165,000 05/29/08 25,710,000 08/01/13 2008B Certificates 27,800,000 09/11/08 26,550,000 08/01/16 2009A Certificates 200,000,000 05/07/09 191,265,000 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 2011A Certificates 147,595,000 10/03/11 147,595,000 02/01/26 2011B Certificates 143,205,000 11/10/11 143,205,000(2) 11/09/12(2) 2012A Certificates 100,645,000 03/22/12 100,645,000 02/01/33 Total Senior Obligations $1,547,190,000 $1,335,965,000 ________________________ (1) Includes the Prior Certificates. See “REFUNDING PLAN” herein. (2) The District expects to refund the 2011B Certificates (referenced herein as the 2011 Notes) with Senior Obligations amortizing over a term of approximately 24 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. Variable Rate Obligations In August 2000, the District caused the execution and delivery of the Prior Certificates in the original aggregate principal amount of $218,600,000, of which $91,900,000 is currently outstanding. The payment of the purchase price of Prior Certificates that are tendered and not remarketed is supported by the Standby Agreement, which currently expires on August 24, 2012. Due to the expiration of the Standby Agreement, the Prior Certificates will be subject to mandatory tender for purchase by the Provider on the Mandatory Tender Date of August 17, 2012. The District intends to deposit with the Prior Trustee proceeds of the Revenue Obligations and certain other amounts and cause the Prior Trustee to purchase the Prior Certificates from the Provider on the Mandatory Tender Date. Upon the Prior Trustee’s purchase thereof, the Prior Certificates shall be immediately retired. See “REFUNDING PLAN” herein. 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 2011B 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, 2011 is set forth on page 54 of Appendix B. 52121526.4 46 THE CORPORATION The Corporation was organized on June 19, 2000 as a nonprofit public benefit corporation pursuant 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. 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 June 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 are 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 52121526.4 47 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. 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” are 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 borne 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. 52121526.4 48 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 limitations will impair its ability to make Installment Payments as required by the Installment Purchase Agreement. Proposition 1A Proposition 1A (“Proposition 1A”), 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 1A 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 1A 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 1A 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. For Fiscal Year 2009-10, approximately $5 million of the District’s property tax revenues were diverted to the State as a result of a Proposition 1A suspension. The District participated in a Proposition 1A 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. Proposition 1A 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 1A 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. Article XIIIC and Article XIIID of the California Constitution Proposition 218, a State ballot initiative known 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 52121526.4 49 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 Cal.4th 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 XIIID 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 must 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 XIIID 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 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 52121526.4 50 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 $115 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 $165.80 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. 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 effect the ability of the District to generate revenues in the amounts required by the Master Agreement, and to make Installment Payments as 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. 52121526.4 51 LEGAL MATTERS The validity of the Revenue Obligations and certain other legal matters are subject to the approving opinion of Fulbright & Jaworski L.L.P., 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 L.L.P., 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. 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, 2011” herein. The District has received the Government Finance Officer’s Association Certificate of Achievement for “Excellence in Financial Reporting” for 17 consecutive years. 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. 52121526.4 52 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 Component”), 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 and the Corporation have 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 opinions with respect to the Interest Components and Certificate Interest Distributions as described below, Special Counsel will rely upon representations and covenants of the District and the Corporation (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 and the Corporation will comply with all such covenants. Upon the execution and delivery of the Installment Purchase Agreement, Fulbright & Jaworski L.L.P., 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, are 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. 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 and the Corporation in connection with the issuance of the Revenue Obligations, the District and the Corporation will make representations 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 52121526.4 53 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. The excess, if any, of the Stated Redemption Price at Maturity of a Revenue Obligation of a maturity over the initial offering price to the public of the Revenue Obligations of that maturity set forth on the inside cover page of this Official Statement is “original issue discount.” Such original issue discount accruing in respect of a Revenue Obligation is treated for federal income tax and California personal income tax purposes as additional interest in respect of that Revenue Obligation and is excluded from the gross income of the owner thereof for federal income tax purposes and exempt from the California personal income tax. Original issue discount accruing in respect of any Revenue Obligation purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term to the stated maturity date in respect of the Revenue Obligation on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount in respect of such a Revenue Obligation accruing during each period is added to the adjusted basis of such Revenue Obligation to determine taxable gain upon disposition (including upon sale, prepayment or payment on maturity) of such Revenue Obligation. The Code includes certain provisions relating to the accrual of original issue discount in the case of a purchaser of a Revenue Obligation who purchases that Revenue Obligation other than at the initial offering price and pursuant to the initial offering of that Revenue Obligation. 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 52121526.4 54 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 accrued original issue discount in respect of such Revenue Obligation under federal individual and corporate alternative minimum taxes. 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), (ii) 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 and the Corporation 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. 52121526.4 55 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 2011-12 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. 52121526.4 56 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 net 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. 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. 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 52121526.4 A-1 APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2011 52121526.4 B-1 APPENDIX B THE COUNTY OF ORANGE – ECONOMIC AND DEMOGRAPHIC INFORMATION 52121526.4 C-1 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS 52121526.4 D-2 APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT 52121526.4 E-1 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 Clearing 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 turn 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 52121526.4 E-2 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 name 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 name 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. 52121526.4 E-3 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 name 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. 52121526.4 F-1 APPENDIX F FORM OF APPROVING OPINION OF SPECIAL COUNSEL Upon the execution and delivery of the Revenue Obligations, Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel to the District, will render its final approving opinion with respect to the Revenue Obligations in substantially the following form: [Date of Delivery] Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708-7018 $__________ Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2012B 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 2012B (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, 2012 (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, 2012 (the “Trust Agreement”), by and among the District, the Corporation and U.S. Bank National Association, as trustee (the “Trustee”). Proceeds from the sale of the Revenue Obligations will be used to (i) purchase and retire the District’s Refunding Certificates of Participation, Series 2000-A and Series 2000-B and (ii) pay the costs incurred in connection with the execution and delivery of the Revenue Obligations. 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 52121526.4 F-2 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 and the Corporation in connection with the execution and delivery of the Revenue Obligations, each of the District and the Corporation 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 income tax purposes. In reaching the opinions described 52121526.4 F-3 in the immediately preceding paragraph, we have assumed the accuracy of such representations and the present and future compliance by the District and the Corporation with such covenants. Except as stated in the preceding two paragraphs, 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, DRAFT OF 07/03/12 52126029.3 OFFICIAL NOTICE INVITING BIDS $68,600,000* ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2012B (Book-Entry-Only) NOTICE IS HEREBY GIVEN that bids will be received by the Orange County Sanitation District (the “District”) for the purchase of $68,600,000* original principal amount of Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012B 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: August 2, 2012 10:45 a.m., New York Time Electronic Bids: Electronic proposals may be submitted to Ipreo LLC, at www.newissuehome.i-deal.com and the Parity bid delivery 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 July [26], 2012, including the cover page and all appendices thereto (the “Preliminary Official Statement”), provides certain information concerning the sale and delivery of $68,600,000* 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, 2012 (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 must read the entire Preliminary Official Statement to obtain information essential to making an informed investment decision. * Preliminary, subject to change. 52126029.3 2 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) purchase and retire all of the District’s outstanding Refunding Certificates of Participation, Series 2000-A and Series 2000-B (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, 2012 (the “Trust Agreement”), by and among the District, the Corporation and U.S. Bank National Association, 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 July 25, 2012, 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 2000 Installment Purchase Agreement, the 2007A Installment Purchase Agreement, the 2007B Installment Purchase Agreement, the 2008A Installment Purchase Agreement, the 2008B Installment Purchase Agreement, the 2009A Installment Purchase Agreement, the 2010A Installment Purchase Agreement, the 2010C Installment Purchase Agreement, the 2011A Installment Purchase Agreement, the 2011B Installment Purchase Agreement and the 2012A Installment Purchase Agreement. The Revenue Obligations will retire the 2000 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 52126029.3 3 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 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 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, 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. 52126029.3 4 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 1 and August 1 of each year, commencing on February 1, 2013. 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 $68,600,000* and will be subject to principal amortization through serial maturities on February 1 in the years 2019 through 2029 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 1 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, 2023 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, 2023 are subject to optional prepayment prior * Preliminary, subject to change. 52126029.3 5 to their stated Principal Payment Dates, on any date on or after February 1, 2022, 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 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. 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 must 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 must be expressed in multiples of either one-eighth (1/8) or one- twentieth (1/20) 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 furnish 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. 52126029.3 6 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 111% or more than 123% 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. 52126029.3 7 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 Ipreo LLC, 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 surety bond (“Surety Bond”) in the amount of $686,000 (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: U.S. Bank National Association _________________________ _________________________ _________________________ 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. 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 52126029.3 8 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 July [26], 2012, 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 100 copies of the final Official Statement will be furnished 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 __, 2012. 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 borne 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 assignment of CUSIP numbers to the Revenue Obligations will be the responsibility of the successful bidder. 52126029.3 9 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 furnish 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, rulings 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. Change in Tax Exempt Status At any time before the Revenue Obligations are tendered for delivery, the successful bidder may disaffirm and withdraw its proposal if the interest on municipal securities of the same type and character as that evidenced by the Revenue Obligations (as determined by Special Counsel) shall be declared to be includable in gross income under federal income tax laws, either by a ruling of the Internal Revenue Service or by a final decision of any federal court, or shall be declared taxable by the terms of any federal income tax law enacted subsequent to the date of this Official Notice Inviting Bids. 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, (B) 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 52126029.3 10 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. 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 lchoi@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 1, 2012, by 4:00 p.m., New York Time and communicated through Thomson Municipal News (available at http://www.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 alternative 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 may 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: July [26], 2012 52126029.3 EXHIBIT A FORM OF CERTIFICATE OF INITIAL PURCHASER August __, 2012 Orange County Sanitation District Fountain Valley, California Fulbright & Jaworski L.L.P. 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 2012B (the “Revenue Obligations”). We hereby certify that: (i) August __, 2012 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 August ___, 2012 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 in _______ (the “Unsold Maturity”),] was sold by the Underwriter (or by other excluded persons) 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 52126029.3 2 (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, 2012, 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:________________________________ 52126029.3 3 Exhibit A Yield Proof (See attached) 52126029.3 OFFICIAL BID FORM $68,600,000* ORANGE COUNTY SANITATION DISTRICT WASTEWATER REFUNDING REVENUE OBLIGATIONS SERIES 2012B 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 $68,600,000* aggregate principal amount of the Orange County Sanitation District (the “District”) Wastewater Refunding Revenue Obligations, Series 2012B (the “Revenue Obligations”), more particularly described in the Official Notice Inviting Bids, dated July [26], 2012 (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 $686,000 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 are providing the District a wire transfer in immediately available federal funds in the amount of $686,000 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 * Preliminary, subject to change. 52126029.3 2 Obligations furnish a certificate, acceptable to Special Counsel, Fulbright & Jaworski L.L.P., as to the “issue price” of the Revenue Obligations in the form specified in the Official Notice Inviting Bids. Maturity (February 1) Principal Amount* Interest Rate Serial Maturity Sinking Account Prepayment (Check one column) 2019 $20,100,000 2020 21,100,000 2021 17,600,000 2022 1,700,000 2023 1,800,000 2024 1,900,000 2025 2,000,000 2026 2,000,000 2027 100,000 2028 100,000 2029 200,000 $68,600,000 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. DRAFT OF 06/28/12 52126028.3 NOTICE OF INTENTION TO SELL $68,600,000* Orange County Sanitation District Wastewater Refunding Revenue Obligations Series 2012B NOTICE IS HEREBY GIVEN that the Orange County Sanitation District (the “District”) intends to receive electronic bids until 10:45 a.m., New York time, on August 2, 2012, through the use of an electronic bidding service offered by Ipreo LLC; at www.newissuehome.i-deal.com and the Parity bid delivery service, for the purchase of all of the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2012B (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: lchoi@pragla.com. Orange County Sanitation District Dated: July 26, 2012 * Preliminary, subject to change. Page 1 of 3 ADMINISTRATION COMMITTEE Meeting Date 07/11/12 To Bd. of Dir. 07/25/12 AGENDA REPORT Item Number 3 Item Number 11 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: INVEST AND/OR REINVEST DISTRICT’S FUNDS GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No. OCSD 12-11, Authorizing the Orange County Sanitation District’s Treasurer to Invest and/or Reinvest District’s Funds; Adopting District’s Investment Policy Statement and Performance Benchmarks for FY 2012-13; and Repealing Resolution No. OCSD 11-12. SUMMARY This agenda item presents the annual review of the Orange County Sanitation District's Investment Policy Statement to the Administration Committee for consideration in the Committee's capacity as the oversight committee for the Investment Policy (Section 16.2). With adoption of the Resolution, the Board of Directors would readopt the Sanitation District's current Investment Policy Statement, portfolio performance benchmarks, and monitoring and reporting requirements for FY 2012-13. The Sanitation District's Investment Policy Statement is recommended for adoption for FY 2012-13 with no changes made to the State Government Code since the adoption of the FY 2011-12 Investment Policy. Staff will continue to monitor pending legislative and regulatory proposals in the public finance area for their potential impact on the Sanitation District’s existing financial programs. The Sanitation District’s Investment Policy Statement has received the Investment Policy Certification of Excellence Award from the Municipal Treasurer’s Association of the United States and Canada. The Sanitation District’s Money Manager, PIMCO, will provide a presentation at the Committee meeting that will cover the following: · The Eurozone Economic Update · Orange County Sanitation District’s Investment Performance Results · Investment Outlook Page 2 of 3 PRIOR COMMITTEE/BOARD ACTIONS July 2011 – Board adopted Resolution No. OCSD 11-12, Authorizing the Orange County Sanitation District’s Treasurer to Invest and/or Reinvest District’s Funds; Adopting District’s Investment Policy Statement and Performance Benchmarks for FY 2011-12; and, Repealing Resolution No. OCSD 10-14. ADDITIONAL INFORMATION Background The Investment Policy governs the investment activities of Pacific Investment Management Company (PIMCO), the Sanitation District's external money manager, on behalf of the District. On April 25, 2005, the Sanitation District's Investment Policy Statement received the Investment Policy Certification of Excellence Award from the Municipal Treasurer's Association of the United States and Canada. A copy of the letter of certification is included each year in the annual Investment Policy document. The Sanitation District received its first Award of Excellence for the Investment Policy Statement in December 1996. The Investment Policy document itself consists of the Investment Policy Statement and the following eight appendices: A. Summary of Investment Authorization B. Treasury Management Procedures C. Investment Manager Certification D. Investment Pool Questionnaire (LAIF) E. Board Resolution No. OCSD-11-12 F. Sample Monthly & Quarterly Investment Program Monitoring Reports G. Sections of the California Government Code Pertinent to Investing Public Funds H. Glossary of Investment Terms This document will be updated and delivered to Administration Committee members following the adoption of the Sanitation District’s investment policy statement. Annual Review of Investment Policy The Investment Policy includes the requirement that the Sanitation District shall review its Investment Policy annually (Sections 1.2 and 16.1). Annual Delegation of Investment Authority Effective January 1, 1997, Section 53607 of the Code states that governing boards of local agencies may only delegate authority to invest and/or reinvest agency funds to the agency's Treasurer for a one-year period. Page 3 of 3 With adoption of the Resolution, the Board of Directors would renew its delegation of investment authority to the Director of Finance/Treasurer for a one-year period in compliance with the requirements of Section 53607. Each year, the Board of Directors will consider similar actions along with the annual reconsideration of the Sanitation District's Investment Policy. CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS 1. Exhibit A - OCSD FY 2012-13 Investment Policy Statement 2. Exhibit B - Performance Monitoring & Reporting Summary 3. Resolution No. OCSD 12-11 JDR/LT/MW:jmf RESOLUTION NO. OCSD 12-11 AUTHORIZING THE ORANGE COUNTY SANITATION DISTRICT'S TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS, AND ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT, AUTHORIZING THE DISTRICT'S TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS, AND ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS; AND REPEALING RESOLUTION NO. OCSD 11-12 * * * * * * * * * * * * * * * WHEREAS, on July 27, 2011, the Board of Directors adopted Resolution No. 11-12, readopting the District's Investment Policy Statement, and establishing specific performance benchmarks and objectives, together with a schedule of frequency of investment performance reports; and, WHEREAS, pursuant to California Government Code Section 53607, the Board of Directors may delegate authority to invest and/or reinvest District's funds to the Treasurer for a one-year period; and, WHEREAS, pursuant to California Government Code Section 53646, the District is required to review its Investment Policy annually and readopt its Policy at a public meeting, which Policy will establish specific performance benchmarks and objectives, and specific monitoring and reports. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District, DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1: That the authority of the Board of Directors to invest or reinvest District's surplus funds, or to sell or exchange securities so purchased, or to deposit for safekeeping the funds and investments of the Districts with depositories, as provided for in California Government Code Sections 53608 and 53630, is hereby delegated to the District's Treasurer for a one-year period commencing on the date this Resolution is adopted, as authorized by California Government Code Section 53607. Section 2: That the Board of Directors hereby adopts the Investment Policy Statement of the Orange County Sanitation District, as set forth in Exhibit “A”, attached hereto and incorporated herein by reference. Section 3: That the Board of Directors hereby adopts the following specific performance benchmarks for their two investment funds in accordance with Section 14.0 of the District's Investment Policy: LIQUID OPERATING MONIES: The Short-Term Operating Fund will be compared to the three month T-Bill rate, and the Callan Active Cash Flow Income Style Group. The Callan Active Cash Flow Income Style Group represents a peer group of managers who operate with a maximum maturity of one year. LONG-TERM OPERATING MONIES: The Long-Term Operating Fund will be compared to the Merrill Lynch Government and Corporate One-to-Five Year Maturity Index and to the Callan Defensive Fixed Income Style Group. Section 4: That the Board of Directors hereby adopts a performance monitoring and reporting schedule, as required by Section 15.0 of the District's Investment Policy, which schedule is attached hereto as Exhibit “B”, and incorporated herein by reference. Section 5: That Resolution No. OCSD 11-12 is hereby repealed. PASSED AND ADOPTED at regular meeting held July 25, 2012. Chair ATTEST: Clerk of the Board ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT Proposed for Review and Approval By Administration Committee On July 11, 2012 And for Adoption By Board of Directors On July 25, 2012 TABLE OF CONTENTS Section Topic Page 1.0 Policy ......................................................................................1 2.0 Scope ......................................................................................1 3.0 Standard of Prudence .............................................................1 4.0 Investment Objectives .............................................................2 5.0 Delegation of Authority ............................................................2 6.0 Ethics and Conflicts of Interest ................................................3 7.0 Authorized Financial Dealers and Institutions .........................4 8.0 Authorized and Suitable Investments ......................................5 9.0 Collateralization.......................................................................9 10.0 Safekeeping and Custody .......................................................9 11.0 Diversification ..........................................................................9 12.0 Maximum Maturities .............................................................. 11 13.0 Internal Control...................................................................... 12 14.0 Performance Objectives and Benchmarks ............................ 12 15.0 Reporting .............................................................................. 12 16.0 Investment Policy Adoption and Revision ............................. 13 Appendix A. Summary of Investment Authorization B. Treasury Management Procedures C. Investment Manager Certification D. Investment Pool Questionnaire (LAIF) E. Board Resolution No. OCSD-12-XX, Authorizing the District's Treasurer to Invest and/or Reinvest District Funds, and Adopting Investment Policy and Performance Benchmarks F. Quarterly Investment Program Monitoring Reports G. Sections of the California Government Code Pertinent to Investing Public Funds H. Glossary of Investment Terms Page 1 of 13 ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT 1.0 Policy: It is the policy of the Orange County Sanitation District (OCSD) to invest public funds in a manner which ensures the safety and preservation of capital while meeting reasonably anticipated operating expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds. 1.1. This Investment Policy is set forth by OCSD for the following purposes: 1.1.1. To establish a clear understanding for the Board of Directors, OCSD management, responsible employees and third parties of the objectives, policies and guidelines for the investment of the OCSD’s idle and surplus funds. 1.1.2. To offer guidance to investment staff and any external investment advisors on the investment of OCSD funds (see Appendix "A"). 1.1.3. To establish a basis for evaluating investment results. 1.2. OCSD establishes investment policies which meet its current investment goals. OCSD shall review this policy annually, and may change its policies as its investment objectives change. 2.0 Scope: This Investment Policy applies to all financial assets of OCSD; except for the proceeds of OCSD's capital projects financing program, which are invested in accordance with provisions of their specific bond indentures; and such other funds excluded by law or other Board-approved covenant or agreement. These funds are accounted for by OCSD as Enterprise Funds as represented in OCSD's Comprehensive Annual Financial Report. 3.0 Standard of Prudence: The standard of prudence to be used by OCSD internal staff, and any authorized investment advisor(s), shall be as described in Section 53600.3 of the California Government Code as follows: Except as provided in subdivision (a) of Section 27000.3, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds Page 2 of 13 pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. 4.0 Investment Objectives: The primary objectives of OCSDs investment activities, in priority order, and as described in Section 53600.5 of the California Government Code, shall be: 4.1 Safety: The safety and preservation of principal is the foremost objective of the investment program of OCSD. Investments shall be selected in a manner that seeks to ensure the preservation of capital in OCSD's overall portfolio. This will be accomplished through a program of diversification, more fully described in Section 11.0, and maturity limitations, more fully described in Section 12.0, in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. 4.2 Liquidity: The investment program will be administered in a manner that will ensure that sufficient funds are available for OCSD to meet its reasonably anticipated operating expenditure needs. 4.3 Return on Investments: The OCSD investment portfolio will be structured and managed with the objective of achieving a rate of return throughout budgetary and economic cycles, commensurate with legal, safety, and liquidity considerations. 5.0 Delegation of Authority: 5.1 Authority to manage OCSD’s investment program is derived from the California Government Code Sections 53600 et seq. and Sections 53635 et seq. The Board of Directors hereby delegates management responsibility for the OCSD investment program to its Director of Finance and Administrative Services/Treasurer, who shall establish written procedures for the operation of the investment program, consistent with this Policy. The Controller/Assistant Treasurer shall be responsible for day-to-day administration, monitoring, and the development of written administrative procedures for the operation of the investment program, consistent with this Policy. The current treasury management procedures are presented in Appendix "B." No person may engage in an investment Page 3 of 13 transaction except as provided under the terms of this Policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken by OCSD internal staff, and shall establish a system of controls to regulate the activities of internal staff and external investment advisors engaged in accordance with Section 5.3. 5.2 The administrative procedures for the operation of OCSD's investment program will provide for, but not be limited to, the following: 5.2.1 Formats for monthly and quarterly reports to the Administration Committee, and the Board of Directors. 5.2.2 Compliance with generally accepted accounting principles of the Government Accounting Standards Board. 5.2.3 Establishment of benchmarks for performance measurement. 5.2.4 Establishment of a system of written internal controls. 5.2.5 Establishment of written procedures for competitive bids and offerings of securities that may be purchased or sold by internal OCSD staff. 5.2.6 Establishment of a Desk Procedures Manual for treasury operations and management. 5.3 The Board of Directors of OCSD may, in its discretion, engage the services of one or more registered investment advisors to assist in the management of OCSD’s investment portfolio in a manner consistent with OCSD’s objectives. Such external investment advisors, which shall be selected through a competitive process, shall be granted discretion to purchase and sell investment securities in accordance with this Investment Policy. Such advisors must be registered under the Investment Advisers Act of 1940, or be exempt from such registration. 6.0 Ethics and Conflicts of Interest: 6.1 Officers and employees of OCSD involved in the investment process shall refrain from personal business activities that could conflict with proper execution of OCSD's investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the General Manager any material financial interests in financial institutions that conduct business within OCSD's boundaries, and they shall further disclose any large personal financial/investment positions, the performance of which could be related to the performance of positions in OCSD’s portfolio. Page 4 of 13 7.0 Authorized Financial Dealers and Institutions: 7.1 For investment transactions conducted by OCSD internal staff, the Treasurer will maintain a list of financial institutions authorized to provide investment services to OCSD, including "primary" or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (Uniform Net Capital rule), and Federal or State of California chartered banks. No public deposit shall be made except in a qualified public depository as established by State law. All financial institutions which desire to become qualified bidders for investment transactions with OCSD must supply the following for evaluation by the Treasurer: 7.1.1. Audited financial statements for the institution’s three (3) most recent fiscal years. 7.1.2. A statement, in the format prescribed by the Government Finance Officers Association (GFOA), certifying that the institution has reviewed OCSD’s Investment Policy and that all securities offered to the Districts shall comply fully and in every instance with all provisions of the California Government Code and with this Investment Policy. The current statement is presented in Appendix "C." 7.1.3. A statement describing the regulatory status of the dealer, and the background and expertise of the dealer's representatives. Selection of financial institutions, broker/dealers, and banks authorized to engage in transactions with OCSD shall be made through a competitive process. An annual review of the financial condition of qualified institutions will be conducted by the Treasurer. 7.2 Selection of broker/dealers used by external investment advisors retained by OCSD, shall be in compliance with contract provisions between OCSD and any external investment advisors, and shall be in substantially the following form: Use of Securities Brokers: Neither the Investment Advisor nor any parent, subsidiary or related firm shall act as a securities broker with respect to any purchases or sales of securities which may be made on behalf of OCSD, provided that this limitation shall not prevent the Investment Advisor from utilizing the services of a securities broker which is a parent, subsidiary or related firm, provided such broker effects transactions on a "cost only" or "nonprofit" basis to itself and provides competitive execution. The Investment Advisor shall provide the Districts with a list of suitable independent brokerage firms (including names and addresses) meeting the requirements of Government Code Section 53601.5, and, unless otherwise directed by OCSD, the Investment Advisor may utilize the Page 5 of 13 service of any of such independent securities brokerage firms it deems appropriate to the extent that such firms are competitive with respect to price of services and execution. 8.0 Authorized and Suitable Investments: All investments shall be made in accordance with the California Government Code including Sections 16429.1 et seq., 53600 et seq., and 53684, and as described within this Investment Policy. Permitted investments under this Policy shall include: 8.1 Securities, obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by the US Government, a federal agency, or a US Government-sponsored enterprise pursuant to Section 53601 (e) of the California Government Code. Investment in mortgage-backed bonds and CMOs is not governed by this Section 8.1, even if such bonds are issued by agencies of the US Government. See Section 8.2 for conditions of purchase of mortgage- backed securities. See Section 8.12 for conditions of purchase of CMOs. 8.2 Mortgage-backed securities issued by an agency of the US Government, which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Purchase of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and RE-REMICs (Real Estate Mortgage Investment Conduits), is hereby prohibited. 8.3 Commercial paper of "prime" quality and rated "P1" by Moody’s Investor Services (Moody’s), and rated "A1" by Standard & Poor’s Corporation (S&P), and issued by a domestic corporation organized and operating in the United States with assets in excess of $500 million and having a rating of "A" or better on its long-term debt as provided by Moody's or S&P. Purchases of eligible commercial paper may not exceed 270 days to maturity from the date of purchase. Purchases of commercial paper shall not exceed 15% of the market value of the portfolio, except that a maximum of 25% of the market value of the portfolio may be invested in commercial paper, so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. No more than 5% of the market value of the portfolio, or 10% of the issuer's outstanding paper, may be invested in commercial paper issued by any one (1) eligible corporation. 8.4 Banker’s acceptances issued by institutions, the short-term obligations of which are rated a minimum of "P1" by Moody’s, or "A1" by S&P provided that: (a) the acceptance is eligible for purchase by the Federal Reserve System; (b) the maturity does not exceed 180 days; (c) no more than 40% of the total portfolio may be invested in banker’s acceptances; and (d) no more than 30% of the total portfolio may be invested in the banker's acceptances of any one (1) commercial bank. Page 6 of 13 8.5 Medium term (or corporate) notes of a maximum of five (5) years maturity issued by corporations organized and operating within the United States, or issued by depository institutions licensed by the United States, or any state, and operating within the United States with assets in excess of $500 million, and which is rated in a rating category of “A” or better on its long-term debt as provided by Moody’s or S&P. Notes eligible for investment under this section shall be rated at least “A3” or better by Moody's, or “A-“or better by S&P. If, at the time of purchase, an eligible note is rated in a rating category of “A” or better by only one rating agency, the note shall also be rated at least “BBB” by the other rating agency. If, after purchase, the rating of an eligible note in a rating category of "A" or better, is downgraded to "BBB," the external investment advisor shall notify the District of the downgrade, and shall present an analysis and recommendations as to the disposition of the note consistent with the investment objectives of this Investment Policy. The above restrictions pertain to the “direct issuer” and do not extend to the parent corporation of the direct issuer. No more than 35% of the portfolio may be invested in both medium term notes, as described here in 8.5, and notes, bonds, or other obligations, as described in 8.6. 8.6 Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by California Government Code Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by California Government Code Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. No more than 35% of the portfolio may be invested in securities described in 8.5 and 8.6. 8.7 Shares of mutual funds investing in securities permitted under this policy and under Section 53601 (k) of the California Government Code. Such funds must either: (1) attain the highest ranking, or the highest letter and numerical rating, provided by not less than two of the three largest nationally recognized rating services; or (2) have an Investment Advisor registered with the Securities and Exchange Commission with not less than five (5) years of experience investing in the securities and obligations authorized under this Policy and under California Government Code Section 53601, and with assets under management in excess of $500 million. The purchase price of shares of beneficial interest purchased pursuant to this policy, and the California Government Code may not include any commission that the companies may charge, and shall not exceed 15% of the District’s surplus money that may be invested pursuant Page 7 of 13 to this section. However, no more than 10% of the District’s surplus funds may be invested in shares of beneficial interest of any one (1) mutual fund pursuant to this section. 8.8 Certificates of deposit: 8.8.1 Secured (collateralized) time deposits issued by a nationally or state-chartered bank or state or federal savings and loan association, as defined by Section 5102 of the California Financial Code, and having a net operating profit in the two (2) most recently completed fiscal years. Collateral must comply with Chapter 4, Bank Deposit Law, Section 16500 et seq., and Chapter 4.5, Savings and Loan Association and Credit Union Deposit Law, Section 16600 et seq., of the California Government Code. 8.8.2 Negotiable certificates of deposit (NCDs) issued by a nationally or state-chartered bank or state of federal savings and loan association, as defined by Section 5102 of the California Financial Code; and which shall have a rating of "A" or better on its long-term debt as provided by Moody's or S&P; or which shall have the following minimum short-term ratings by at least two (2) rating services: "P1" for deposits by Moody's, "A1" for deposits by S&P, or comparably rated by a nationally recognized rating agency which rates such securities; or as otherwise approved by the District's Board of Directors. 8.8.3 To be eligible to receive local agency money, a bank, savings association, federal association, or federally insured individual loan company shall have received an overall rating of not less than “satisfactory” in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California’s communities, including low and moderate income neighborhoods, pursuant to Section 2906 of Title 12 of the United States Code. 8.9 Taxable or tax-exempt municipal bonds issued by any of the 50 United States. Such securities must be rated "A3" or higher by Moody's, or "A-" or higher by S&P; or as otherwise approved by the Districts’ Board of Directors. 8.10 The State of California Local Agency Investment Fund (LAIF). The LAIF is an investment alternative for California's local governments and special districts managed by the State Treasurer's Office. LAIF is more fully described in the Glossary (See Appendix "H.") The District shall use LAIF as a short-term cash management facility. Investment of District funds in LAIF shall be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review pursuant to Section 3.0, Standard of Prudence, of this Policy. See Appendix "D" for investment pool questionnaire. Page 8 of 13 8.11 The Orange County Treasurer's Money Market Commingled Investment Pool (OCCIP). The OCCIP is a money market investment pool managed by the Orange County Treasurer's Office. OCCIP is more fully described in the Glossary. (See Appendix "H.") The District has no funds invested in OCCIP at this time. Investment of District funds in OCCIP would be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review pursuant to Section 3.0, Standard of Prudence, of this Policy. 8.12 Collateralized mortgage obligations (CMOs) issued by agencies of the US Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset-backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and RE- REMICS (Real Estate Mortgage Investment Conduits), is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of "A" or higher. Combined purchases of mortgage-backed securities, CMOs and asset-backed securities as authorized under within Section 8.0, may not exceed 20% of the total Long-Term Operating Monies portfolio. 8.13 Repurchase agreements provided that: 8.13.1 All repurchase agreements shall be collateralized with securities eligible for purchase under this Policy. In order to anticipate market changes and to provide a level of security for all repurchase agreement transactions, collateralization shall be maintained at a level of at least 102% of the market value of the repurchase agreements, and shall be adjusted no less than weekly. 8.13.2 All repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the repurchase agreement. The Master Repurchase Agreement shall be substantially in the form developed by The Bond Market Association. 8.14 Reverse repurchase agreements provided that: 8.14.1 No more than five percent (5%) of OCSD’s portfolio shall be invested in reverse repurchase agreements, and there shall be no long- term reverse repurchase agreements unless otherwise authorized by the Districts’ Board of Directors. 8.14.2 The maximum maturity of reverse repurchase agreements shall be ninety (90) days. 8.14.3 Reverse repurchase agreements shall mature on the exact date of a known cash flow which will be unconditionally available to repay the maturing reverse repurchase agreement. Page 9 of 13 8.14.4 Proceeds of reverse repurchase agreements shall be used solely to supplement portfolio income or to provide portfolio liquidity, and shall not be used to speculate on market movements. 8.14.5 All reverse repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the reverse repurchase agreement. The Master Repurchase Agreement shall be substantially in the form developed by The Bond Market Association. 8.15 Sales of OCSD-owned securities in the secondary market may incur losses in order to improve the risk or return characteristics of the portfolio, to prevent anticipated further erosion of principal, or when trading for securities that result in an expected net economic gain to OCSD. 8.16 If securities owned by the OCSD are downgraded by either Moody’s or S&P to a level below the quality required by this Investment Policy, it shall be OCSD’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. If a decision is made to retain the downgraded securities in the portfolio, their presence in the portfolio will be monitored and reported monthly to the OCSD General Manager, the Administration Committee and Board of Directors. 9.0 Collateralization: Generally, the value to secure deposits under this Policy shall comply with Section 53652 of the California Government Code. Collateralization will be required for secured time deposits, as more fully described in Section 8.8.1; and repurchase agreements, as more fully described in Section 8.13.1. Collateral will always be held by an independent third-party, as more fully described in Section 10.1. The right of collateral substitution is granted. 10.0 Safekeeping and Custody: 10.1 All securities transactions, including collateral for repurchase agreements, entered into by, or on behalf of OCSD, shall be conducted on a delivery-versus-payment (DVP) basis. Securities will be held by OCSD's third-party custodian bank, which shall be selected through a competitive process, or that agent's representative, or in the agent's account at the Federal Reserve Bank, or within clearing corporations in the U.S., and evidenced by book entry statements. 11.0 Diversification: OCSD will diversify its investments by security type, issuer, and financial institution in accordance with the following: Page 10 of 13 11.1 There is no limit on investment in securities issued by or guaranteed by the full faith and credit of the U.S. government. 11.2 No more than 20% of the portfolio may be invested in securities of a single agency of the U.S. government, which does not provide the full faith and credit of the U.S. government. 11.3 No more than 5% of the portfolio may be invested in securities of any one issuer, other than the U.S. government or its agencies. Investment in mutual funds is not governed by this Section 11.3. See Section 11.8 for conditions of purchase of mutual funds. 11.4 No individual holding shall constitute more than 5% of the total debt outstanding of any issuer. 11.5 No more than 40% of the portfolio may be invested in banker’s acceptances. 11.6 No more than 15% of the portfolio may be invested in commercial paper, except that 25% of the portfolio may be so invested so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. 11.7 No more than 30% of the portfolio may be invested in medium-term (corporate) notes. 11.8 No more than 15% of the portfolio may be invested in mutual funds. However, no more than 10% of the District’s portfolio may be invested in shares of beneficial interest of any one (1) mutual fund. 11.9 No more than 30% of the portfolio may be invested in negotiable certificates of deposit. 11.10 No more than 10% of the portfolio may be invested in eligible municipal bonds. 11.11 No more than 20% of the Long Term Operating Monies portfolio may be invested in a combination of mortgage-backed securities, CMOs and asset-backed securities. Mortgage-backed securities, CMOs and asset-backed securities may only be purchased by the Districts’ external money managers, Pacific Investment Management Company (PIMCO), with prior Board approval (authorized by Board Minute Order, January 22, 1997), and may not be purchased by the District's staff. 11.12 No more than the lesser of 15% of the portfolio or the statutory maximum may be invested in LAIF. 11.13 No more than 15% of the portfolio may be invested in the Orange County Investment Pool. Page 11 of 13 11.14 No more than 20% of the portfolio may be invested in repurchase agreements. 11.15 No more than 5% of the portfolio may be invested in reverse repurchase agreements. 12.0 Maximum Maturities: To the extent possible, OCSD will attempt to match its investments with reasonably anticipated cash flow requirements. The Treasurer shall develop a five-year cash flow forecast, which shall be updated quarterly. Based on this forecast, the Treasurer shall designate, from time-to-time, the amounts to be allocated to the investment portfolio. OCSD monies invested in accordance with this Policy are divided into two (2) categories: 12.1 Liquid Operating Monies. Funds needed for current operating and capital expenditures are known as Liquid Operating Monies. 12.1.1 The maximum final stated maturity of individual securities in the Liquid Operating Monies account portfolio shall be one (1) year from the date of purchase. 12.1.2 The average duration of the Liquid Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts’ cash flow requirements, but may never exceed 180 days. 12.2 Long Term Operating Monies. Funds needed for longer term purposes are known as the Long Term Operating Monies. 12.2.1 Except for the purchase of securities by the District’s external money manager, PIMCO, the maximum final stated maturity of individual securities in the Long Term Operating Monies account portfolio shall be five (5) years from the date of purchase. PIMCO may purchase any security that is permitted under Section 8.0 of this policy, including those which may have a stated maturity of more than five (5) years from the date of purchase when, in the opinion of PIMCO, such an investment meets the investment objectives of this portfolio and the duration requirements are met below. 12.2.2 The duration of the Long Term Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts’ five-year cash flow forecast, but may never exceed 60 months. 12.2.3 The duration of the Long Term Operating Monies account portfolio shall never exceed 120% of the duration as established in accordance with Section 12.2.2. 12.2.4 The duration of the Long Term Operating Monies account portfolio shall never be less than 80% of the duration as established in accordance with Section 12.2.2 Page 12 of 13 13.0 Internal Control: 13.1 The Treasurer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. The current treasury management procedures are presented in Appendix "B." 14.0 Performance Objectives and Benchmarks: 14.1 Overall objective. The investment portfolio of OCSD shall be designed with the overall objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and reasonably anticipated cash flow needs. 14.2 The Liquid Operating Monies. The investment performance objective for the Liquid Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index approved by the Administration Committee, and by the District's Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-00-16 (see Appendix "E"). 14.3 The Long Term Operating Monies. The investment performance objective for the Long Term Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index selected by the Administration Committee and approved by the Districts’ Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-00-16 (See Appendix "E"). 15.0 Reporting: 15.1 Quarterly investment reports shall be submitted by the Treasurer to the Administration Committee which shall forward the reports to the District's Board of Directors. The quarterly reports shall be submitted to the Administration Committee within 30 days of the end of the month in accordance with California Government Code Sections 53607, 53646, and this Investment Policy. The quarterly reports shall provide clear and concise status information on the District's portfolios at the end of each reporting period, including performance measures using the benchmarks described in Section 14.0 of this Investment Policy. Sample quarterly reports are presented in Appendix "F." These reports shall contain listings of individual securities held at the end of each reporting period, and shall disclose, at a minimum, the following information about the risk characteristics of OCSD’s portfolio: 15.1.1 Cost and accurate and complete market value of the portfolio. 15.1.2 Modified duration of the portfolio compared to Benchmark. Page 13 of 13 15.1.3 Dollar change in value of the portfolio for a one-percent (1%) change in interest rates. 15.1.4 Percent of portfolio invested in reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. 15.1.5 For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. 15.1.6 Average portfolio credit quality. 15.1.7 Percent of portfolio with credit ratings below "A" by any rating agency, and a description of such securities. 15.1.8 State that all investments are in compliance with this policy and the California Government Code, or provide a listing of any transactions or holdings which do not comply with this policy or with the California Government Code. 15.1.9 Time-weighted total rate of return for the portfolio for the prior three months, twelve months, year to date, and since inception compared to the Benchmark returns for the same periods. 15.1.10 State that sufficient funds are available for OCSD to meet its operating expenditure requirements for the next six months, or if not, state the reasons for the shortfall. 15.2 OCSD’s Treasurer shall meet quarterly with the Administration Committee to review investment performance, proposed strategies and compliance with this Investment Policy. External investment advisors may be required to attend said meetings at the discretion of the Chairman of the Administration Committee. 16.0 Investment Policy Adoption and Revision: 16.1 The Investment Policy of OCSD shall be reviewed by the Administration Committee and shall be adopted by resolution of the Board of Directors of OCSD. The Policy shall be reviewed on an annual basis in accordance with California Government Code Section 53646, and this Investment Policy, by the Administration Committee, which shall recommend revisions, as appropriate, to the Board of Directors. Any modifications made thereto shall be approved by the Board of Directors. 16.2 The Administration Committee shall serve as the oversight committee for the District's Investment program and shall adopt guidelines for the ongoing review of duration, quality and liquidity of the District's portfolio. APPENDIX "A" SUMMARY OF INVESTMENT AUTHORIZATION INTERNAL AND EXTERNAL MANAGERS SHORT TERM OPERATING FUND INVESTMENT INTERNAL EXTERNAL U.S. Treasuries OK OK Federal Agencies Fixed coupon, fixed mat. OK Mortgage-backed NO NO Commercial paper OK OK Banker’s Accept. OK OK Medium Term Notes Fixed coupon, fixed mat.* OK Mutual Funds Money Market Only** Money Market Only Negotiable CDs Fixed coupon, fixed mat.* OK Municipal Bonds OK* NO LAIF OK NO OCIP OK NO CMOs NO NO Asset-backed NO NO Repurchase Agree. OK OK Reverse Repos OK* OK LONG TERM OPERATING PORTFOLIO INVESTMENT INTERNAL EXTERNAL U.S. Treasuries OK OK Federal Agencies Fixed coupon, fixed mat. OK Mortgage-backed NO OK Mutual Funds Money Market Only** OK Negotiable CDs Fixed coupon, fixed mat.* OK Municipal Bonds OK* OK LAIF OK NO OCIP OK NO CMOs NO With Board Approval Asset-backed NO With Board Approval Repurchase Agree. OK OK Reverse Repos OK* OK *With prior approval of the Administration Committee. **Using financial institutions approved by the Administration Committee. H:\dept\asd\210\crane\AdminComm\ADMIN2009\JULY\InvestmentPolicy_BOD72512.docx Exhibit “B” FY 2012-13 Performance Monitoring & Reporting Schedule For the Administration Committee and Board of Directors meetings of: The Quarterly Investment Management Program Report to be presented for the period of: July 2012 August (Board only) September April – June 2012 October November July – Sept 2012 December January ’13 (Board only) February Oct – Dec 2012 March April May Jan – March 2013 June Page 1 of 2 ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION The members of the Orange County Sanitation District Board of Directors are each being compensated $212.50 for the Board Meeting; there is no additional compensation for the Financing Corporation Meeting. CALL TO ORDER: A regular meeting of the Board of Directors of the Orange County Sanitation District Financing Corporation was held on February 22, 2012 at 7:30 p.m., in the Administration Building. The roll was called and the Clerk of the Board reported a quorum present as follows: ROLL CALL: ACTIVE DIRECTORS ALTERNATE DIRECTORS X Larry Crandall, Chair Steve Nagel X Troy Edgar, Vice Chair Ken Stephens X John Anderson Jim Winder X Tom Beamish Rose Espinoza X Joe Carchio Devin Dwyer X Bill Dalton Kris Beard A Jon Dumitru Denis Bilodeau X Gail Eastman Harry Sidhu X James M. Ferryman Bob Ooten A Michael Levitt Gordon Shanks X Jeffrey Lalloway Steven Choi A Scott Nelson X Constance Underhill X Prakash Narain Doug Bailey X Joy Neugebauer Al Krippner X Janet Nguyen Shawn Nelson X John Nielsen Jerry Amante A Sharon Quirk-Silva Pat McKinley X Brad Reese Robert Fauteux A Steven Rosansky Nancy Gardner X Don Schweitzer Ron Garcia X David Shawver Carol Warren X Fred Smith Steve Berry A Sal Tinajero David Benavides X Constance Underhill Joseph Aguirre X Mark Waldman Steven Hwangbo A John Withers Douglas Reinhart Page 2 of 2 STAFF MEMBERS PRESENT: Jim Ruth, General Manager; Bob Ghirelli, Assistant General Manager; Jim Herberg, Assistant General Manager; Nick Arhontes, Director of Facilities Support Services; Ed Torres, Director of Operations and Maintenance; Lorenzo Tyner, Director of Finance & Administrative Services; Jeff Reed, Director of Human Resources; and Maria Ayala, Clerk of the Board. OTHERS PRESENT: Brad Hogin, General Counsel PUBLIC COMMENTS: None. APPROVAL OF MINUTES: MOVED, SECONDED, AND DULY CARRIED: Approve the minutes for the meeting held on October 26, 2011. ACTION ITEMS: (1) MOVED, SECONDED, AND DULY CARRIED: Adopt Resolution No. FC-17, 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 2012A, authorizing the execution and delivery of such revenue obligations evidencing principal in an aggregate amount of not to exceed $110,000,000 and authorizing the execution of necessary documents and related actions. (see Agenda Report for Item No. 16). Board of Directors, Orange County Sanitation District Financing Corporation meeting adjourned at 7:31 p.m. __________________________ Maria E. Ayala, Secretary Orange County Sanitation District Financing Corporation - 1 - MINUTESGROUNDWATER REPLENISHMENT SYSTEM STEERING COMMITTEE STEERING COMMITTEE Monday, October 10, 2011, 5:00 p.m. ROLL CALL Committee MembersLarry Crandall OCSD Director, Chairman......................Present Philip L. Anthony OCWD Director, Vice Chairman .............Present Don Bankhead OCWD Director .......................................Present Jim Ferryman OCSD Director ................................ Not Present Roger Yoh OCWD Director....................................... Present Mark Waldman OCSD Director .......................................Present AlternatesClaudia Alvarez OCWD Director (No. 1)........................... Present Tom Beamish OCSD Director (No. 1)............................Present Denis Bilodeau OCWD Director (No. 2) … ………………. Present Connie Underhill OCSD Director (No. 2)............................Present Stephen Sheldon OCWD Director (No. 3)..................... Not Present Troy Edgar OCSD Director (No. 3)..................... Not Present Other Directors Present Kay Barr OCWD ....................................................Present Irv Pickler OCWD ....................................................Present Cathy Green OCWD ....................................................PresentShawn Dewane OCWD ...……………………………………Present Staff/Consultants Present Mehul Patel, OCWD Jim Herberg, OCSD Randy Bryan, Parsons Wendy Sevenandt, OCSD John Collins, City of Fountain Valley Debbie Burris, DDB 1. MINUTES OF PREVIOUS MEETING RECOMMENDATION: Approve Minutes of the August 8, 2011 Groundwater Replenishment System Steering Committee meeting as presented ANTHONY –MOTION,AYECRANDALL–AYE BANKHEAD – AYE YOH –AYEWALDMAN–SECOND,AYEBEAMISH-- AYE APPROVED INFORMATIONAL ITEMS 2. UPDATE ON CONTRACT GWRS-2011-1, JOINT MICROFILTRATION BACKWASH PUMPING RECONFIGURATION PROJECT INFORMATIONAL 3. GWRS INITIAL EXPANSION CONSTRUCTION UPDATE INFORMATIONAL 4. GWRS MONTHLY OPERATIONS REPORT INFORMATIONAL 5. STATUS REPORT x Public information and education update INFORMATIONAL GENERAL MANAGERS’ REPORTS ADJOURNMENT 5:30 PM - 1 - MINUTESGROUNDWATER REPLENISHMENT SYSTEM STEERING COMMITTEE STEERING COMMITTEE Monday, January 9, 2012, 5:00 p.m. ROLL CALL Committee MembersLarry Crandall OCSD Director, Chairman......................PresentPhilip L. Anthony OCWD Director, Vice Chairman .............Present Don Bankhead OCWD Director .......................................PresentJim Ferryman OCSD Director ................................ Not Present Roger Yoh OCWD Director....................................... PresentMark Waldman OCSD Director .......................................Present AlternatesClaudia Alvarez OCWD Director (No. 1).................... Not Present Tom Beamish OCSD Director (No. 1)............................PresentDenis Bilodeau OCWD Director (No. 2) … ……………….Present Shawn Nelson OCSD Director (No. 2)..................... Not PresentStephen Sheldon OCWD Director (No. 3)..................... Not Present Troy Edgar OCSD Director (No. 3)............................Present Other Directors Present Kay Barr OCWD ....................................................PresentIrv Pickler OCWD ....................................................Present Cathy Green OCWD ....................................................PresentShawn Dewane OCWD ...………………………………Not Present Staff/Consultants Present Mehul Patel, OCWD James Ruth, OCSD William Hunt, OCWD William Dunivin, OCWD John Collins, City of Fountain Valley Debbie Burris, DDB REORGANIZATION OF COMMITTEE ROGER YOH,CHAIR ANTHONY –MOTION BANKHEAD –SECOND LARRY CRANDALL,VICECHAIR WALDMAN -MOTION FERRYMAN –SECOND APPROVED 1. MINUTES OF PREVIOUS MEETING RECOMMENDATION: Approve Minutes of the January9, 2012 Groundwater Replenishment System Steering Committee meeting as presented CRANDALL –MOTION,AYE ANTHONY –AYEBANKHEAD–AYEYOH–AYE WALDMAN –SECOND,AYE FERRYMAN -- AYE APPROVED INFORMATIONAL ITEMS 2. CONTRACT NO. GWRS-2011-2: JOINTMICROFILTRATION BACKWASH REDIRECTION PROJECT UPDATE INFORMATIONAL 3. GWRS INITIAL EXPANSION CONSTRUCTION INFORMATIONAL - 2 - UPDATE 4. GWRS EXPANSION GROUNDBREAKING EVENTS INFORMATIONAL 5. GWRS MONTHLY OPERATIONS UPDATE INFORMATIONAL 6. OUTREACH STATUS REPORT x Public information and Education update INFORMATIONAL GENERAL MANAGERS’ REPORTS ADJOURNMENT 5:30 PM - 1 - MINUTESGROUNDWATER REPLENISHMENT SYSTEM STEERING COMMITTEE STEERING COMMITTEE Monday, April 9, 2012, 5:00 p.m. ROLL CALL Committee MembersRoger Yoh OCWD Director, Chairman.....................PresentLarry Crandall OCSD Director, Vice Chairman ..............Present Philip L. Anthony OCWD Director .......................................PresentJim Ferryman OCSD Director .......................................Present Claudia Alvarez OCWD Director....................................... PresentMark Waldman OCSD Director ...................................... Present AlternatesDenis Bilodeau OCWD Director (No. 1).................... Not Present Tom Beamish OCSD Director (No. 1).................... Not Present Stephen Sheldon OCWD Director (No. 2) … …………. Not Present Troy Edgar OCSD Director (No. 2)..................... Not PresentDon Bankhead OCWD Director (No. 3)............................Present Vacant OCSD Director (No. 3).................... Not Present Other Directors Present Kay Barr OCWD ....................................................PresentHarry Sidhu OCWD ....................................................Present Cathy Green OCWD ....................................................PresentShawn Dewane OCWD ...………………………………Not Present Staff/Consultants Present Mehul Patel, OCWD James Ruth, OCSD William Hunt, OCWD Jim Herberg, OCSDDebbie Burris, DDB REORGANIZATION OF COMMITTEE ROGER YOH,CHAIR ANTHONY –MOTION BANKHEAD –SECOND LARRY CRANDALL,VICECHAIR WALDMAN -MOTION FERRYMAN –SECOND APPROVED 1. MINUTES OF PREVIOUS MEETING RECOMMENDATION: Approve Minutes of the January9, 2012 Groundwater Replenishment System Steering Committee meeting as presented CRANDALL –SECOND,AYE ANTHONY –MOTION,AYE ALVAREZ –AYEYOH–AYE BANKHEAD – AYE FERRYMAN -- AYE APPROVED INFORMATIONAL ITEMS 2. GWRS OPERATIONS UPDATE INFORMATIONAL 3. GWRS OPERATING BUDGET SUMMARY INFORMATIONAL - 2 - 4. GWRS INITIAL EXPANSION CONSTRUCTION UPDATE INFORMATIONAL 5. CONTRACT NO. GWRS-2012-2: JOINTMICROFILTRATION BACKWASH REDIRECTION PROJECT UPDATE INFORMATIONAL 6. OUTREACH STATUS REPORT x Public information and Education update INFORMATIONAL GENERAL MANAGERS’ REPORTS ADJOURNMENT 6:00 PM