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04-14-2010 Administration Committee Agenda
AGENDA REGULAR MEETING OF THE ADMINISTRATION COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, APRIL 14, 2010, AT 5:00 P.M. ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 www.ocsd.com PLEDGE OF ALLEGIANCE DECLARATION OF QUORUM PUBLIC COMMENTS REPORT OF COMMITTEE CHAIR REPORT OF GENERAL MANAGER REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES CONSENT CALENDAR ITEMS 1. Approve minutes of the March 10, 2010, meeting of the Administration Committee. ACTION ITEMS 2. Recommend that the Board of Directors Adopt Ordinance No. OCSD-XX, An Ordinance of the Board of Directors of the Orange County Sanitation District Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and Wastehaulers; and Repealing Ordinance No. OCSD-36: Adopting Revised Table A Re Capital Facilities Capacity Charges, Revised Table C Re Supplemental Capital Facilities Capacity Charges, and Revised Table E Re Industrial Discharger, Source Control and Non-Compliance Sampling Fees, and Reaffirming All Other Charges. April 14, 2010 Page 2 3. a) Reject apparent low bid submitted by Project Partners as deemed non-responsible in accordance with specification requirements for Land Records Information System (LRIS) Data Development and related services, Specification No. CS-2010-447BD; b) Approve a professional services agreement with Psomas for Land Records Information System (LRIS) Data Development and Related Services, Specification No. CS-2010-447BD, for a one-year period, for an amount not to exceed $176,400; c) Approve an option of two one-year renewals for an amount not to exceed $176,400 per year; and d) Approve a contingency of $17,640 (10%) per year. 4. Recommend that the Board of Directors: a) Adopt Resolution No. OCSD10-XX, 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, Trust Agreement, and Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Certificates of Participation to be referred to as Wastewater Revenue Obligations, authorizing the execution and delivery of such Revenue Obligations in an aggregate amount of not to exceed $80,000,000, 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 and delivery of necessary documents and related actions; and, b) That the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate amount not to exceed $80,000,000. INFORMATIONAL ITEMS 5. 2010-11 FY and 2011-12 FY Budget Update. CLOSED SESSION During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, the Chair may convene the Committee 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) employee actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these subjects, the minutes will reflect all required disclosures of information. Convene in closed session. April 14, 2010 Page 3 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: The next regular Administration Committee meeting is scheduled for Wednesday, May 12, 2010, at 5 p.m. April 14, 2010 Page 4 Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the District’s Administrative offices 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 all, of the members of District’s Board, are available for public inspection in the office of the Clerk of the Board, located at 10844 Ellis Avenue, Fountain Valley, California. Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee for discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or because there is a need to take immediate action, which need came to the attention of the Committee subsequent to the posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 72 hours prior to the meeting date. Public Comments: Any member of the public may address the Administration Committee on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to three minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Committee except as authorized by Section 54954.2(b). Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further explanation, and unless a particular item is requested to be removed from the consent calendar by a Director or staff member, there will be no separate discussion of these items. All items on the consent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the consent calendar shall be considered in the regular order of business. The Committee Chair will determine if any items are to be deleted from the consent calendar. Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held within five (5) days of this meeting per Government Code Section 54954.2(b)(3). Meeting Adjournment: This meeting may be adjourned to a later time and items of business from this agenda may be considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955 (posted within 24 hours). Accommodations for the Disabled: The Board of Directors Meeting Room is 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. Notice to Committee Members: For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair or Clerk of the Board ten days in advance of the Committee meeting. Committee Chair: Phil Luebben (714) 686-1426 pluebben@ci.cypress.ca.us Committee Secretary: Lilia Kovac (714) 593-7124 lkovac@ocsd.com General Manager: Jim Ruth (714) 593-7110 jruth@ocsd.com Assistant General Manager Bob Ghirelli (714) 593-7400 rghirelli@ocsd.com Director of Finance and Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Administrative Services Human Resources and Employee Jeff Reed (714) 593-7144 jreed@ocsd.com Relations Manager Page 1 ADMINISTRATION COMMITTEE Meeting Date 04/14/10 To Bd. of Dir. 04/28/10 AGENDA REPORT Item Number 2 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services GENERAL MANAGER'S RECOMMENDATION Adopt Ordinance No. OCSD-XX, An Ordinance of the Board of Directors of the Orange County Sanitation District Establishing Capital Facilities Capacity Charges; Adopting Miscellaneous Charges and Fees Relating to Industrial Charges, Source Control Permittees and wastehaulers; and Repealing Ordinance No. OCSD-36: Adopting Revised Table A Re Capital Facilities Capacity Charges and Revised Table C Re Supplemental Capital Facilities Capacity Charges a. Motion to Read Ordinance No. OCSD-XX by title only and waive reading of said entire ordinance. b. Motion to introduce Ordinance No. OCSD-XX, and pass to second reading and public hearing on May 26, 2010. SUMMARY The Capital Facilities Capacity Charge (CFCC) and Supplemental Capital Facilities Capital Charges (SCFCC) are based upon the most recently completed capital strategic plan. In December of 2009, the 2009 Facilities Master Plan was adopted and staff was directed to perform a rate study on CFCCs. CFCC is a one-time, non-discriminatory charge imposed at the time a building or structure is newly connected to the OCSD’s system, or an existing structure is expanded or increased. This charge is to pay for the expansion of OCSD facilities to accommodate the new property being charged. Based upon the new Master Plan, the residential CFCC is proposed to decrease by approximately 35 percent. However, the non-residential CFCC is proposed to increase by approximately 13 percent. SCFCC are fees to Industrial Permittees that exceed their annual baselines for Flow, Biochemical Oxygen Demand (BOD) and Total Suspended Solids (TSS). As a result of the rate study, Flow and TSS are recommended to be increased 6 percent and 79 percent, respectively, while BOD is recommended to decrease 59 percent. Page 2 PRIOR COMMITTEE/BOARD ACTIONS 1. December 2009: Approved adoption of 2009 Facilities Master Plan. 2. December 2009: Directed staff to perform a rate study on CFCCs. 3. May 2008: Approved Ordinance No. OCSD-36. ADDITIONAL INFORMATION Staff received direction from the Board of Directors to perform a rate study on CFCCs when the 2009 Facilities Master Plan was adopted in December of 2009. The FCS Group was contracted to perform a review and update of the CFCCs based upon the revised assumptions contained within the new Master Plan. One of the outcomes of the new Master Plan is that future build out is less than what was anticipated in the previous master plan. In addition, the District has experienced a shift in its customer base resulting in an increase in residential versus non-residential. Staff believes the shift has occurred due to recent annexations that were primarily residential and new residential construction that was completed in recent years. The shift towards residential has resulted in a decrease to the residential CFCCs and an increase to the non-residential CFCCs. The last rate study to support the CFCC and SCFCC was in 2006 when the majority of the CIP program concentrated on increased BOD treatment due to the move to full secondary treatment. At that time a shift occurred in the SCFCCs increasing the costs for BOD and reducing the costs for TSS. The new Facilities Master Plan now concentrates on total treatment plant processes as opposed to concentrating mostly on secondary treatment. As such, BOD requirements are not as predominant as in the prior rate study, and now are more closely aligned with the new increased percentage requirements of TSS. Staff believes that the allocations for Flow, BOD and TSS accurately reflect the long term allocations of these constituents in the CIP program. CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS 1. Proposed CFCCs and SCFCCs 2. Proposed Ordinance No. OCSD –XX Use Category Rate Basis Current Proposed Commercial / Industrial: CFCC CFCC Low Demand [1]Per 1,000 Square Feet $ 241 $ 272 Average Demand [3]Per 1,000 Square Feet $ 1,501 $ 1,692 High Demand [2]Per 1,000 Square Feet $ 3,565 $ 4,019 Single-Family Residential (SFR) [4] CFCC CFCC 5+ Bedrooms Per Unit (139% of Base) $ 6,946 $ 4,532 4 Bedrooms Per Unit (119% of Base) $ 5,949 $ 3,881 3 Bedrooms Per Unit (100% of Base) $ 4,998 $ 3,261 2 Bedrooms Per Unit (81% of Base) $ 4,046 $ 2,640 1 Bedroom Per Unit (62% of Base) $ 3,094 $ 2,019 Multi-Family Residential (MFR) [5] CFCC CFCC 4+ Bedrooms Per Unit (108% of Base) $ 5,399 $ 3,523 3 Bedrooms Per Unit (89% of Base) $ 4,448 $ 2,902 2 Bedrooms Per Unit (70% of Base) $ 3,496 $ 2,281 1 Bedroom Per Unit (50% of Base) $ 2,498 $ 1,630 Studio [6]Per Unit (32% of Base) $ 1,604 $ 1,047 Supplemental CFCC for Permit Users: SCFCC SCFCC Flow Per Gallon Per Day $ 0.001541 $ 0.001638 BOD Per Pound Per Day $ 0.865080 $ 0.351200 SS Per Pound Per Day $ 0.105130 $ 0.188340 Notes: [1] [2] [3] [4] [5] [6] Proposed CFCCs and SCFCCs Bedroom additions are considered a change of use and a CFCC must be paid. Detached buildings will be considered separate residences. MFR units consist of multiple units that receive one secured property tax bill. Includes senior housing with individual living units that include a kitchen. A studio is considered to be a single room with no separating doors or openings leading to another part of the room (except for a bathroom). Includes nurseries, warehouses, churches, truck terminals, RV parks / storage yards, lumber / construction yards, public storage buildings, and other facilities with similar volumes. Includes restaurants, supermarkets, car washes, coin laundries, amusement parks, shopping centers with one or more restaurants or food court, food processing facilities, textile manufacturers, and other dischargers with similar volumes. Includes all users not classified as low-demand or high-demand customers. 572010.1 1 ORDINANCE NO. OCSD-XX AN ORDINANCE OF THE BOARD OF DIRECTORS OF ORANGE COUNTY SANITATION DISTRICT ESTABLISHING CAPITAL FACILITIES CAPACITY CHARGES; ADOPTING MISCELLANEOUS CHARGES AND FEES RELATING TO INDUSTRIAL CHARGES, SOURCE CONTROL PERMITTEES AND WASTEHAULERS; AND REPEALING ORDINANCE NO. OCSD-36. ADOPTING REVISED TABLE A RE CAPITAL FACILITIES CAPACITY CHARGES, REVISED TABLE C RE SUPPLEMENTAL CAPITAL FACILITIES CAPACITY CHARGES REVISED TABLE E RE INDUSTRIAL DISCHARGER, SOURCE CONTROL AND NON-COMPLIANCE SAMPLING FEES, AND REAFFIRMING ALL OTHER CHARGES WHEREAS, the Board of Directors of the Orange County Sanitation District (“OCSD”) has previously adopted Ordinance No. OCSD-36, establishing Capital Facilities Capacity Charges to be imposed when properties either newly-connect to the OCSD’s system, or expand the use of the property previously connected to the OCSD; establishing miscellaneous industrial discharger fees, source control/non-compliance sampling fees, and wastehauler charges, which Ordinance is presently in full force and effect; and WHEREAS, for purposes of improved efficiency and effectiveness of the OCSD’s operations, it is the intent, by the adoption of this Ordinance, to establish Class I, Class II, Special Purpose Discharge and Wastehauler permit charges for use and capital facilities fees, and to provide for increases in certain miscellaneous charges and fees. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District does hereby ORDAIN: Section I. Fees and Charges Ordinance – Adopted 572010.1 2 TABLE OF CONTENTS ARTICLE I: RECITAL OF FINDINGS Section 1.01, Findings – Declaration of Intent ARTICLE II: CAPITAL FACILITIES CAPACITY CHARGES Section 2.01, Purpose and Scope Section 2.02, Definitions Section 2.03, Connection Permits: Required Section 2.04, Capital Facilities Capacity Charge: Payment Section 2.05, Capital Facilities Capacity Charge: Time of Payment Section 2.06, Capital Facilities Capacity Charge: Schedule of Amounts Table A Capital Facilities Capacity Charges Table B Plan Check and Inspection Fee Schedule Section 2.07, Supplemental Capital Facilities Capacity Charge: Significant Commercial – Industrial Users – Special Purpose Dischargers – Definitions Section 2.08, Supplemental Capital Facilities Capacity Charge: New Significant Commercial – Industrial Users Section 2.09, Supplemental Capital Facilities Capacity Charge: New Special Purpose Dischargers Section 2.10, Supplemental Capital Facilities Capacity Charge: Existing Significant Commercial – Industrial Users – Special Purpose Dischargers Table C Supplemental Capital Facilities Capacity Charges Section 2.11, Capital Facilities Capacity Charge: Replacement Section 2.12, Capital Facilities Capacity Charge: Remodeled Section 2.13, Payment of Capital Facilities Capacity Charge: Off-Site Sewers Not Part of Master Plan Relative to Reimbursement Agreements Section 2.14, No Refund or Transfer Section 2.15, Baseline Transferability Section 2.16, Annual Updates Section 2.17, Affordable Housing Projects 572010.1 3 ARTICLE III: MISCELLANEOUS CHARGES AND FEES RELATING TO INDUSTRIAL DISCHARGERS, SOURCE CONTROL PERMITTEES AND WASTEHAULERS Section 3.01, Purpose and Scope Section 3.02, Administrative Fees and Charges Relating to Permittees Section 3.03, Industrial Discharger, Source Control, and Non-Compliance Sampling Fees Section 3.04, Special Purpose Discharge Permittees; Charges for Use Section 3.05, Class I and Class II Permittees – Charges for Use Section 3.06, Wastehauler Charges for Use Section 3.07, Administrative Appeals Table D Administrative Fees and Charges Relating To Permittees Table E Industrial Discharger, Source Control and Non-Compliance Sampling Fees Table F Class I and Class II Permittees and Special Purpose Discharge Permittees Charges For Use Table G Wastehauler Charges for Use ARTICLE IV: MISCELLANEOUS Section 4.01, Application of Ordinance Section 4.02, Exceptions Section 4.03, Severability Section 4.04, Effective Date Section 4.05, Repeal Section 4.06, Certification and Publication 572010.1 4 ARTICLE I RECITAL OF FINDINGS Section 1.01. Findings – Declaration of Intent. The Board of Directors of OCSD has previously adopted Master Plans, as more particularly described in Findings B, C, D, and E below, setting forth the financial and engineering needs of the OCSD, and hereby adopts the following Findings supporting the amounts of charges and fees adopted pursuant to this Ordinance. A. As of July 1, 1998, OCSD was consolidated into one single County Sanitation District to carry on the functions of the predecessor Districts. B. That a comprehensive 20-year Master Plan of Capital Facilities, entitled “2009 Facilities Master Plan”, hereinafter referred to as the “Master Plan”, which includes detailed financial and engineering reports, was prepared, approved, and adopted by the Boards of Directors in 2009 setting forth and identifying the required future development of OCSD Facilities, including the financial projections for providing sewer service to all properties within the service area. C. That the financial and engineering reports of the Master Plan were made available to the public, both prior to and subsequent to the adoption of the Master Plan, and were subject to noticed public hearings, all in accordance with the provisions of the California Constitution and Government Code Section 66016, and other provisions of law. D. That the OCSD performed a detailed assessment of all types and categories of users; the demand on the system and capacity needs of the system to provide necessary service to the multiple categories of users; the total costs of the existing and future facilities in the system; and alternative methodologies for establishing fair and equitable charges to connect to and gain access to the system. The current methodology was approved and adopted by OCSD Resolution No. 99-21 of the Board of Directors on October 27, 1999. E. That in support of this Ordinance and the revised charges for Capital Facilities Capacity Charges as provided for on Tables A, B, and C herein, the Board of Directors finds that the Capital Improvement Program is consistent with the goals and policies of the Board of Directors, the member agencies, and the public and accommodates projected increased flows and the rehabilitation and refurbishment of existing facilities. The Board further finds that programming annual adjustments in sewer service charges over a period of years is appropriate and ensures adequate revenues to finance the improvements and programs necessary to incorporate secondary treatment standards, accommodate increased flows, rehabilitate and refurbish existing facilities, and retire any necessary or prudent debt incurred to finance such improvements in a reasonable manner and over a reasonable period of time. The 572010.1 5 Board of Directors also finds that such Sanitary Sewer Service Charges and Capital Facilities Capacity Charges are reasonably related to, and do not exceed the cost of providing sewer services. F. That the financial requirements of the OCSD, as shown in reports prepared by Staff and Consultants relating to the Master Plan and the CIP validation studies, are based on current, reliable information and data relating to population projections, wastewater flow, and capital facilities’ needs, and are expected to be realized in each year as described in the reports. G. That the revenues derived under the provisions of this Ordinance will be used for the acquisition, construction, reconstruction, maintenance, and operation of the sewage collection, wastewater treatment and disposal facilities of the OCSD; to repay principal and interest on debt instruments; to repay federal and state loans issued for the construction and reconstruction of said sewerage facilities, together with costs of administration and provisions for necessary reserves; and to assist in the payment of costs to the OCSD to provide all regulatory administration and laboratory services related to the industrial dischargers, source control permittees, and wastehauler users of the OCSD’s systems. H. That the owners or occupants of properties upon which all fees and charges established by this Ordinance are levied, discharge wastewater to the OCSD’s collection, treatment and disposal facilities. The costs of operating and maintaining said facilities have constantly increased due in part to increased regulatory requirements to upgrade the treatment process. I. That the need for upgraded and improved treatment of all wastewater collection, treatment and disposal facilities is required to protect the public health and safety, and to preserve the environment without damage. J. That the Sanitary Sewer Service Charge For Use established and levied by this Ordinance is to allow the OCSD to recover the reasonable costs to provide a service to individual properties which have been improved for any of numerous types of uses. The basis for the respective charge is the request of the owner of property or a structure thereon, for the benefit of him/her/itself, or the occupants of the property, to receive a service based upon actual use, consumption, and disposal of water to the OCSD’s system in lieu of disposal by other means. K. That the Sanitary Sewer Service Charge For Use established by this Ordinance is not imposed as a condition of approval of a development project, as defined in California Government Code Section 66001, and does not exceed the estimated reasonable cost to provide the sewer service for which the fee is levied, as provided in Government Code Sections 66013 and 66016 and California Constitution Article XIIID. 572010.1 6 L. That the Sanitary Sewer Service Charge For Use adopted herein will not necessarily result in an expansion of facilities to provide for growth outside the existing service area. The adoption of this Sanitary Sewer Service Charge For Use will not result in any specific project, nor result in a direct physical change in the environment. M. That the Sanitary Sewer Service Charge For Use adopted herein is established upon a rational basis between the fees charged each customer and the service and facilities provided to each customer of the OCSD, a portion of which is necessary to replace the loss of ad valorem property taxes to the State General Fund as a result of state legislative action on September 2, 1992, and in subsequent years. N. That the Board of Directors has previously, by duly adopted Ordinances, commencing in 1969, and most recently by Ordinance No. OCSD-36, established Capital Facilities Capacity Charges, formerly known commonly as “connection charges” or “fees”, to be paid by all persons obtaining a permit to connect to the OCSD’s system. Said Charges are required as a financial payment to have access to and use of the OCSD’s wastewater collection, treatment and disposal facilities in existence at the time of connecting to the system, and for future facilities to be constructed. O. That the Sanitary Sewer Service Charge For Use and Capital Facilities Capacity Charges established here are an incident but not a condition of development, payable only on request to receive service by the property owner for the benefit of those persons on the property that use the service. The charges are not an incident of property ownership, nor are they a property-related service having a direct relationship to property ownership. Accordingly, the provisions of California Constitution Article XIIID are not applicable. P. That the OCSD’s previous and present Capital Facilities Capacity Charges Ordinances, include[d] authority for the OCSD to levy an excess or supplemental capacity charge upon commercial and industrial users who discharge quantities or high strength wastewater greater than the established base line of authorized discharge. Q. That the Capital Facilities Capacity Charges re-enacted by this Ordinance are non-discriminatory, as applied to all users of the system, and are established upon a rational basis between the fees charged each category of property that is connecting, and the service and facilities provided to each connected property or structure, by the OCSD, within a given category. R. That the miscellaneous charges and fees re-enacted by this Ordinance without change are established upon a rational basis between the fees charged to each industrial discharger, source control permittee, or wastehauler and the service and facilities provided to each. 572010.1 7 S. That the OCSD is required by federal and state law, including the Federal Water Pollution Control Act, also known as the Federal Clean Water Act (33 U.S.C. 1251, et seq.), the General Pretreatment Regulations (40 C.F.R. 403), and the Porter-Cologne Water Quality Control Act (California Water Code Sections 13000 et seq.) to implement and enforce a program for the regulation of wastewater discharges to the OCSD’s sewers. T. That the OCSD is required by federal, state and local law, to meet applicable standards of treatment plant effluent quality. U. That pursuant to these requirements, the Board of Directors has adopted an ordinance establishing Wastewater Discharge Regulations. V. That the OCSD incurs additional costs in conducting non- compliance sampling of those industrial wastewater dischargers who violate the OCSD’s Wastewater Discharge Regulations and in administering the industrial, wastehauler, and special discharge permit programs. W. That the ordinance establishing Wastewater Discharge Regulations provides that the Board of Directors is to establish various fees and charges to recover those costs to the OCSD which are made necessary by industrial dischargers and wastehaulers who violate the OCSD’s Wastewater Discharge Regulations. X. That the industrial discharger, source control, and wastehauler fees and charges hereby established by this Ordinance do not exceed the estimated reasonable costs to the OCSD of industrial discharger, source control, or wastehauler use of the OCSD’s facilities and for the administration and implementation of permit and fee processing, non-compliance sampling, and related services associated with the OCSD’s Source Control Program. Y. That all fees and charges established herein have been approved by the OCSD’s Board of Directors at a noticed public meeting, all in accordance with applicable provisions of law. Z. That the adoption of this Ordinance is statutorily exempt under the California Environmental Quality Act pursuant to the provisions of Public Resources Code Section 21080(b)(8) and California Code of Regulations Section 15273(a). AA. That each of the Findings set forth in previous Ordinances Nos. OCSD-05, OCSD-06, OCSD-11, OCSD-13, OCSD-15, OCSD-18, OCSD-19, OCSD-20, OCSD-22, OCSD-24, OCSD-26, OCSD-30B, OCSD-32, OCSD-36 are reaffirmed and readopted hereat, except to the extent that they have been specifically superseded or otherwise amended by specific Findings herein. 572010.1 8 ARTICLE II CAPITAL FACILITIES CAPACITY CHARGES Section 2.01. Purpose and Scope. The purpose of this Ordinance is to impose Capital Facilities Capacity Charges when properties, either newly-connect to the OCSD’s system, or expand the use of the property previously connected to the OCSD. Revenues derived under the provisions of this Ordinance will be used for the acquisition, construction, and reconstruction of the wastewater collection, treatment and disposal facilities of the OCSD; to repay principal and interest on debt instruments; or to repay federal or state loans for the construction and reconstruction of said sewerage facilities, together with costs of administration and provisions for necessary reserves. Section 2.02. Definitions. A. “Actual construction costs” include the cost of all activities necessary or incidental to the construction of a OCSD facility, such as financing, planning, designing, acquisition of the property or interests in the property, construction, reconstruction, rehabilitation, and repair. B. “Capital Facilities Capacity Charge” means a one-time, non-discriminatory charge imposed at the time a building or structure is newly connected to the OCSD’s system, directly or indirectly, or an existing structure or category of use is expanded or increased. Said charge is to pay for OCSD facilities in existence at the time the charge is imposed, or to pay for new facilities to be constructed in the future, that are of benefit to the property being charged. This charge does not apply to temporary facilities or operations that are regulated under the provisions of a Special Purpose Discharge Permit. A schedule of the Capital Facilities Capacity Charges specified herein will be on file in the Office of the Board Secretary of the OCSD, and in the Building Department of each City within the OCSD. C. “Connection fee” means a fee equal to the cost necessary to physically connect a property to the OCSD’s system, including but not limited to, installation of meters, meter boxes, pipelines, and appurtenances to make the connection and which fee does not exceed the actual cost of labor, materials, and overhead for the installation of those facilities. D. “Non-discriminatory” means that the Capital Facilities Capacity Charge does not exceed an amount determined on the basis of the same objective criteria and methodology applicable to comparable public or non-public users, and is not in excess of the proportionate share of the cost of the OCSD’s facilities of benefit to the person or property being charged, based upon the proportionate share of use of those facilities. 572010.1 9 E. “Public agency” means the United States or any of its agencies, the State or any of its agencies, the Regents of the University of California, a county, city, district, school district, local or regional public authority, or any other political entity, subdivision or public corporation of the State. F. The Supplemental Capital Facilities Capacity Charge, as provided for in Sections 2.07, 2.08, 2.09, and 2.10 of this Ordinance, is an annual charge payable to the OCSD on a quarterly or annual basis, as determined by the OCSD. Said charge is required to be paid by dischargers that exceed the maximum quantity of flow or constituents (BOD or SS) allowed as a base use for which the CFCC is paid. Section 2.03. Connection Permits: Required. A. Connection permits are required of each and every dwelling unit, and each commercial or industrial building, and structure connecting directly or indirectly to the OCSD’s sewerage system facilities. Included are the connections of laterals to local municipal sewerage facilities, and the connection of local municipal sewerage facilities and laterals to the OCSD’s facilities. Multiple detached structures on a single parcel of property shall each be required to obtain a connection permit. B. Except as authorized by the issuance of a Special Purpose Discharge Permit under Sections 305 – 305.6 of the OCSD’s Wastewater Discharge Regulations, or as authorized pursuant to a special extra territorial service agreement approved by the Board of Directors, no permit shall be valid unless the real property to be served by use of the permit is included within the boundaries of the OCSD and within the boundaries of a local sewering agency authorized to maintain public sewering facilities. However, a permit, as authorized above, may be issued for property to be served outside the boundaries of a local sewering agency if a local sewering agency makes application for the issuance of such permit. There will be a non-discriminatory Capital Facilities Capacity Charge assessed to public agencies for connecting directly or indirectly to the OCSD’s sewerage system facilities and a connection permit must be obtained. Section 2.04. Capital Facilities Capacity Charge: Payment Required. No application for a permit for a connection of a structure to an OCSD sewerage facility, or to any sewerage facility which discharges into an OCSD sewerage facility, shall be approved, nor a permit issued, until an OCSD Capital Facilities Capacity Charge is paid by the applicant, except as provided for discharges under a Special Purpose Discharge Permit. No connection permit shall be issued unless there is an established category of use of the property to be served or a valid building permit issued which establishes the category of use of said property. 572010.1 10 Section 2.05. Capital Facilities Capacity Charge: Time of Payment. A. Payment of the Capital Facilities Capacity Charge established by this Ordinance for connection to the OCSD’s sewerage system facilities shall be required at the time of issuance of the building permit for all construction within the OCSD, excepting in the case of a building legally exempt from the requirement of obtaining a permit. The payment of the Capital Facilities Capacity Charge for such exempt buildings will be required at the time of and prior to the issuing of a plumbing connection permit for any construction within the territorial limits of the OCSD, or if none, prior to the issuance of a Certificate of Occupancy. B. Upon application of any property owner seeking to connect to the OCSD’s system, the Board of Directors of OCSD, in its sole and absolute discretion and upon a finding of compelling need, may, pursuant to the authority of California Health & Safety Code Section 5474, approve of an agreement with the property owner for the payment of the applicable connection charge and/or annexation fees in installment payments over a period of not to exceed five (5) years, bearing an interest rate on the unpaid balance of not to exceed ten (10%) percent per annum and that the charges and interest shall constitute a lien on the property. Section 2.06. Capital Facilities Capacity Charge and Plan Check and Inspection Fees: Schedule of Amounts. A. Every person or entity connecting any new or expanded building or structure to the OCSD’s system facilities shall pay a Capital Facilities Capacity Charge in the amount for the applicable category of use set forth on Table A, below. B. Every person or entity connecting any new or expanded building or structure directly to the OCSD’s local or regional system facilities shall pay Plan Check and Inspection Fees in the amount set forth on Table B, below. 572010.1 11 TABLE A CAPITAL FACILITIES CAPACITY CHARGES (CFCC) Use Category Rate Basis Base Charge Commercial – Industrial Per 1,000 square feet1 Low Demand2 Per 1,000 square feet $ 272.001 Average Demand4 Per 1,000 square feet $1,692.001 High Demand3 Per 1,000 square feet $4,019.001 Single Family Residential (SFR)5 Base Charge 5+ Bedrooms $4,532.00 4 Bedrooms $3,881.00 3 Bedrooms $3,261.00 2 Bedrooms $2,640.00 1 Bedroom $2,019.00 Multi-Family Residential (MFR)6 Base Charge 4+ Bedrooms $3,523.00 3 Bedrooms $2,902.00 2 Bedrooms $2,281.00 1 Bedroom $1,630.00 Studio7 $1,047.00 Supplemental CFCC for Permit Users, includes 5% cost of funds. Flow, gallons per day $0.001638 BOD, pounds per day $0.351200 SS, pounds per day $0.188340 _______________________________ 1Provided that the minimum Capital Facilities Capacity Charge for such new construction shall be $3,261; and all calculations shall be on a 1,000 square foot, or portion thereof, basis. 2Low Demand connections are the following categories of users: Nurseries; Warehouses; Churches; Truck Terminals; RV Parks, RV Storage Yards, Lumber/Construction Yards, Public Storage Buildings; and other facilities with restrooms, offices, lobbies and/or areas whose flows are similar in volume to these listed categories Parking Structures not connected to the sewer will not be charged. 3High Demand connections are the following categories of users: Restaurants (including patios used for additional seating capacity), Supermarkets; Car Washes; Coin Laundries; Amusement Parks; Shopping Centers with one or more Restaurants, or Food Court; Food Processing Facilities; Textile Manufacturers; and other dischargers whose flow is similar in volume to these listed categories. 4All other connections are Average Demand users including: Hotels, Strip Malls without restaurants, Music Halls without food facilities, Office buildings, Senior Housing with individual living units without kitchens but with a common kitchen,and wash pads 5 Bedroom additions are considered a change of use and a CFCC must be paid. Bedrooms include enclosed loft additions,, bonus rooms that may be used as offices, workout rooms, media rooms, or libraries, or any other additions, which could potentially be used as a bedroom. The classification of these additions will be reviewed and determined by staff Any detached building such as an addition over an existing garage or a new building with the same designation as mentioned above will be considered a separate living residence (SFR). 6MFR units consist of multiple units that receive one secured property tax bill such as apartments. Senior housing with individual living units that include a kitchen are considered MFR units. 7 Studio – one single room with no separating doors or openings leading to another part of the room (except for a bathroom). 572010.1 12 TABLE B PLAN CHECK AND INSPECTION FEE TABLE INSPECTION FEES FOR SINGLE CONNECTIONS FEE Normal lateral installation to property line with clean out $500.00 Lateral Installation to existing manhole stub with clean out $500.00 Core drilling in to an existing manhole base - add $300.00 Installation of new manhole with stub over existing line $1,000.00 INSPECTION FEES FOR MULTIPLE CONNECTIONS Plan check and inspection fees of 20 percent of the sewer construction cost for new tract sewers, sewer extensions or special facilities are required when plans are submitted for plan check. If additional funds are needed, they must be deposited as soon as they are requested to complete the inspection on the project. If funds are required after the work is completed, they must be paid before OCSD finals the sewer project. Section2.07. Supplemental Capital Facilities Capacity Charge: Significant Commercial – Industrial Users and Significant Special Purpose Dischargers – Definitions. A. A Significant Commercial – Industrial User (“SCIU”) is any person or entity who discharges commercial or industrial process flow, but excluding domestic sewage flow, in an amount greater than 25,000 gallons per day (“gpd”), or Biochemical Oxygen Demand (“BOD”) greater than 150 pounds per day, or Suspended Solids (“SS”) greater than 150 pounds per day, or who is required to obtain a Waste Discharge Permit, as prescribed by Article 3 of the OCSD’s Wastewater Regulations, due to having federally or OCSD regulated or significant discharges. B. A Significant Special Purpose Discharger ("SSPD") is any person or entity who discharges to the sewer system wastewater or process flow in an amount greater than 25,000 gpd (excluding domestic, industrial or commercial) and who is required to obtain a Special Purpose Discharge Permit as prescribed in Section 305 of the OCSD’s Wastewater Regulations. A Special Purpose Discharger (SPD) discharges 25,000 gpd or less. C. An Existing SCIU or SSPD is any SCIU or SSPD connected and discharging to the OCSD’s system prior to January 1, 2000. 572010.1 13 D. A New SCIU or SSPD is any user who connects and discharges to the OCSD’s system pursuant to a Waste Discharge Permit issued on or after January 1, 2000; or if previously connected and not an SCIU, as defined in Subparagraphs2.07A and B above, but, subsequent to January 1, 2000, increases flow, or BOD, or SS to a level as to constitute an SCIU or SSPD. E. The maximum discharge allowed to a user, for which a base Capital Facilities Capacity Charge is paid, as per Table A, above, is 25,000 gallons per day (“gpd”), or 150 pounds each of BOD and SS (the “base use”). Discharge of flow, or BOD, or SS in amounts greater than allowed by this Subsection2.07E shall be subject to the provisions of Sections 2.08 and 2.09 hereof. F. Each Existing SCIU shall have a baseline of allowed discharge of flow, and BOD, and SS established by the OCSD as of January 1, 2000. The baseline shall be based upon the discharge for Fiscal Year 1998-99, or upon such other discharge data which the OCSD determines is representative of the user’s actual annual discharge to the sewerage system. Dischargers who are deemed to be SCIU’s solely because of the requirements to obtain a Waste Discharge Permit, pursuant to Section 2.07A above, shall have a minimum baseline established as follows: Flow – 25,000 gallons per day; BOD – 150 pounds per day; and SS – 150 pounds per day. The SCIU shall be authorized to discharge flow, and BOD, and SS up to the baseline amounts without payment of a Supplemental Capital Facilities Capacity Charge. G. Each Existing SPD shall have a baseline of 25,000 gpd. The Existing SPD shall be authorized to discharge flow up to 25,000 gpd without payment of a Supplemental Capital Facilities Capacity Charge. H. The Supplemental Capital Facilities Capacity Charge, as prescribed by Sections 2.08, 2.09, and 2.10 below, shall be payable commencing with the effective date of this Ordinance. Section 2.08. Supplemental Capital Facilities Capacity Charge: New Significant Commercial – Industrial Users. In addition to the base Capital Facilities Capacity Charge, as prescribed in Table A, for commercial – industrial use category properties, all New SCIU’s shall pay a Supplemental Capital Facilities Capacity Charge for each gallon of flow, or pound of BOD, or SS, exceeding the base use discharge maximums, in the amount shown in Table C. Section 2.09. Supplemental Capital Facilities Capacity Charge: Significant Special Purpose Dischargers. All SSPDs shall pay a Supplemental Capital Facilities Capacity Charge of $.001638 per gallon per day for each gallon of flow exceeding 25,000 gallons per day. 572010.1 14 Section 2.10. Supplemental Capital Facilities Capacity Charge: Existing Significant Commercial – Industrial Users and Special Purpose Dischargers. A. All Existing Significant Commercial – Industrial Users connected to and discharging to the OCSD’s system shall be required to pay a Supplemental Capital Facilities Capacity Charge upon the occurrence of either (i) an increase of discharge flow of 25,000 gallons per day (“gpd”), or 25% per day over its established baseline authorization, whichever is lesser; or (ii) an increase of either BOD or SS discharge of 150 pounds each per day, or 25% each per day, whichever is lesser, over its established baseline authorization. The daily averages will be based on the daily discharges for a year, utilizing discharge records and reports of the discharger or OCSD. B. The Supplemental Capital Facilities Capacity Charge shall be in the following amounts for each component that is increased as provided in Section2.10A above. TABLE C SUPPLEMENTAL CAPITAL FACILITIES CAPACITY CHARGES Daily Charge Flow Gallons Per Day $0.001638 BOD Pounds Per Day $0.351200 SS Pounds Per Day $0.188340 C. All Existing SPDs connected and discharging to the sewer shall be required to pay a Supplemental Capital Facilities Capacity Charge upon occurrence of an increase of discharge flow over 25,000 gpd. The Supplemental Capital Facilities Capacity Charge shall be $ 0.001638 per gallon per day of discharge for each gallon above 25,000 gpd. D. The Supplemental Capital Facilities Capacity Charge shall be calculated on the basis of the average daily quantity of discharge in excess of the User’s baseline or 25,000 gpd for SPDs. The daily averages will be based on the daily discharges for a year, utilizing discharge records and reports of the OCSD. Section 2.11. Capital Facilities Capacity Charge: Replacement Structures. For new construction replacing former structures, the Capital Facilities Capacity Charge shall be calculated and paid to the OCSD on the rate basis of the category of the new use and the amounts as set forth in Table A, less a credit amount, up to the amount of the new Capital Facilities Capacity Charge, equal to a charge, as prescribed in Table A that would be for the prior category of use which was terminated and removed. 572010.1 15 Section 2.12. Capital Facilities Capacity Charge: Remodeled Structures. In the case of existing structures connected to the OCSD’s system facilities, to which new construction or alteration is made to change or increase the category of use or number of bedrooms, a Capital Facilities Capacity Charge shall be calculated and paid to the OCSD on the rate basis of the category of the new use and the amounts as set forth in Table A, less a credit amount, up to the amount of the new Capital Facilities Capacity Charge, equal to a charge, as prescribed in Table A for the prior category of use. Section 2.13. Payment of Capital Facilities Capacity Charge: Off-Site Sewers Not Part of Master Plan Relative to Reimbursement Agreements. A charge for connection to off-site sewers which are not included as part of the OCSD Master Plan and for which a Non-Master Plan Reimbursement Agreement has been entered into between the OCSD and the property owner, shall be paid in the amount provided for in said Agreement, to be known as a Non-Master Plan Capital Facilities Capacity Charge. The amount set forth in said Agreement shall be the amount due, provided the original Agreement is still in force. The Non-Master Plan Capital Facilities Capacity Charge shall be in addition to the other Capital Facilities Capacity Charges provided for in Sections 2.06 through 2.10 hereinabove, established for property connecting to said facilities. Section 2.14. No Refund or Transfer. A Capital Facilities Capacity Charge is paid for the connection of a specific building or structure on a parcel of property. No refund of any charge shall be made because of non-use or change of use, or any other reason once the connection has been made. If the connection is not made and the request for connection is withdrawn within 12 months of the payment date, the charges paid will be refunded upon establishing proof from the City or County of a canceled permit. The connection permit is non-transferable to any other parcel of property. Section 2.15. Baseline Transferability. The baseline of allowed discharge of flow, BOD and SS used to calculate a Supplemental Capital Facilities Capacity Charge shall not be transferable, nor shall a credit for such previously existing baseline be provided to another SCIU concurrently or subsequently occupying the same property. Each such SCIU shall pay Supplemental Capital Facilities Capacity Charges in accordance with Section 2.08 above. Section 2.16 Capital Facilities Capacity Charge Annual Updates. The Capital Facilities Capacity Charge is based upon the most recently completed Master Plan. This charge is updated annually based upon the increase in the Engineering News-Record construction cost index for Los Angeles as of December of the prior year until the completion of the next Master Plan or Master Plan Update. Section 2.17 Affordable Housing Projects. Per Resolution 06-18, development projects that include lower income housing units shall not be denied approval of an application for service, nor shall conditions be imposed thereon or services reduced which are applied for, unless the OCSD makes specific written 572010.1 16 findings that the denial, condition, or reduction is necessary due to the existence of one or more of the following: (a) insufficient water supply or insufficient water treatment or distribution capacity; (b) a State Department of Health Services order prohibiting new water connections; (c) insufficient sewer treatment or collection capacity; (d) a Regional Water Quality Control Board order prohibiting new sewer connections; (e) the applicant has failed to agree to reasonable terms and conditions. 572010.1 17 ARTICLE III MISCELLANEOUS CHARGES AND FEES RELATING TO INDUSTRIAL DISCHARGERS, SOURCE CONTROL PERMITTEES AND WASTEHAULERS Section 3.01. Purpose and Scope. The purpose of this Ordinance is to recover those costs incurred by the OCSD (i) on account of industrial dischargers’ and wastehaulers’ use of the OCSD’s facilities; (ii) when administering the OCSD’s Source Control Program; and (iii) when performing non-compliance sampling of industrial wastewater dischargers who have violated the OCSD’s Wastewater Discharge Regulations or the terms and conditions of the discharger’s permit. Revenues derived under the provisions of this Ordinance shall be used to defray the costs incurred by the OCSD (i) on account of such use of the OCSD’s facilities; and (ii) in performing these tasks. Section 3.02. Administrative Fees and Charges Relating to Permittees. Administrative fees and charges relating to permittees are hereby established in the sum or sums as set forth in Table D, E, F, G, H, and I, below. Section 3.03. Source Control Non-Compliance Fees. Source control non-compliance fees are hereby established for dischargers’ non-compliance sampling and for self-monitoring and data reporting non-compliance, in the sum or sums as set forth in Table E, below. Section 3.04. Special Purpose Discharge Permittees; Charges for Use. As authorized by Sections 305.5 and 305.6 of the OCSD’s Wastewater Discharge Regulations, charges for use are hereby established for Special Purpose Discharge Permittees, as set forth in Table F, below. Section 3.05. Class I and Class II Permittees – Charges for Use. As authorized by Sections 302.3, 302.6, 303.3 and 303.6 of the OCSD’s Wastewater Discharge Regulations, the charges for use are hereby established for Class I and Class II Permittees as set forth in Table F, below. Section 3.06. Wastehauler Charges for Use. As authorized by Sections 306.3 and 306.7 of the OCSD’s Wastewater Discharge Regulations, the charges for use are hereby established for wastehaulers as set forth in Table G, below. Section 3.07. Administrative Appeals. A. Any user, permit applicant, or permittee affected by any decision, action, or determination by the OCSD may, within forty-five (45) days of the date of mailing by the OCSD of the initial invoice for fees imposed pursuant to this Ordinance, request that the OCSD reconsider imposition of such fees. Following review of such a 572010.1 18 request, the OCSD shall notify the user, permit applicant, or permittee by certified mail of the OCSD’s decision on the reconsideration request. B. Any user, permit applicant, or permittee adversely affected by the OCSD’s decision on the reconsideration request, may file an appeal in accordance with Sections 617 and 619 of the OCSD’s Wastewater Discharge Regulations. TABLE D ADMINISTRATIVE FEES AND CHARGES RELATING TO PERMITTEES Permit Fees Charges A. Class I Wastewater Discharge Permit $785.00/year B. Class II Wastewater Discharge Permit $170.00/year C. Special Purpose Discharge Initial Permit Issue $1,050.00/year Nonrefundable Deposit for First 1 Million As Defined in Gallons – New Permit Only Table F Special Purpose Discharge Permit Renewal $750.00/year D. Wastehauler Discharge Permit $190.00/year Wastehauler Fees Charges F. Permit Decal Initial Issue $25.00 G. Permit Decal Replacement $50.00 H. Entry Card Initial Issue $50.00 I. Entry Card Replacement $100.00 J. After Hours Discharge – Prearranged $102.00/event K. After Hours Discharge – Emergency $165.00.00/event Administrative/Processing Fees Charges L. OCSD’s Collection of Tax Data $100.00/permit M. OCSD’s Collection of Water Consumption Data $100.00/permit N. Appeal Hearing Filing Fee $400/appeal 572010.1 19 TABLE E INDUSTRIAL DISCHARGER, SOURCE CONTROL AND NON-COMPLIANCE SAMPLING FEES Charge Cost of Processing and Sampling Following a Minor Violation $225.00/event Cost of Processing and Sampling Following a Major Violation $500.00/event Cost of Analysis Charge Heavy Metals: $35.00/each - Aluminum - Antimony - Arsenic - Cadmium - Chromium - Copper - Gold - Lead - Molybdenum - Nickel - Palladrum - Platinum - Selenium - Silver - Thallium - Zinc Mercury $78.00 601/602 $152.00 604 $223.00 606 $254.00 608 $523.00 610 $73.00 612 $200.00 624 $355.00 625 $661.00 572010.1 20 TABLE E (CONTINUED) INDUSTRIAL DISCHARGER, SOURCE CONTROLAND NON-COMPLIANCE SAMPLING FEES Charge Ammonia Analysis as Nitrogen $ 21.00 Biochemical Oxygen Demand (BOD) $ 44.00 BOD and Suspended Solids (SS) Analysis $ 67.00 Chemical Oxygen Demand $ 44.00 Conductivity $ 15.00 Cyanide (Amenable) $ 70.00 Dissolved Mineral Solids $ 15.00 Gamma Radiation Determination $115.00 Gross Alpha and Beta Determination $ 50.00 Tritium Determination $ 50.00 Oil & Grease (Hexane Soluble Matter) $ 74.00 Oil & Grease (Mineral Partition) $ 74.00 Total Organic Nitrogen $ 48.00 pH $ 8.00 Fluoride $ 51.00 Suspended Solids (Total) $ 23.00 Suspended Solids (Total and Volatile) $ 44.00 Total Dissolved Solids $ 14.00 Total Sulfides $ 29.00 SELF-MONITORING AND DATA REPORTING NON-COMPLIANCE Cost of Processing and Issuing Significant Non-Compliance Notification $165.00 Cost of Processing Annual SNC and Publication $260.00 572010.1 21 TABLE F CLASS I AND CLASS II PERMITTEES AND SPECIAL PURPOSE DISCHARGE PERMITTEES CHARGES FOR USE Class I and II Permit User FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 Flow (*) $ 840.30 $ 924.40 $1,016.80 $1,116.50 $1,225.90 B.O.D. (**) $ 399.50 $ 439.40 $ 483.30 $ 530.70 $ 582.70 S.S. (***) $ 424.90 $ 467.30 $ 514.10 $ 564.50 $ 619.80 Special Purpose Discharge Permit FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 Flow (*) $ 840.30 $ 924.40 $1,016.80 $1,116.50 $1,225.90 (*) Flow Per million gallons of Flow (**) B.O.D. Per thousand pounds of Biochemical Oxygen Demand (***) S.S. Per thousand pounds of Suspended Solids All properties located within Revenue Area No. 14 pay no annual service fees. OCSD costs relating to providing service to these properties are billed by OCSD directly to the Irvine Ranch Water District, the local agency providing the local sewer service. 572010.1 22 TABLE G WASTEHAULER CHARGES FOR USE Wastehauler Fees Charges Charge for Use –Waste originating -within Orange County; -within service area; and -within OCSD Boundaries $0.05/gallon of truck capacity Charge for Use – Waste originating -within Orange County; -within service area and outside OCSD Boundaries $0.12/gallon of truck capacity Charge for Use – Waste originating -Outside Orange County; and within service area $0.12/gallon of truck capacity Waste hauled from a source that is not within the OCSD’s service area is prohibited unless authorized by the General Manager. Service area is defined as any area the OCSD has an agreement to serve. 572010.1 23 ARTICLE IV MISCELLANEOUS Section 4.01. Application of Ordinance. The provisions of this Ordinance shall be in addition to the provisions of the OCSD’s Wastewater Discharge Regulations for use of OCSD’s sewage facilities, including provisions for payment of charges or fees related thereto; OCSD’s ordinance establishing Fees Concerning Annexations of Territory to the OCSD; and any other OCSD Ordinances and Resolutions not in conflict herewith. Section 4.02. Exceptions. The provisions of this Ordinance shall apply to all owners of properties within the OCSD, including those properties otherwise deemed exempt from payment of taxes or assessments by provisions of the State Constitution or statute, including properties owned by other public agencies or tax-exempt organizations, except as expressly provided herein. Section 4.03 Out of Area Sewer Service Agreements. The OCSD is empowered to contract for the transport, treatment and disposal of wastewaters originating within areas outside of the OCSD if it is in the best interest of the OCSD to do so. These Out of Area Sewer Service Agreements will establish fees and charges relative to the services provided by the OCSD for each individual agreement. The Board of Directors of the Orange County Sanitation District does further hereby ORDAIN: Section II. Severability. If any provision of this Ordinance, or the application to any person or circumstances is held invalid by order of Court, the remainder of the Ordinance, or the application of such provision to other persons or other circumstances, shall not be affected. Section III. Effective Date. This Ordinance shall take effect July 1, 2010. Section IV. Repeal. Ordinance No. OCSD-36 is hereby repealed. Section V. Certification and Publication. The Clerk of the Board shall certify to the adoption of this Ordinance, and shall cause a summary to be published in a newspaper of general circulation as required by law. 572010.1 24 PASSED AND ADOPTED by a vote of not less than two-thirds of the Board of Directors of the Orange County Sanitation District at a Regular Meeting held May 26, 2010. ________________________________ Chair, Board of Directors Orange County Sanitation District ATTEST: ____________________________ Clerk of the Board _____________________________ Bradley R. Hogin, General Counsel Page 1 ADMINISTRATION COMMITTEE Meeting Date 04/14/10 To Bd. of Dir. AGENDA REPORT Item Number 3 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director, Finance and Administrative Services GENERAL MANAGER'S RECOMMENDATION 1) Reject apparent low bid submitted by Project Partners as deemed non-responsible in accordance with specification requirements for Land Records Information System (LRIS) Data Development and related services, Specification No. CS-2010-447BD; 2) Approve a professional agreement with Psomas for Land Records Information System (LRIS) Data Development and related services, Specification No. CS-2010-447BD, for a one-year period, for an amount not to exceed $176,400; 3) Approve an option of two additional one-year renewals for an amount not to exceed $176,400 per year; and, 4) Approve a contingency of $17,640 (10%) per year. SUMMARY This project provides for the digitizing and mapping of easements, grant deeds, quitclaim deeds, permits agreements, access and right-of-way documents and any other land document necessary, into the OCSD Land Records Information System. Psomas will provide staff required to import land documents into OCSD’s Electronic Document Management System, digitize boundaries into the OCSD’s Geographic Information System, and provide any additional research and surveying required to complete the project. The apparent low bidder did not demonstrate the required five years of GIS experience, thus the rejection of their bid. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION The Land Records Information System project began as an in-house project and developed into a Pilot Project contracted to Dudek in September 2007. The cost of the Pilot Project was $26,750 and, therefore, did not go to the Board of Directors at that time. Page 2 Throughout OCSD’s service area, there are many dedicated permanent easements and other documents that provide legal access to OCSD facilities for the purpose of construction, maintenance, and repairs. OCSD has an immediate need to be able to access and retrieve these documents both in the office and in the field to deal effectively with day-to-day operations. The management and monitoring of the easements and access rights are a primary concern to OCSD. Having a populated Land Record Information System (LRIS) is a vital tool that will help to improve the management and control of OCSD facilities. For each digital land document located in a specified OCSD file system, the GIS Specialist is to use the Legal Descriptions following distances and bearings to accurately digitize the easement boundaries into an existing data set created during the pilot project. In some cases tract maps, parcel maps and/or other sources of information may be used to clarify and assist the GIS Specialist in digitizing the shape of the easement boundaries. The GIS Specialist will also record specified information from the Land Documents and enter the data into OCSD’s GIS. Some easements will require that the vendor provide the assistance of a Professional Land Surveyor (included in this contract). Below is the tabulated bid results. Psomas was the lowest responsive, and responsible bidder. Land Record Information System Data Development Bid Date – 03/09/2010 @ 2:00 PM CS-2010-447 BID ITEM BIDDERS Project Partners, Inc. Psomas Nobel Systems Dudek RBF Consulting 1 $115,200 $158,400 $149,760 $216,000 $244,800 2 18,300 18,000 29,800 29,800 25,200 Total $133,500 $176,400 $179,560 $245,800 $270,000 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. Date of Approval Contract Amount Contingency 05/26/2010 $176,400.00 $17,640.00 (10%) Form No. DW-102.3 Revised: 01/11/2010 Page 1 ADMINISTRATION COMMITTEE Meeting Date 04/14/10 To Bd. of Dir. 04/28/10 AGENDA REPORT Item Number 4 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administration GENERAL MANAGER'S RECOMMENDATION 1) Adopt Resolution No. OCSD ____, 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, Trust Agreement, and Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Certificates of Participation to be referred to as Wastewater Revenue Obligations, authorizing the execution and delivery of such Revenue Obligations in an aggregate amount of not to exceed $80,000,000, 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 and delivery of necessary documents and related actions; and, 2) That the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate amount not to exceed $80,000,000. SUMMARY The Administration Committee and the Board of Directors have previously authorized the execution and delivery of $80,000,000 of new Certificates of Participation and approved the financing team consisting of an independent financial advisor, Public Resources Advisory Group (“PRAG”), and bond and disclosure counsel, Fulbright & Jaworski. Woodruff, Spradlin & Smart, the District’s General Counsel, has also been assisting staff. The purpose of the financing is to provide a portion of the funding required for the capital improvement program of FY 2009-2010 and FY 2010-11. None of the proceeds will be used for operations and maintenance needs. This financing, previously estimated to be $70 million, is included in the 2009-10 approved budget. Form No. DW-102.3 Revised: 01/11/2010 Page 2 The financing is structured as new fixed rate Certificates of Participation to be referred as Wastewater Revenue Obligations that are to be sold in a competitive sale. The final documents will be presented to the Board and the OCSD Financing Corporation on April 28, 2010, for final approval. Staff and consultants will make a brief presentation and provide an overview of the draft documents and the financing schedule at the Administration Committee meeting. A current financing schedule is attached. PRIOR COMMITTEE/BOARD ACTIONS March 24, 2010: Approved Resolution declaring District’s intent to reimburse itself for capital outlays from a future long-term financing. March 24, 2010: Directed staff to initiate process to issue up to $80,000,000 in new fixed-rate Certificates of Participation (COP) debt. ADDITIONAL INFORMATION Strategy Staff is proposing to issue this $80,000,000 fixed rate debt by competitive sale as opposed to a negotiated sale due to PRAG’s opinion that a competitive fixed rate sale will be less costly to the District. Depending on market conditions and the associated cost savings, all, or a portion, of the debt issuance may be offered as Build America Bonds (“BABs”). The American Recovery and Reinvestment Act of 2009 created a new financing product, BABs, for the municipal issuer. BABs are issued as higher interest taxable bonds; however, the U.S. Treasury provides a 35 percent subsidy on interest payments. The net cost, after accounting for the 35 percent subsidy payment, frequently results in lower net costs to the issuer, specifically in the maturity years beyond ten years. For example, under current market conditions, the net yield to the District of a 30-year BABs maturity is approximately 4.05% compared to a 30-year tax-exempt borrowing yield of approximately 4.84% (or 79 basis points higher cost). The current net 30-year BABs borrowing yield to the District of 4.05% compares favorably to the District’s past fixed rate borrowing yields shown in the table below: Series District 30-Year Yields Series 2003 5.10% Series 2007B 4.81 Series 2009A 5.06 Form No. DW-102.3 Revised: 01/11/2010 Page 3 The 35 percent subsidy is available for certain debt issuances prior to January 1, 2011. There are a couple of outstanding federal proposals to extend the BABs program beyond 2010; however, these proposals reduce the subsidy from the current 35 percent to lower levels of 28 percent and 33 percent. In the current market, a reduction of the subsidy to 28 percent and 33 percent would increase the 30-year net borrowing cost to the District by 44 and 12 basis points, respectively. Since it is likely the BABs subsidy will be reduced after this calendar year, in order to optimize the funding of the overall capital improvement program, the District could “back-load” the $80,000,000 of new money borrowing by amortizing debt in the later years. Benefits from back-loading the new money issuance include (1) capturing the higher 35 percent interest subsidy, instead of an anticipated future lower subsidy, and (2) minimizing the risk of rising interest rates by locking in historical low 30-year District borrowing costs (see table above). By back-loading the new money amortization compared to a more traditional level debt service structure (equal payments in each year), the District will save approximately $1.5 million per year from FY 2010-11 through FY 2032-33; however, net debt service costs will increase by approximately $8 million per year from FY 2033-34 through FY 2039-40 as shown in the graph below: If the District back-loads the debt service on the upcoming new money issuance, future debt funding of the capital improvement program would amortize additional principal in FY 2010-11 through FY 2032-33 and reduce principal in FY 2033-34 through FY 2039-40 with the goal of overall level debt service for the District’s capital improvement program. Based on current market conditions, comparing a back-loaded BABs new money borrowing to a back-loaded tax-exempt structure would result in present value savings to the District of $9.73 million (12% present value savings) which is well in excess of the Form No. DW-102.3 Revised: 01/11/2010 Page 4 savings the District would ever expect to achieve from a future refunding. If the District would refund and restructure the BABs, it could be very costly; however, staff believes the future need to restructure the BABs is extremely remote. Effectively, by issuing BABs, the District should consider the debt to be non-callable as it would otherwise be very expensive to optionally redeem. Municipal issuers have sold $80,000,000 of BABs since the first issuance in April 2009. In addition, nearly 19% of the municipal bond volume was comprised of BABs over the past twelve months. A number of California issuers have already each sold over a billion dollars of BABs, including the State of California, Los Angeles Unified School District, Bay Area Toll Authority, and University of California. California utility issuers that have issued BABs include the Metropolitan Water District of Southern California, Los Angeles Department of Water and Power, San Diego County Water Authority, East Bay Municipal Utility District, and the San Francisco Public Utilities Commission. Legal Authorization and Approvals The Board of Directors and the Financing Corporation will each be required to adopt separate Resolutions to complete this borrowing. Drafts of these two Resolutions are available for review on the District’s webpage, as described in the “Attachments” section below. A Financing Corporation is required by the structure of the COPs 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 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 Certificates of Participation to be referred to as Wastewater Revenue Obligations evidencing principal in an aggregate amount of not to exceed $80,000,000 all as spelled out in the title as follows: “A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT AUTHORIZING THE EXECUTION AND DELIVERY BY THE DISTRICT OF AN INSTALLMENT PURCHASE AGREEMENT, A TRUST AGREEMENT, AND A CONTINUING DISCLOSURE AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT CERTIFICATES OF PARTICIPATION TO BE REFERRED TO AS WASTEWATER REVENUE OBLIGATIONS, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $80,000,000, 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 AND DELIVERY 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: Form No. DW-102.3 Revised: 01/11/2010 Page 5 “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 CERTIFICATES OF PARTICIPATION TO BE REFERRED TO AS WASTEWATER REVENUE OBLIGATIONS; AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT-TO-EXCEED $80,000,000 AND; AUTHORIZING THE EXECUTION AND DELIVERY OF NECESSARY DOCUMENTS AND RELATED ACTIONS.” Following is a chart listing the remaining steps to be completed for the issuance of the new money debt issuance: April Ø Finalize debt service and cash flow modeling Ø Board approval of legal and disclosure documents Ø Rating Agency Presentations May Ø Marketing and Sale through a Competitive Sale Process Ø Execute up to $80 million Fixed-Rate debt issue Ø Investment of Bond Proceeds Ø Debt Administration BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS Bond documents may be viewed on OCSD’s webpage: http://www.ocsd.com/about/boardofdirectors/agendanminutes.asp. Following are the bond documents included on the OCSD webpage: 1. 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 90031344.4 RESOLUTION NO. OCSD 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 CERTIFICATES OF PARTICIPATION TO BE REFERRED TO AS WASTEWATER REVENUE OBLIGATIONS, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $80,000,000, 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 AND DELIVERY OF NECESSARY DOCUMENTS AND RELATED ACTIONS WHEREAS, the Orange County Sanitation District (the “District”) desires to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Project”); WHEREAS, to finance the Project, the District desires to purchase the Project from the Orange County Sanitation District Financing Corporation (the “Corporation”), and the Corporation desires to sell the Project to the District, for the installment payments (the “Installment Payments”) to be made by the District pursuant to an Installment Purchase Agreements (the “Installment Purchase Agreement”), by and between the District and the Corporation; 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 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 Orange County Sanitation District Wastewater Revenue Obligations (which constitute certificates of participation), as “build America bonds” (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 each series of the Revenue Obligations in a discrete sale transaction; 90031344.4 2 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 material events; WHEREAS, to cause such requirement to be satisfied, the District desires to enter into a Continuing Disclosure Agreement (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; (d) the Notice Inviting Bids; (e) the Preliminary Official Statement; and (f) the Continuing Disclosure Agreement; WHEREAS, all acts, conditions and things required by the Constitution and laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the consummation of the financing authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the District is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such financing for the purpose, in the manner and upon the terms herein provided; 90031344.4 3 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 such 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 $80,000,000, shall not result in a true interest cost for the Installment Payments in excess of 8% and shall not result in an Installment Payment later than February 1, 2040. 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 the Revenue Obligations evidencing principal in an aggregate amount not to exceed $80,000,000, 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. The Revenue Obligations may be executed and delivered in one or more series, and sold in one or more discrete sale transactions, all as determined by an Authorized Officer. Section 5. 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 a series 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 one or more Notices of Intention to Sell to be published 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 under the Notice Inviting Bids, with such changes, insertions and 90031344.4 4 omissions therein as an Authorized Officer may require or approve, such requirement or approval to be conclusively evidenced by the publishing of such Notice of Intention to Sell. Section 6. 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 Notices 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 a series of the Revenue Obligations shall be as specified in Notice Inviting Bids. Bids for the purchase of a series 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 a series of 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 7. 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 a series of the Revenue Obligations is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the District that a Preliminary Official Statement with respect to a series of the Revenue Obligations 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 a series of the Revenue Obligations a reasonable number of copies of the Preliminary Official Statement. Section 8. The preparation and delivery of a final Official Statements (the “Official Statement”), and their use in connection with the offering and sale of the Revenue Obligations, be and the same is hereby authorized and approved. An Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers are, and each of them is, hereby authorized and directed to execute a final Official Statement and any amendment or supplement thereto, for and in the name of the District. Section 9. 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 such Continuing Disclosure Agreement by such Authorized Officer. 90031344.4 5 Section 10. 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 11. 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 12. This Resolution shall take effect immediately upon its adoption. PASSED AND ADOPTED at a regular meeting held on April 28, 2010. Chair of the Board of Directors ATTEST: Clerk of the Board APPROVED: General Counsel Orange County Sanitation District 90031344.4 STATE OF CALIFORNIA ) ) ss COUNTY OF ORANGE ) I, Penny M. Kyle, Clerk of the Board of Directors of the Orange County Sanitation District, do hereby certify that the foregoing Resolution No. OCSD 10-__ was passed and adopted at a regular meeting of said Board on the 28th day of April 2010, 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 28th day of April 2010. Clerk of the Board of Directors Orange County Sanitation District 90031343.3 Fulbright & Jaworski L.L.P. – Draft 04/06/10 RESOLUTION NO. FC-__ A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION AUTHORIZING THE EXECUTION AND DELIVERY BY THE CORPORATION OF AN INSTALLMENT PURCHASE AGREEMENT AND A TRUST AGREEMENT IN CONNECTION WITH THE EXECUTION AND DELIVERY OF ORANGE COUNTY SANITATION DISTRICT CERTIFICATES OF PARTICIPATION TO BE REFERRED TO AS WASTEWATER REVENUE OBLIGATIONS, AUTHORIZING THE EXECUTION AND DELIVERY OF SUCH REVENUE OBLIGATIONS EVIDENCING PRINCIPAL IN AN AGGREGATE AMOUNT OF NOT TO EXCEED $80,000,000 AND AUTHORIZING THE EXECUTION AND DELIVERY OF NECESSARY DOCUMENTS AND RELATED ACTIONS. WHEREAS, the Orange County Sanitation District (the “District”) desires to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Project”); WHEREAS, to finance the Project, the District desires to purchase the Project from the Orange County Sanitation District Financing Corporation (the “Corporation”), and the Corporation desires to sell the Project to the District, for the installment payments (the “Installment Payments”) to be made by the District pursuant to an Installment Purchase Agreement (the “Installment Purchase Agreement”), by and between the District and the Corporation; 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 among the Trustee, the Corporation and the District (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 Orange County Sanitation District Wastewater Revenue Obligations (which constitute certificates of participation), as “build America bonds” (the “Revenue Obligations”), evidencing direct, undivided fractional interests in the applicable 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; 90031343.3 2 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 such 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 $80,000,000, shall not result in a true interest cost for the Installment Payments in excess of 8% and shall not result in a final Installment Payment later than February 1, 2040. 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 such 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 $80,000,000, payable in the years and in the amounts, and evidencing direct, undivided fractional interests in the applicable Installment Payments, and the interest thereon, as specified in the Trust Agreement as finally executed, are hereby authorized and approved. Section 5. The Authorized Officers 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 90031343.3 3 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. PASSED AND ADOPTED at a meeting held on April 28, 2010. President, Orange County Sanitation District Financing Corporation ATTEST: Secretary, Orange County Sanitation District Financing Corporation APPROVED: General Counsel, Orange County Sanitation District Financing Corporation 90031343.3 STATE OF CALIFORNIA ) ) ss COUNTY OF ORANGE ) I, Penny M. Kyle, Secretary 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 28th day of April 2010, 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 28th day of April 2010. Secretary, Orange County Sanitation District Financing Corporation 90031337.5 Fulbright & Jaworski L.L.P. – Draft 04/06/10 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 May 1, 2010 Relating to $[PAR AMOUNT] Orange County Sanitation District Wastewater Revenue Obligations Series 2010A (Federally Taxable Build America Bonds) 90031337.5 ARTICLE I DEFINITIONS; EQUAL SECURITY 2 Section 1.01. Definitions........................................................................................................2 Section 1.02. Definitions in Installment Purchase Agreement............................................10 Section 1.03. Equal Security................................................................................................10 ARTICLE II TERMS AND CONDITIONS OF REVENUE OBLIGATIONS 11 Section 2.01. Preparation and Delivery of Revenue Obligations ........................................11 Section 2.02. Denomination, Medium and Dating of Revenue Obligations .......................11 Section 2.03. Payment Dates of Revenue Obligations; Interest Computation ....................11 ........................................................................................................................12 Section 2.04. Form of Revenue Obligations........................................................................13 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.......................................13 Section 2.06. Transfer and Payment of Revenue Obligations; Exchange of Revenue Obligations.....................................................................................................13 Section 2.07. Revenue Obligation Registration Books........................................................13 Section 2.08. Temporary Revenue Obligations...................................................................13 Section 2.09. Revenue Obligations Mutilated, Lost, Destroyed or Stolen..........................14 Section 2.10. Book-Entry System........................................................................................14 ARTICLE III PROCEEDS OF REVENUE OBLIGATIONS 17 Section 3.01. Delivery of Revenue Obligations...................................................................17 Section 3.02. Deposit of Proceeds of Revenue Obligations ................................................17 Section 3.03. Costs of Issuance Fund..................................................................................17 Section 3.04. Use of Moneys in the Acquisition Fund........................................................17 ARTICLE IV PREPAYMENT OF REVENUE OBLIGATIONS 18 Section 4.01. Prepayment ....................................................................................................18 Section 4.02. Mandatory Sinking Account Prepayment......................................................18 Section 4.03. Selection of Revenue Obligations for Optional Prepayment.........................19 Section 4.04. Notice of Prepayment ....................................................................................19 Section 4.05. Partial Prepayment of Revenue Obligations..................................................20 TABLE OF CONTENTS (continued) Page 90031337.5 ii Section 4.06. Effect of Prepayment .....................................................................................20 ARTICLE V ASSIGNMENT AND PLEDGE; FUNDS AND ACCOUNTS 21 Section 5.01. Assignment and Pledge..................................................................................21 Section 5.02. Installment Payment Fund.............................................................................21 Section 5.03. Reserved.........................................................................................................22 Section 5.04. Investment of Moneys....................................................................................22 Section 5.05. Brokerage Confirmations...............................................................................23 ARTICLE VI COVENANTS 23 Section 6.01. Compliance with Trust Agreement................................................................23 Section 6.02. Compliance with Installment Purchase Agreement.......................................23 Section 6.03. Compliance with Master Agreement.............................................................23 Section 6.04. Observance of Laws and Regulations............................................................24 Section 6.05. Other Liens.....................................................................................................24 Section 6.06. Prosecution and Defense of Suits ..................................................................24 Section 6.07. Accounting Records and Statements .............................................................24 Section 6.08. Reserved.........................................................................................................24 Section 6.09. Continuing Disclosure ...................................................................................24 Section 6.10. Further Assurances.........................................................................................24 ARTICLE VII DEFAULT AND LIMITATIONS OF LIABILITY 25 Section 7.01. Action upon Event of Default........................................................................25 Section 7.02. Other Remedies of the Trustee ......................................................................25 Section 7.03. Non-Waiver....................................................................................................25 Section 7.04. Remedies Not Exclusive................................................................................26 Section 7.05. Application of Amounts After Default..........................................................26 Section 7.06. Trustee May Enforce Claims Without Possession of Revenue Obligations.....................................................................................................27 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.....................................................28 ARTICLE VIII THE TRUSTEE 28 Section 8.01. Employment of the Trustee; Duties...............................................................28 TABLE OF CONTENTS (continued) Page 90031337.5 iii 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 31 Section 9.01. Amendment or Supplement ...........................................................................31 Section 9.02. Disqualified Revenue Obligations.................................................................32 Section 9.03. Endorsement or Replacement of Revenue Obligations After Amendment or Supplement ...........................................................................32 Section 9.04. Amendment by Mutual Consent....................................................................33 ARTICLE X DEFEASANCE 33 Section 10.01. Discharge of Revenue Obligations and Trust Agreement .............................33 Section 10.02. Unclaimed Moneys........................................................................................34 ARTICLE XI MISCELLANEOUS 35 Section 11.01. Benefits of Trust Agreement..........................................................................35 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............................................36 Section 11.06. Content of Certificates...................................................................................36 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 90031337.5 TRUST AGREEMENT THIS TRUST AGREEMENT (this “Trust Agreement”), dated as of May 1, 2010, 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, the District desires to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Project”); WHEREAS, to finance the Project, the District desires to purchase the Project from the Corporation, and the Corporation desires to sell the Project to the District, for the installment payments (the “Installment Payments”) to be made by the District pursuant to the Installment Purchase Agreement, dated as of May 1, 2010 (the “Installment Purchase Agreement”), by and between the District and the Corporation; 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 Revenue Obligations, Series 2010A (the “Revenue Obligations”), which are certificates of participation, evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon; 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: 90031337.5 2 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: “Acquisition Costs” means all costs of acquiring, constructing and installing the Project, including but not limited to: (a) all costs which the Corporation or the District shall be required to pay to a manufacturer, vendor or contractor or any other Person under the terms of any contract or contracts for the construction, acquisition or installation of the Project; (b) obligations of the Corporation or the District incurred for labor and materials (including obligations payable to the Corporation or the District for actual out-of-pocket expenses of the Corporation or the District) in connection with the construction, acquisition or installation of the Project, including reimbursement to the Corporation or the District for all advances and payments made in connection with the Project prior to or after delivery of the Revenue Obligations; (c) the costs of performance or other bonds and any and all types of insurance that may be necessary or appropriate to have in effect during the course of construction, acquisition and installation of the Project; (d) all costs of engineering, architectural and other consulting services, including the actual out-of-pocket costs of the Corporation or the District for test borings, surveys, estimates, plans and specifications and preliminary investigations therefor, of development fees and sales commissions, and for supervising the construction, acquisition and installation of the Project, as well as for the performance of all other duties required by or consequent to the proper construction, acquisition and installation of the Project; and (e) any sums required to reimburse the Corporation or the District for advances made by the Corporation or the District for any of the above items or for any other costs incurred and for work done by the Corporation or the District which the Corporation or the District determine are properly chargeable to the construction, acquisition or installation of the Project. “Acquisition Fund” means the fund by that name established in accordance with Section 3.04 hereof. “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 90031337.5 3 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. “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, 2011. “Closing Date” means May __, 2010. “Code” means the Internal Revenue Code of 1986. “Comparable Treasury Issue” means, with respect to any prepayment date for a particular Revenue Obligation, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the Revenue Obligation to be prepaid, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the Revenue Obligation to be prepaid. “Comparable Treasury Price” means, with respect to any prepayment date for a particular Revenue Obligation: (i) the most recent yield data for the applicable U.S. Treasury maturity index from the Federal Reserve Statistical Release H.15 Daily Update (or any comparable or successor publication) reported, as of 11:00 a.m., New York City time, on the Valuation Date; or 90031337.5 4 (ii) if the yield described in (i) above is not reported as of such time or the yield reported as of such time is not ascertainable, the average of four Reference Treasury Dealer Quotations for that prepayment date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or if the Designated Investment Banker obtains fewer than four Reference Treasury Dealer Quotations, the average of all quotations obtained by the Designated Investment Banker. “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. “Designated Investment Banker” means one of the Reference Treasury Dealers appointed by the District. “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. “Extraordinary Event” will have occurred if the District determines that a material adverse change has occurred to section 54AA or section 6431 of the Code or there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such sections or any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of an act or omission by the District to satisfy the requirements to receive the 35% cash subsidy payments from the United States Treasury with 90031337.5 5 respect to the Revenue Obligations, pursuant to which the 35% cash subsidy payments from the United States Treasury with respect to the Revenue Obligations are reduced or eliminated. “Extraordinary Optional Redemption Price” means, for each maturity of the Revenue Obligations, the greater of (i) 100% of the principal amount of the Revenue Obligations to be prepaid or (ii) the sum of the present value of the remaining scheduled payments of principal and interest on the Revenue Obligations of such maturity to be prepaid to the maturity date of such Revenue Obligations, not including any portion of those payments of interest accrued and unpaid as of the date on which the Revenue Obligations of such maturity are to be prepaid, discounted to the date on which the Revenue Obligations of such maturity are to be prepaid on a semi-annual basis, assuming a 360-day year containing twelve 30-day months, at the Treasury Rate (as defined above) plus one hundred (100) basis points, plus accrued interest on the Revenue Obligations of such maturity to be prepaid to the prepayment date. “Government Obligations” means any of the following which are noncallable by the issuer thereof except to the extent not permitted by the laws of the State as an investment for the moneys to be invested therein at the time of investment: (i) (a) direct general obligations of the United States of America, (b) obligations the payment of the principal of and interest on which are unconditionally guaranteed as to the full and timely payment by the United States of America, or (c) any fund or other pooling arrangement whose assets consist exclusively of the obligations listed in clause (a) or (b) of this clause (i) and which is rated at least “P-1” by Moody’s; provided that, such obligations shall not include unit investment trusts or mutual fund obligations; (ii) advance refunded tax-exempt obligations secured by the obligations specified in clause (i) which tax-exempt obligations are rated “Aaa” by Moody’s and “AAA” by S&P as a result of such obligations being secured by said obligations; (iii) bonds, debentures or notes issued by any of the following federal agencies: Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation or Federal National Mortgage Association; provided that such bonds, debentures or notes shall be the senior obligations of such agencies (including participation certificates) and rated “Aaa” by Moody’s and “AAA” by S&P; 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. 90031337.5 6 “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 August 1, 2010. “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 maybe supplemented or revised or replaced by a letter to a substitute Depository. “Mandatory Sinking Account Payment” means the amount required to be deposited by the District in the Principal Account for the prepayment of Term Revenue Obligations pursuant to Section 4.02 hereof. “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 2.11 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. 90031337.5 7 “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; (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; 90031337.5 8 (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 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 restricted to obligations the payment of principal and interest with respect to which is guaranteed by the United States of America or repurchase agreements secured by such obligations, and 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 90031337.5 9 (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. “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. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any prepayment date for a particular Revenue Obligation, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the Valuation Date. “Reference Treasury Dealer” means each of four firms, specified by the District from time to time, that are primary United States Government securities dealers (each, a “Primary Treasury Dealer”); provided, that if any of them ceases to be a Primary Treasury Dealer, the District will substitute another Primary Treasury Dealer. “Revenue Obligations” means the Orange County Sanitation District Wastewater Revenue Obligations, Series 2010A, executed and delivered by the Trustee pursuant hereto, which are certificates of participation, evidencing direct, undivided fractional interests in the 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 90031337.5 10 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. “Term Revenue Obligations” means Revenue Obligations payable at or before their specified maturity date or dates from Mandatory Sinking Account Payments established for that purpose and calculated to retire such Revenue Obligations on or before their specified maturity date or dates. “Treasury Rate” means, with respect to any redemption for a particular Revenue Obligation, the rate per annum truncated to the fifth decimal, expressed as a percentage of the principal amount, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. “Trust Agreement” means this Trust Agreement, dated as of May 1, 2010, 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 10.02 hereof. “Valuation Date” means a day at least two Business Days and no more than forty-five calendar days preceding the prepayment date. “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. 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 90031337.5 11 and principal evidenced by the Revenue Obligations which may be executed and delivered hereunder, subject to each of the agreements, conditions, covenants and terms contained herein; and all agreements, conditions, covenants and terms contained herein required to be observed or performed by or on behalf of the Trustee shall be for the equal and proportionate benefit, protection and security of all Owners without distinction, preference or priority as to security or otherwise of any Revenue Obligations over any other Revenue Obligations by reason of the number or date thereof or the time of execution or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. ARTICLE II TERMS AND CONDITIONS OF REVENUE OBLIGATIONS Section 2.01. Preparation and Delivery of Revenue Obligations. The Trustee is hereby authorized, upon the Written Request of the District, to execute and deliver the Revenue Obligations in the aggregate principal amount of $[PAR AMOUNT], evidencing the aggregate principal amount of the Installment Payments and each evidencing a direct, fractional undivided interest in the Installment Payments, and the interest thereon. The Installment Payments evidenced by each Revenue Obligation shall constitute the principal evidenced thereby and the interest on such Installment Payments shall constitute the interest evidenced thereby. The Revenue Obligations shall be numbered, with or without prefixes, as directed by the Trustee. Section 2.02. Denomination, Medium and Dating of Revenue Obligations. The Revenue Obligations shall be designated “Orange County Sanitation District Wastewater Revenue Obligations, Series 2010A” 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 _____ 15, 20__, in which case such Revenue Obligation shall represent interest from the Closing Date. Notwithstanding, the foregoing, if, as shown by the records of the Trustee, interest evidenced by the Revenue Obligations shall be in default, each Revenue Obligation shall evidence interest from the last Interest Payment Date to which such interest has been paid in full or duly provided for. Section 2.03. Payment Dates of Revenue Obligations; Interest Computation. (a) Method and Place of Payment. The principal evidenced by the Revenue Obligations shall become due and payable, subject to prior prepayment, on February 1 of the years, in the amounts, and shall evidence interest accruing at the rates per annum set forth below: 90031337.5 12 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. 90031337.5 13 Section 2.04. Form of Revenue Obligations. The Revenue Obligations shall be in substantially the form of Exhibit A hereto, with necessary or appropriate insertions, omissions and variations as permitted or required hereby. Section 2.05. Execution of Revenue Obligations and Replacement Certificates. The Revenue Obligations shall be executed by the Trustee by the manual signature of an authorized signatory of the Trustee. The Trustee shall deliver replacement Revenue Obligations in the manner and as contemplated by this Article. Such replacement Revenue Obligations shall be executed as herein provided and shall be in Authorized Denominations. Section 2.06. Transfer and Payment of Revenue Obligations; Exchange of Revenue Obligations. Each Revenue Obligation is transferable by the Owner thereof, in person or by his attorney duly authorized in writing, at the Principal Office, on the registration books maintained by the Trustee pursuant to the provisions of Section 2.07 hereof, upon surrender of such Revenue Obligation for cancellation accompanied by delivery of a duly executed written instrument of transfer in a form acceptable to the Trustee. The Trustee may treat the Owner of any Revenue Obligation as the absolute owner of such Revenue Obligation for all purposes, whether or not the principal or interest evidenced by such Revenue Obligation shall be overdue, and the 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 90031337.5 14 appropriate. Every temporary Revenue Obligation shall be executed and delivered by the Trustee upon the same conditions and terms and in substantially the same manner as definitive Revenue Obligations. If the Trustee executes and delivers temporary Revenue Obligations, it shall prepare and execute definitive Revenue Obligations without delay, and thereupon the temporary Revenue Obligations may be surrendered at the Principal Office in exchange for such definitive Revenue Obligations, and until so exchanged such temporary Revenue Obligations shall be entitled to the same benefits hereunder as definitive Revenue Obligations executed and delivered hereunder. Section 2.09. Revenue Obligations Mutilated, Lost, Destroyed or Stolen. If any Revenue Obligation shall become mutilated, the Trustee, at the expense of the Owner thereof, shall execute and deliver a new Revenue Obligation evidencing a like principal amount and having the same stated Principal Payment Date and number in exchange and substitution for the Revenue Obligation so mutilated, but only upon surrender to the Trustee of the Revenue Obligation so mutilated. Every mutilated Revenue Obligation so surrendered to the Trustee shall be canceled by it. If any Revenue Obligation shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee, and if such evidence is satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the Trustee, at the expense of the Owner thereof, shall execute and deliver a new Revenue Obligation evidencing a like principal amount and having the same stated Principal Payment Date, numbered as the Trustee shall determine, in lieu of and in substitution for the Revenue Obligation so lost, destroyed or stolen. The Trustee may require payment of a sum not exceeding the actual cost of preparing each new Revenue Obligation executed and delivered by it under this Section and of the expenses which may be incurred by it under this Section. Any Revenue Obligation executed and delivered under the provisions of this Section in lieu of any Revenue Obligation alleged to be lost, destroyed or stolen shall be equally and proportionately entitled to the benefits hereof with all other Revenue Obligations executed and delivered hereunder, and the Trustee shall not be required to treat both the original Revenue Obligation and any replacement Revenue Obligation as being Outstanding for the purpose of determining the amount of Revenue Obligations which may be executed and delivered hereunder or for the purpose of determining any percentage of Revenue Obligations Outstanding hereunder, but both the original and replacement Revenue Obligation shall be treated as one and the same. Notwithstanding any other provision of this Section, in lieu of executing and delivering a new Revenue Obligation for a Revenue Obligation which has been lost, destroyed or stolen and which evidences principal that is then payable, the Trustee may make payment of such Revenue Obligation to the Owner thereof if so instructed by the District. Section 2.10. Book-Entry System. (a) The Revenue Obligations shall be initially executed and delivered as Book-Entry Certificates, and the Revenue Obligations for each stated Principal Payment Date shall be in the form of a separate single fully registered Revenue Obligation (which may be typewritten). Upon initial execution and delivery, the ownership of each Revenue Obligation shall be registered in the registration books maintained by the Trustee in the name of the Nominee, as nominee of the Depository. Payment of principal or interest evidenced by any Book-Entry Certificate registered in the name of the Nominee shall be made on the applicable Interest Payment Date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. 90031337.5 15 Such payments shall be made to the Nominee at the address which is, on the Record Date, shown for the Nominee in the registration books maintained by the Trustee. (b) With respect to Book-Entry Certificates, the District, the Corporation and the Trustee shall have no responsibility or obligation to any Participant or to any Person on behalf of which such a Participant holds an interest in such Book-Entry Certificates. Without limiting the immediately preceding sentence, the District, the Corporation and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Participant with respect to any ownership interest in Book-Entry Certificates, (ii) the delivery to any Participant or any other Person, other than an Owner as shown in the registration books maintained by the Trustee, of any notice with respect to Book-Entry Certificates, including any notice of prepayment, (iii) the selection by the Depository and its Participants of the beneficial interests in Book-Entry Certificates to be prepaid in the event Revenue Obligations are prepaid in part, (iv) the payment to any Participant or any other Person, other than an Owner as shown in the registration books maintained by the Trustee, of any amount with respect to principal, premium, if any, or interest evidenced by Book-Entry Certificates, or (v) any consent given or other action taken by the Depository as Owner. (c) The District, the Corporation and the Trustee may treat and consider the Person in whose name each Book-Entry Certificate is registered in the registration books maintained by the Trustee as the absolute Owner of such Book-Entry Certificate for the purpose of payment of principal, prepayment premium, if any, and interest evidenced by such Revenue Obligation, for the purpose of selecting any Revenue Obligations, or portions thereof, to be prepaid, for the purpose of giving notices of prepayment and other matters with respect to such Revenue Obligation, for the purpose of registering transfers with respect to such Revenue Obligation, for the purpose of obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and the District, the Corporation and the Trustee shall not be affected by any notice to the contrary. (d) Reserved. (e) The Trustee shall pay all principal, premium, if any, and interest evidenced by the Revenue Obligations to the respective Owner, as shown in the registration books maintained by the Trustee, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the obligations with respect to payment of principal, premium, if any, and interest evidenced by the Revenue Obligations to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the registration books maintained by the Trustee, shall receive a Revenue Obligation evidencing principal, premium, if any, and interest evidenced by the Revenue Obligations. Upon delivery by the Depository to the Owners, the Trustee and the District of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Trust Agreement shall refer to such nominee of the Depository. (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 90031337.5 16 Corporation, the District or the Trustee any obligation whatsoever with respect to Persons having interests in such Book-Entry Certificates other than the Owners, as shown on the registration books maintained by the Trustee. Such Letter of Representations may provide the time, form, content and manner of transmission, of notices to the Depository. In addition to the execution and delivery of a Letter of Representations by the District, the District, the Corporation and the Trustee shall take such other actions, not inconsistent with this Trust Agreement, as are reasonably necessary to qualify Book-Entry Certificates for the Depository’s book-entry program. (g) If the District determines that it is in the best interests of the Beneficial Owners that they be able to obtain certificated Revenue Obligations and that such Revenue Obligations should therefore be made available and notifies the Depository and the Trustee of such determination, the Depository will notify the Participants of the availability through the Depository of certificated Revenue Obligations. In such event, the Trustee shall transfer and exchange certificated Revenue Obligations as requested by the Depository and any other Owners in appropriate amounts. In the event (i) the Depository determines not to continue to act as securities depository for Book-Entry Certificates, or (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. 90031337.5 17 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. 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 by the Trustee as follows: (a) the Trustee shall deposit in the Costs of Issuance Fund the amount of $________; and (b) the Trustee shall deposit in the Acquisition Fund the amount of $_________. 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. Section 3.04. Use of Moneys in the Acquisition Fund. The Trustee shall establish and maintain a separate special fund to be known as the Acquisition Fund. All moneys in the Acquisition Fund shall be held by the Trustee in trust and applied by the Trustee, as provided in this Section, to the payment of Acquisition Costs. Before any payment is made from the Acquisition Fund by the Trustee, the District shall cause to be filed with the Trustee a Written Request of the District showing with respect to each payment to be made: (a) the item number of the payment; (b) the name of the Person to whom payment is due; (c) the amount to be paid; and (d) the purpose for which the obligation to be paid was incurred. 90031337.5 18 Each such Written Request shall also state, and shall be sufficient evidence to the Trustee, (a) that obligations in the stated amounts have been incurred by the District or the Corporation, and (b) that each item thereof is a proper charge against the Acquisition Fund and is an Acquisition Cost properly allocable to the Project. Each such Written Request shall further specify in reasonable detail the nature of the obligation to be paid. Upon receipt of each such Written Request, the Trustee shall pay the amount set forth in such Written Request as directed by the terms thereof. The Trustee need not make any such payment if it has received written notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys to be so paid, which has not been released or will not be released simultaneously with such payment, unless a payment bond has been posted with the Trustee in the full amount of such lien or claim. Upon the filing with the Trustee of a Written Certificate of the District (i) stating that the Project has been completed and that all costs of the Project have been paid or are not required to be paid from the Acquisition Fund, or (ii) stating that the Project has been substantially completed and that all remaining costs of the Project have been determined and specifying the amount to be retained therefor, the Trustee shall transfer and apply the amount, if any, remaining in the Acquisition Fund (less any such retention) to the Installment Payment Fund. Upon such transfer and the release of any retained funds, the Acquisition Fund shall be closed. ARTICLE IV PREPAYMENT OF REVENUE OBLIGATIONS Section 4.01. Prepayment. (a) The Revenue Obligations will be subject to redemption prior to maturity at the option of the District, as a whole or in part, on any Business Day, at the “Make-Whole Redemption Price.” The “Make-Whole Redemption Price” is the greater of (1) 100% of the principal amount of the Revenue Obligations to be prepaid or (2) the sum of the present value of the remaining scheduled payments of principal of and interest on the Revenue Obligations to be prepaid, not including any portion of those payments of interest accrued and unpaid as of the date on which the Revenue Obligations are to be prepaid, discounted to the date on which the Revenue Obligations are to be prepaid on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the “Treasury Rate” plus 30 basis points, plus, in each case, accrued and unpaid interest on the Revenue Obligations to be prepaid on the prepayment date. (b) The Revenue Obligations are subject to redemption prior to their respective stated maturity dates, at the option of the District, upon the occurrence of an Extraordinary Event, from any source of available funds, as a whole or in part (and, if in part, in such order of maturity as the District shall direct), at any time, at the Extraordinary Optional Redemption Price. Section 4.02. Mandatory Sinking Account Prepayment. The Term Revenue Obligations maturing on February 1, 20__ are subject to prepayment prior to their stated maturity, in part, by lot, on any February 1 on and after February 1, 20__, at the principal amount 90031337.5 19 thereof, plus accrued interest to the date fixed for prepayment, without premium, from Mandatory Sinking Account Payments deposited in the Principal Account. The Term Revenue Obligations maturing on February 1, 20__ shall be prepaid (or paid at maturity, as the case may be) by application of Mandatory Sinking Account Payments in the amounts and upon the dates set forth below: Term Revenue Obligations Maturing February 1, 20__ Mandatory Sinking Account Payment Dates (February 1) Mandatory Sinking Account Payments * _____________ * Maturity. Section 4.03. Selection of Revenue Obligations for Optional Prepayment. Whenever less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to Section 4.01 hereof, with respect to optional prepayment of Revenue Obligations, the Trustee shall select the Revenue Obligations to be prepaid among Revenue Obligations with different Principal Payment Dates as directed in a Written Request of the District. Whenever less than all the Outstanding Revenue Obligations with the same stated Principal Payment Date are to be prepaid on any one date pursuant to Section 4.01 hereof, then (a) if the Revenue Obligations are in book-entry form at the time of such prepayment, the Trustee shall instruct the Depository to instruct the Participants to select the specific Revenue Obligations for prepayment pro rata, and neither the District nor the Trustee shall have any responsibility to ensure that the Depository or the Participants properly select such Revenue Obligations for prepayment, and (b) if the Revenue Obligations are not then in book–entry form at the time of such prepayment, on each prepayment date, the Trustee shall select the specific Revenue Obligations for prepayment pro rata. The portion of any registered Revenue Obligation of a denomination of more than $5,000 to be prepaid will be in Authorized Denominations. The Trustee will select such portions of Revenue Obligations to be prepaid in such manner as the Trustee in its discretion may deem to be fair and appropriate. The Trustee shall promptly notify the District in writing of the numbers of the Revenue Obligations so selected for prepayment on such date. Section 4.04. Notice of Prepayment. When prepayment of Revenue Obligations is authorized pursuant to Section 4.01 or 4.02 hereof, 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 90031337.5 20 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 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 90031337.5 21 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. 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. 90031337.5 22 (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 or Mandatory Sinking Account Payments 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 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. 90031337.5 23 The Trustee 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 District acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of securities transactions under this Trust Agreement, the District specifically waives receipt of such confirmations to the extent permitted by law. The Trustee is required hereunder to furnish the District with periodic cash transaction statements which include detail for all securities transactions made by the Trustee on behalf of the District hereunder. ARTICLE VI COVENANTS Section 6.01. Compliance with Trust Agreement. The Trustee will not execute or deliver any Revenue Obligations in any manner other than in accordance with the provisions hereof, and the Corporation and the District will not suffer or permit any default by them to occur hereunder, but will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms hereof required to be complied with, kept, observed and performed by them. Section 6.02. Compliance with Installment Purchase Agreement. The Corporation and the District will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Installment Purchase Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, will enforce the Installment Purchase Agreement against the other party thereto in accordance with its terms. Section 6.03. Compliance with Master Agreement. The Corporation and the District will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Master Agreement required to be complied with, kept, observed and performed by them and, together with the Trustee, will enforce the Master Agreement against the other party thereto in accordance with its terms. 90031337.5 24 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). Section 6.08. Reserved. 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. 90031337.5 25 ARTICLE VII DEFAULT AND LIMITATIONS OF LIABILITY Section 7.01. Action upon Event of Default. An Event of Default under the Installment Purchase Agreement shall constitute an Event of Default hereunder and an Event of Default under the Master Agreement shall constitute an Event of Default hereunder. The Trustee may give notice, as assignee of the Corporation, of an Event of Default under the Installment Purchase Agreement to the District, and shall do so if directed to do so by the Owners of not less than 5% of the aggregate principal evidenced by Revenue Obligations then Outstanding. In each and every case during the continuance of an Event of Default, the Trustee may and, at the direction of the Owners of not less than a majority of the aggregate principal evidenced by Revenue Obligations then Outstanding, shall, upon notice in writing to the District and the Corporation (a) exercise any of the remedies granted to the Corporation under the Installment Purchase Agreement, (b) exercise any of the remedies granted to the Trustee under the Master Agreement, and (c) take whatever action at law or in equity may appear necessary or desirable to enforce its rights pursuant to this Trust Agreement, the Installment Purchase Agreement or the Master Agreement or to protect and enforce any of the rights vested in the Trustee or the Owners by this Trust Agreement, the Revenue Obligations, the Installment Purchase Agreement or the Master Agreement, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 9.02 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. 90031337.5 26 If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then subject to any adverse determination, the Trustee, such Owner, the Corporation and the District shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. Section 7.04. Remedies Not Exclusive. Subject to the provisions of Section 7.01 hereof, no remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other appropriate right or remedy. Section 7.05. Application of Amounts After Default. All damages or other payments received by the Trustee for the enforcement of any rights and powers of the Trustee under this Article shall be deposited into the Installment Payment Fund and as soon as practicable and thereafter applied: (a) to the payment of all amounts due the Trustee under Section 8.03 hereof; (b) unless the unpaid Installment Payments, and the interest thereon, shall have become, and shall remain, immediately due and payable pursuant to the Master Agreement: (i) to the payment of all amounts then due for interest evidenced by the Revenue Obligations, in respect of which, or for the benefit of which, money has been collected (other than Revenue Obligations which have become payable prior to such Event of Default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of interest evidenced by such Revenue Obligations due and payable; and (ii) to the payment of all amounts then due for principal evidenced by the Revenue Obligations, in respect of which, or for the benefit of which, money has been collected (other than Revenue Obligations which have become payable prior to such Event of Default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of principal evidenced by such Revenue Obligations due and payable. (c) if the unpaid Installment Payments, and the interest thereon, shall have become, and shall remain, immediately due and payable pursuant to the Master Agreement, to the payment of all amounts then due for principal and interest evidenced by the Revenue Obligations and, if the amount available therefor shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Revenue Obligation over any other Revenue Obligation, to the persons entitled thereto without any discrimination or preference. 90031337.5 27 Section 7.06. Trustee May Enforce Claims Without Possession of Revenue Obligations. All rights of action and claims under this Trust Agreement or the Revenue Obligations may be prosecuted and enforced by the Trustee without the possession of any of the Revenue Obligations or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Owners of the Revenue Obligations in respect of which such judgment has been recovered. Section 7.07. Limitation on Suits. No Owner shall have any right to institute any proceeding, judicial or otherwise, with respect to this Trust Agreement, or for the appointment of a receiver or trustee, or for any other remedy 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. 90031337.5 28 Section 7.10. No Liability of the Trustee to the Owners. Except as expressly provided herein, the Trustee shall not have any obligation or liability to the Owners with respect to the payment when due of the Installment Payments, and the interest thereon, by the District, or with respect to the performance by the Corporation or the District of the other agreements and covenants required to be performed by them, respectively contained in the Installment Purchase Agreement or herein. ARTICLE 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 90031337.5 29 the Trustee. Upon receiving such notice of resignation, the Corporation and the District shall promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the event the District and the Corporation do not appoint a successor Trustee within 30 days following receipt of such notice of resignation, the resigning Trustee may, at the expense of the District, petition the appropriate court having jurisdiction to appoint a successor Trustee. Any resignation or removal of a Trustee and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. Any successor Trustee appointed under this Trust Agreement shall signify its acceptance of such appointment by executing and delivering to the District and the Corporation and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless, at the written request of the District or of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Trust Agreement and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Any corporation, association or agency into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, provided that such entity meets the combined capital and surplus requirements of this Section, ipso facto, shall be and become successor trustee under this Trust Agreement and vested with all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 8.03. Compensation and Indemnification of the Trustee. The District shall from time to time, subject to any written agreement then in effect with the Trustee, pay the Trustee reasonable compensation for all its services rendered hereunder and reimburse the Trustee for all its reasonable advances and expenditures (which shall not include “overhead expenses” except as such expenses are included as a component of the Trustee’s stated annual fees or disclosed transaction fees) hereunder, including but not limited to advances to and reasonable fees and reasonable expenses of accountants, agents, appraisers, consultants or other experts, and counsel not directly employed by the Trustee but an attorney or firm of attorneys retained by the Trustee, employed by it in the exercise and performance of its rights and obligations hereunder; provided, however, that the Trustee shall not have any lien for such compensation or reimbursement against any moneys held by it in any of the funds or accounts established hereunder. The Trustee may take whatever legal actions are lawfully available to it directly against the Corporation or the District. Except as otherwise expressly provided herein, no provision of this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability 90031337.5 30 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 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. 90031337.5 31 The Trustee may buy, sell, own, hold and deal in any of the Revenue Obligations and may join in any action which any Owner may be entitled to take with like effect as if the Trustee were not a party hereto. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Corporation or the District, and may act as agent, depository or trustee for any committee or body of Owners or of owners of obligations of the Corporation or the District as freely as if it were not the Trustee hereunder. The Trustee may, to the extent reasonably necessary, execute any of the trusts or powers hereof and perform any rights and obligations required of it hereunder by or through agents, attorneys or receivers, and shall be entitled to advice of counsel concerning all matters of trust and its rights and obligations hereunder, and the Trustee shall not be answerable for the negligence or misconduct of any such agent, attorney or receiver selected by it with reasonable care; provided, however, that in the event of any negligence or misconduct of any such attorney, agent or receiver, the Trustee shall diligently pursue all remedies of the Trustee against such agent, attorney or receiver. The Trustee shall not be liable for any error of judgment made by it in good faith unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. The Trustee shall not be answerable for the exercise of any trusts or powers hereunder or for anything whatsoever in connection with the funds established hereunder, except only for its own willful misconduct, negligence or breach of an obligation hereunder. The Trustee may, on behalf of the Owners, intervene in any judicial proceeding to which the Corporation or the District is a party and which, in the opinion of the Trustee and its counsel, affects the Revenue Obligations or the security therefor, and shall do so if requested in writing by the Owners of at least 5% of the aggregate principal evidenced by Revenue Obligations then Outstanding, provided the Trustee shall have no duty to take such action unless it has been indemnified to its reasonable satisfaction against all risk or liability arising from such action. ARTICLE IX AMENDMENT OF OR SUPPLEMENT TO TRUST AGREEMENT Section 9.01. Amendment or 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 90031337.5 32 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, 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. 90031337.5 33 Section 9.04. Amendment by Mutual Consent. The provisions of this Article shall not prevent any Owner from accepting any amendment as to the particular Revenue Obligations owned by such Owner, provided that due notation thereof is made on such Revenue Obligations. ARTICLE X DEFEASANCE Section 10.01. Discharge of Revenue Obligations and Trust Agreement. (a) If the Trustee shall pay or cause to be paid or there shall otherwise be paid (i) to the Owners of all Outstanding Revenue Obligations the interest and principal evidenced thereby at the times and in the manner stipulated herein and therein, and (ii) all other amounts due hereunder and under the Installment Purchase Agreement, then such Owners shall cease to be entitled to the pledge of and lien on the amounts on deposit in the funds and accounts established hereunder, as provided herein, and all agreements and covenants of the Corporation, the District, and the Trustee to such Owners hereunder shall thereupon cease, terminate and become void and shall be discharged and satisfied. (b) Any Outstanding Revenue Obligation shall be deemed to have been paid within the meaning and with the effect expressed in this Section when the whole amount of the principal, premium, if any, and interest evidenced by such Revenue Obligation shall have been paid or when (i) in case said Revenue Obligation or portion thereof has been selected for prepayment in accordance with Section 4.02 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 90031337.5 34 applicable, shall select such Revenue Obligations, or portions thereof, in the manner specified in Section 4.02 hereof for selection for prepayment of less than all of the Revenue Obligations, in the principal amounts designated to the Trustee by the District. (c) After the payment of all the interest, prepayment premium, if any, and principal evidenced by all Outstanding Revenue Obligations and all other amounts due hereunder and under the Installment Purchase Agreement as provided in this Section, the Trustee shall execute and deliver to the Corporation and the District all such instruments as may be necessary or desirable to evidence the discharge and satisfaction of this Trust Agreement, the Trustee shall pay over or deliver to the District all moneys or securities held by it pursuant hereto which are not required for the payment of the interest, prepayment premium, if any, and principal evidenced by such Revenue Obligations and all other amounts due hereunder and under the Installment Purchase Agreement. (d) Prior to any defeasance becoming effective under this Article, the District shall cause to be delivered (i) an executed copy of a report, addressed to the Trustee and the District, in form and in substance acceptable to the 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 Trustee and 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. 90031337.5 35 ARTICLE XI MISCELLANEOUS Section 11.01. Benefits of Trust Agreement. Nothing contained herein, expressed or implied, is intended to give to any Person other than the Corporation, the District, the Trustee and the Owners any claim, remedy or right under or pursuant hereto, and any agreement, condition, covenant or term required herein to be observed or performed by or on behalf of the Corporation or the District shall be for the sole and exclusive benefit of the Trustee and the Owners. Section 11.02. Successor Deemed Included in all References to Predecessor. Whenever the Corporation, the District or the Trustee, or any officer thereof, is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Corporation, the District or the Trustee, or such officer, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Corporation, the District or the Trustee, or any officer thereof, shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.03. Execution of Documents by Owners. Any declaration, request or other instrument which is permitted or required herein to be executed by Owners may be in one or more instruments of similar tenor and may be executed by Owners in person or by their attorneys appointed in writing. The fact and date of the execution by any Owner or his attorney of any declaration, request or other instrument or of any writing appointing such 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 90031337.5 36 of any official duty provided by any applicable provisions of law, by the Installment Purchase Agreement or hereby. Section 11.05. Acquisition of Revenue Obligations by District. All Revenue Obligations acquired by the District, whether by purchase or gift or otherwise, shall be surrendered to the Trustee for cancellation. Section 11.06. Content of Certificates. Every Written Certificate of the District and every Written Certificate of the Corporation with respect to compliance with any agreement, condition, covenant or term contained herein shall include (a) a statement that the Person making or giving such certificate has read such agreement, condition, covenant or term and the definitions herein relating thereto, (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certificate are based, (c) a statement that, in the opinion of the signer, the signer has made or caused to be made such examination or investigation as is necessary to enable the signer to express an informed opinion as to whether or not such agreement, condition, covenant or term has been complied with, and (d) a statement as to whether, in the opinion of the signer, such agreement, condition, covenant or 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 90031337.5 37 the plural, and vice versa, unless the context otherwise requires. The use herein of a pronoun of any gender shall include correlative words of the other genders. The headings or titles of the several Articles and Sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof. All references herein to “Articles,” “Sections,” subsections or clauses are to the corresponding Articles, Sections, subsections or clauses hereof, and the words “hereby,” “herein,” “hereof,” “hereto,” “herewith,” “hereunder” and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section, subsection or clause thereof. Section 11.09. Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Corporation, the District or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Revenue Obligations, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law. The Corporation, the District and the Trustee hereby declare that they would have executed this Trust Agreement, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution and delivery of the Revenue Obligations pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any Person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 11.10. California Law. This Trust Agreement shall be governed by and construed in accordance with the laws of the State. Section 11.11. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the District: Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708 Attention: Director of Finance and Administrative Services If to the Corporation: Orange County Sanitation District Financing Corporation c/o Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, California 92708 Attention: Treasurer If to the Trustee: U.S. Bank National Association 633 West Fifth Street, 24th Floor Los Angeles, California 90071 Attention: Corporate Trust Department 90031337.5 38 Telephone: (213) 615-6052 Facsimile: (213) 615-6199 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 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. 90031337.5 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 90031337.5 A-1 EXHIBIT A FORM OF CERTIFICATE 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 REVENUE OBLIGATIONS SERIES 2010A (Federally Taxable Build America Bonds) Such revenue obligations are certificates of participation evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon. PRINCIPAL PAYMENT DATE INTEREST RATE DATED DATE CUSIP 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 May 1, 2010 (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 May 1, 2010 (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. 90031337.5 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 Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) (the “Revenue Obligations”) evidence principal in the aggregate amount of $[PAR AMOUNT], executed pursuant to the terms of the Trust Agreement. The Revenue Obligations evidence direct, fractional undivided interests in the Installment Payments, and the interest thereon, payable under the Installment Purchase Agreement. The Revenue Obligations are executed and delivered to finance 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 90031337.5 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 ________ 1, 20__ (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 90031337.5 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. 90031337.5 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. 90031337.5 A-6 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: U.S. Bank National Association, as Trustee By: Authorized Officer 90031337.5 A-7 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. 90031338.4 Fulbright & Jaworski L.L.P. – Draft 04/06/10 INSTALLMENT PURCHASE AGREEMENT by and between ORANGE COUNTY SANITATION DISTRICT and ORANGE COUNTY SANITATION DISTRICT FINANCING CORPORATION Dated as of May 1, 2010 Relating to $[PAR AMOUNT] Orange County Sanitation District Wastewater Revenue Obligations Series 2010A (Federally Taxable Build America Bonds) TABLE OF CONTENTS Page 90031338.4 -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...............................3 Section 2.01. Acquisition, Construction and Installation of the Project....................3 Section 2.02. Changes to the Project .........................................................................4 Section 2.03. 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........................................................8 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....................................................................10 ARTICLE VII AMENDMENTS ...........................................................................................10 Section 7.01. Amendments......................................................................................10 ARTICLE VIII MISCELLANEOUS......................................................................................11 Section 8.01. Liability of District Limited...............................................................11 Section 8.02. Limitation of Rights...........................................................................11 Section 8.03. Assignment ........................................................................................11 TABLE OF CONTENTS (continued) Page 90031338.4 -ii- 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 90031338.4 INSTALLMENT PURCHASE AGREEMENT THIS INSTALLMENT PURCHASE AGREEMENT (this “Installment Purchase Agreement”), dated as of May 1, 2010, 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, the District desires to finance the acquisition, construction and installation of certain improvements to its wastewater system (the “Project”); WHEREAS, to finance the Project, the District desires to purchase the Project from the Corporation, and the Corporation desires to sell the Project to the District, for the installment payments (the “Installment Payments”) to be made by the District pursuant to the Installment Purchase Agreement, dated as of May 1, 2010 (the “Installment Purchase Agreement”), by and between the District and the Corporation; 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 District, the Trustee has agreed to execute and deliver the Orange County Sanitation District Wastewater Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) (the “Revenue Obligations”), evidencing direct, undivided fractional interests in the Installment Payments, and the interest thereon, payable hereunder; 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: 90031338.4 2 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: “Acquisition Fund” means the fund by that name established in accordance with the Trust Agreement. “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 May ___, 2010. “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 Date” means each February 1, commencing February 1, 2011. “Installment Purchase Agreement” means this Installment Purchase Agreement, dated as of May 1, 2010, 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 August 1, 2010. “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. 90031338.4 3 “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 Revenue Obligations, Series 2010A, executed and delivered by the Trustee pursuant hereto, 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 May 1, 2010, 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. ARTICLE II PURCHASE OF PROJECT BY, AND SALE THEREOF TO, THE CORPORATION; PAYMENT OF PURCHASE PRICE Section 2.01. Acquisition, Construction and Installation 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. The Corporation hereby agrees to cause the Project to be acquired, constructed and installed by the District, as agent of the Corporation. The District shall enter into contracts and provide for, as agent of the Corporation, the complete acquisition, construction and installation of the Project. The District hereby agrees that it will cause the acquisition, construction and installation of the Project to be diligently performed. It is hereby expressly understood and agreed that, except to the extent of proceeds of the Revenue Obligations which are deposited in the Acquisition Fund, the Corporation shall be under no liability of any kind or character whatsoever for the payment of 90031338.4 4 any Acquisition Costs. In the event the proceeds of the Revenue Obligations deposited in the Acquisition Fund are insufficient to complete the acquisition, construction and installation of the Project, the District shall cause to be applied from and to the extent of other available District funds, an amount equal to that necessary to complete the acquisition, construction and installation of the Project. Section 2.02. Changes to the Project. The District may make any changes in the composition and description of the Project or any component thereof whenever the District deems such changes to be necessary and appropriate; provided, however, that no such change shall impair the ability of the District to make the Installment Payments or cause to be included in the Project any property not constituting property useful in the performance of the District’s powers, projects and purposes. Any such change shall be implemented by the District's filing with the Corporation and the Trustee a description of such change and, upon such filing, the description of the Project contained in Exhibit A shall be deemed to have been modified in accordance therewith. No such change shall constitute an amendment, change, modification or alteration of this Installment Purchase Agreement. Section 2.03. 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: 90031338.4 5 Installment Payment Principal Interest on Installment Payment Total Interest Rate TOTAL 90031338.4 6 The Installment Payments shall accrue interest from the Closing Date, at the rates set forth above, payable on the Interest Payment Dates in each year. Such interest shall accrue on the basis of a 360-day year consisting of twelve 30-day months. Each Installment Payment, and each payment of interest thereon, shall be deposited with the Trustee, as assignee of the Corporation, no later than the Business Day next preceding the Installment Payment Date or Interest Payment Date on which such Installment Payment or payment of interest is due, in lawful money of the United States of America, in immediately available funds. If and to the extent that, on any such date, there are amounts on deposit in the Installment Payment Fund established under the Trust Agreement, or in any of the accounts therein, which amounts are not being held for the payment of specific Revenue Obligations, such amounts shall be credited against the Installment Payment, or payment of interest thereon, as applicable, due on such date. Section 3.03. Reserved. Section 3.04. 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 terns 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 90031338.4 7 Installment Payments on such prepayment date, at a prepayment price determined in accordance with subsection (a) of this Section. (c) If less than all of the Installment Payments are prepaid then, as of the date of such prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the schedule of Installment Payments shall be recalculated to take such prepayment into account. Section 4.02. Notice. The District shall give written notice to the Trustee specifying the date on which the prepayment will be made prior to making any prepayment pursuant to this Article, which date shall be not less than 20 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. 90031338.4 8 Section 5.03. Protection of Security and Rights. The District will preserve and protect the security hereof and the rights of the Trustee, as assignee of the Corporation, to the Installment Payments, and interest thereon, and other payments required to be made by the District hereunder and will warrant and defend such rights against all claims and demands of all Persons. Section 5.04. Indemnification of Corporation. To the extent permitted by law, the District hereby agrees to indemnify and hold the Corporation and its members and officers harmless against any and all liabilities which might arise out of or are related to the Project, this Installment Purchase Agreement or the Revenue Obligations, and the District further agrees to defend the Corporation and its members and officers in any action arising out of or related to the Project, this Installment Purchase Agreement or the Revenue Obligations. Section 5.05. Further Assurances. The District will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming unto the Corporation, or unto the Trustee, as assignee of the Corporation, the 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 90031338.4 9 without the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property. Section 6.02. Remedies on Default. Upon the occurrence of an Event of Default, the Trustee, as assignee of the Corporation, shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District and to compel the District to perform and carry out its duties under applicable law and the agreements and covenants required to be performed herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee, as assignee of the Corporation; (c) by suit in equity to require the District to account as the trustee of an express trust; and to have a receiver or receivers appointed for the Wastewater System and of the issues, 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. 90031338.4 10 Section 6.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee, as assignee of the Corporation, is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by law. ARTICLE VII AMENDMENTS Section 7.01. Amendments. (a) This Installment Purchase Agreement and the rights and obligations of the District, the Corporation and the Trustee, as assignee of the Corporation, may be amended or modified from time to time and at any time by a written amendment hereto executed by the District, the Corporation and the Trustee, as assignee of the Corporation, with the written consent of the Owners of a majority of the aggregate principal evidenced by Revenue Obligations then Outstanding. No such amendment shall (i) extend the payment date of any Installment Payment or reduce the amount of any Installment Payment, or the interest rate applicable thereto, without the prior written consent of the Owner of each affected Revenue Obligation, or (ii) reduce the percentage of Owners of the Revenue Obligations whose consent is required to effect any such amendment or modification, without the prior written consent of the Owners of all Revenue Obligations then Outstanding. (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. 90031338.4 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 If to the Corporation: Orange County Sanitation District Financing Corporation c/o Orange County Sanitation District 90031338.4 12 10844 Ellis Avenue Fountain Valley, California 92708 Attention: Treasurer If to the Trustee: U.S. Bank National Association Attention: Telephone: Facsimile: 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 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 90031338.4 13 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. 90031338.4 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 90031338.4 A-1 EXHIBIT A DESCRIPTION OF PROJECT The Project consists of the acquisition, construction, installation, rehabilitation, replacement, or repair of the Bitter Point Pump Station, Bitter Point Pump Station, Central Generation Automation, Sludge Disgester Rehabilitation at Plant No. 1, Secondary Activated Sludge Facility at Plant No. 1, Plant No. 2 Headworks Replacement, Trickling Filters at Plant No. 2, Rocky Point Pump Station, Magnolia Trunk Sewer and Headworks improvement at Plant No. 1. 90031339.3 Fulbright & Jaworski L.L.P. – Draft 04/06/10 CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this “Disclosure Agreement”), dated as of May 1, 2010, 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 Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) (the “Revenue Obligations”), evidencing principal in the aggregate amount of $[PAR AMOUNT], 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 underwriters of the Revenue Obligations in complying with the Rule (as defined herein); NOW, THEREFORE, for and in consideration of the mutual premises 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 of the District 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 District’s fiscal year, which date, as of the date of this Disclosure Certificate, is March 1. “Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “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. 90031339.3 2 “EMMA” shall mean the MSRB’s Electronic Municipal Market Access system, which has been approved by the SEC as the central repository for ongoing disclosure by municipal issuers. “Listed Events” means any of the events listed in subsection (a) of Section 4 hereof. “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 Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the EMMA website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement, dated ________, 2010, relating to the Revenue Obligations. “Participating Underwriter” means any of the original underwriters 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 may be amended from time to time. “SEC” means the Securities and Exchange Commission. Section 2. Provision of Annual Reports. (a) The District shall provide or cause to provide, annually, an electronic copy of the Annual Report to the Dissemination Agent, together with a copy for the Trustee, not later than 15 days prior to the Annual Report Date. Promptly upon receipt of an electronic copy of the Annual Report, the Dissemination Agent shall provide an Annual Report to the MSRB, through EMMA or such other electronic format as may be prescribed by the MSRB from time to time, not later than March 1 after the end of each fiscal year of the District, commencing with the fiscal year ending June 30, 2010. The Annual Report must be submitted in electronic format, accompanied by such identifying information as prescribed by the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross reference other information as provided in Section 3 of this Disclosure Agreement. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under subsection (f) of Section 4 hereof. (b) If on the fifteenth (15th) day prior to the Annual Report Date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind the District of its undertaking to provide the Annual Report pursuant to Section 2(a). (c) If the Dissemination Agent has not received an Annual Report by 12:00 noon on the first business day following the Annual Report Date for the Annual Report, the District irrevocably directs the Dissemination Agent to immediately send a notice to the MSRB in substantially the form attached as Exhibit A. 90031339.3 3 (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 (ii) file a report with the District and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided to the MSRB pursuant to this Disclosure Agreement, and 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 following information with respect to the Revenue Obligations: (i) 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. (ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, 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 of the District or related public entities, available to the public on EMMA or filed with the SEC. The District shall clearly identify each such other document so included by reference. 90031339.3 4 Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section, 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) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Adverse tax opinions or events affecting the tax-exempt status of the security. (5) Modifications to rights of security holders. (6) Contingent or unscheduled calls with respect to the Revenue Obligations. (7) Defeasances. (8) Release, substitution, or sale of property securing repayment of the securities. (9) Rating changes. (b) The District shall, as soon as reasonably practicable after obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) of this Section. For purposes of this Disclosure Agreement, “actual knowledge” of the occurrence of such Listed Event shall mean actual knowledge by the Dissemination Agent, if other than the Trustee, and if the Dissemination Agent is the Trustee, then by the officer at the corporate trust office of the Trustee with regular responsibility for the administration of matters related to the Trust Agreement. The Dissemination Agent shall have no responsibility to determine the materiality of any of the Listed Events. (c) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) of this Section or otherwise, the District shall as soon as possible determine if such event would be material under applicable Federal securities law. (d) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities law, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f) of this Section. (e) If in response to a request under subsection (b) of this Section, the District determines that the Listed Event would not be material under applicable Federal securities law, the District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f) of this Section. 90031339.3 5 (f) 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. Notwithstanding the foregoing, notice of Listed Events described in paragraphs (4) and (5) of subsection (a) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Revenue Obligations pursuant to the Trust Agreement. 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 subsection (f) of 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. The Dissemination Agent may resign by providing 60 day’s written notice to the District. 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. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the District), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of subsection (a) of Section 2 hereof, Section 3 hereof or subsection (a) of Section 4 hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Revenue Obligations, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Revenue Obligations, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver (i) is approved by holders of the Revenue Obligations in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of holders. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in its next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as 90031339.3 6 for a Listed Event under subsection (f) of Section 4 hereof and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, including the information then contained in the District’s official statements or other disclosure documents relating to debt issuances, 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 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, and no person or entity shall be entitled to recover monetary damages under this Disclosure Agreement. 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. 90031339.3 7 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. 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 90031339.3 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 Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) Date of Execution and Delivery: June ___, 2010 NOTICE IS HEREBY GIVEN that the Orange County Sanitation District (the “District”) has not provided an Annual Report with respect to the above-named Certificates as required by Section 6.09 of the Trust Agreement, dated as of May 1, 2010, by and among U.S. Bank, National Assocaition, 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: cc: Trustee Dissemination Agent Fulbright & Jaworski L.L.P. – Draft 04/06/10 PRELIMINARY OFFICIAL STATEMENT DATED APRIL ___, 2010 NEW ISSUE—BOOK-ENTRY-ONLY RATINGS: S&P: “___” Fitch: “___” (See “RATINGS” herein.) In the opinion of Fulbright & Jaworski L.L.P., Special Counsel, under existing law interest on the Revenue Obligations is exempt from personal income taxes of the State of California. The District has taken no action to cause, and does not intend, interest on the Revenue Obligations to be 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. See “TAX MATTERS” herein. [District Logo] $80,000,000∗ [DAC Logo] ORANGE COUNTY SANITATION DISTRICT WASTEWATER REVENUE OBLIGATIONS SERIES 2010A (Federally Taxable Build America Bonds) Dated: Date of Delivery Due: February 1, as shown below The $80,000,000* Orange County Sanitation District Wastewater Revenue Obligations, Series 2010A (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 May 1, 2010 (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) finance certain improvements to the Wastewater System and (ii) pay the costs incurred in connection with the execution and delivery of the Revenue Obligations. See “PLAN OF FINANCE” herein. The District expects to designate the Revenue Obligations as “build America bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”), the interest on which is not excluded from gross income of the owners thereof for federal income tax purposes but is exempt from State of California personal income taxes. The District expects to receive a cash subsidy from the United States Treasury equal to 35% of the interest payable on the Revenue Obligations. The District is obligated to make all payments of principal and interest with respect to the Revenue Obligations from the sources described herein whether or not it receives cash subsidy payments pursuant to the Stimulus Act. See “THE REVENUE OBLIGATIONS – Designation of Revenue Obligations as Qualified “build America bonds” herein. ∗ 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 s u 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 um 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 S t a t e m e n t co 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 i n a n y j u r i sd i c t i o n i n w h i c h s u c h o f f e r , s o l i c i t a t i o n o r s a l e w o u l d b e u n l a w f u l . Interest evidenced by the Revenue Obligations will be payable semiannually on February 1 and August 1 of each year, commencing on August 1, 2010. 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 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 11:00 A.M. NEW YORK TIME ON _________, 2010 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 May ___, 2010. Dated: May __, 2010 MATURITY SCHEDULE Maturity (February 1) Principal Amount Interest Rate Yield CUSIP (68428P∗) $_______ _____% Term Revenue Obligations Due February 1, 20__ Yield: ____% CUSIP∗: 68428P___ ∗ CUSIP numbers herein are provided by Standard & Poor’s CUSIP Service Bureau and are for convenience of reference only. The District does not assume any responsibility for the accuracy of such numbers. CUSIP® is a registered trademark of the American Bankers Association. Copyright © 1999-2010 Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc. All rights reserved. [MAP] ORANGE COUNTY SANITATION DISTRICT Board of Directors Doug Davert (Chair) — Tustin Larry Crandall — (Vice Chair) — Fountain Valley Harry Sidhu — Anaheim Jon Dumitru — Orange Roy Moore — Brea Constance Underhill — Placentia Patsy Marshall — Buena Park Sal Tinajero — Santa Ana Phil Luebben — Cypress Charles Antos — Seal Beach Sharon Quirk-Silva — Fullerton David Shawver — Stanton Bill Dalton — Garden Grove Brad Reese — Villa Park Cathy Green — Huntington Beach John Anderson — Yorba Linda Christina Shea — Irvine James M. Ferryman — Costa Mesa Sanitary District Tom Beamish — La Habra John Withers — Irvine Ranch Water District Mark Waldman — La Palma Joy L. Neugebauer — Midway City Sanitary District Troy Edgar — Los Alamitos Janet Nguyen — Member of the Orange County Don Webb — Newport Beach Board of Supervisors Executive Management of the District James D. Ruth, General Manager Robert P. Ghirelli, Ph.D., Assistant General Manager Lorenzo Tyner, Director of Finance and Administrative Services James Herberg, Director of Engineering Ed Torres, Director of Technical Services Nick Arhontes, Director of Operations & Maintenance 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 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 District and other sources that are believed by the District to be reliable. No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement. If given or made, such other information or representations must not be relied upon as having been authorized by the District, the Corporation or the Initial Purchaser in connection with any reoffering. This Official Statement is not to be construed as a contract with the purchasers of the Revenue Obligations. Statements contained in this Official Statement which involve estimates, projections, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the Corporation since the date hereof. This Official Statement is submitted with respect to the sale of the Revenue Obligations referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Preparation of this Official Statement and its distribution have been duly authorized and approved by the District and the Corporation. In connection with the offering of the Revenue Obligations, the Initial Purchaser in connection with any reoffering may over-allot or effect transactions which stabilize or maintain the market price of the Revenue Obligations at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Initial Purchaser in connection with any reoffering may offer and sell the Revenue Obligations to certain dealers, institutional investors and others at prices lower than the public offering prices stated on the inside cover page hereof and such public offering prices may be changed from time to time by the Initial Purchaser. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. TABLE OF CONTENTS Page INTRODUCTION.........................................................................................................................1 General...............................................................................................................................1 The District ........................................................................................................................2 Security and Sources of Payment for the Revenue Obligations........................................2 Designation of Revenue Obligations as “Build America Bonds” .....................................3 Continuing Disclosure .......................................................................................................3 Miscellaneous ....................................................................................................................3 PLAN OF FINANCE.....................................................................................................................4 ESTIMATED SOURCES AND USES OF FUNDS.....................................................................4 THE REVENUE OBLIGATIONS................................................................................................4 General...............................................................................................................................4 Prepayment Provisions.......................................................................................................5 Designation of Revenue Obligations as Qualified “Build America Bonds” .....................8 SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS............9 Installment Payments.........................................................................................................9 Net Revenues...................................................................................................................10 Rate Stabilization Account ..............................................................................................11 Allocation of Revenues....................................................................................................11 Rate Covenant..................................................................................................................12 Limitations on Issuance of Additional Obligations.........................................................12 Insurance..........................................................................................................................14 Allocation of Installment Payments.................................................................................15 THE DISTRICT...........................................................................................................................16 Background......................................................................................................................16 Organization and Administration.....................................................................................17 Services............................................................................................................................18 Service Area.....................................................................................................................18 Employees........................................................................................................................19 Retirement Plan................................................................................................................20 Other Post-Employment Benefits....................................................................................21 Risk Management ............................................................................................................22 Existing Facilities.............................................................................................................22 Permits, Licenses and Other Regulations ........................................................................23 2009 Facilities Master Plan and Capital Improvement Program.....................................25 Groundwater Replenishment System...............................................................................26 Preferred Level of Treatment...........................................................................................27 Biosolids Management.....................................................................................................27 Urban Runoff...................................................................................................................28 Integrated Emergency Response Program.......................................................................28 Five-Year Strategic Planning...........................................................................................29 TABLE OF CONTENTS (continued) Page ii DISTRICT REVENUES.............................................................................................................. 30 Sewer Service Charges ....................................................................................................30 Additional Revenues........................................................................................................33 Wastewater Treatment History........................................................................................34 Customers ........................................................................................................................34 Assessed Valuation..........................................................................................................36 Tax Levies and Delinquencies.........................................................................................37 Budgetary Process............................................................................................................38 Reserves...........................................................................................................................39 Summary of Operating Data............................................................................................40 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........................................................................47 Article XIIIA of the California Constitution ...................................................................47 Legislation Implementing Article XIIIA.........................................................................47 Article XIIIB of the California Constitution....................................................................48 Proposition 1A.................................................................................................................49 Article XIIIC and Article XIIID of the California Constitution......................................49 Other Initiative Measures.................................................................................................51 LEGAL MATTERS.....................................................................................................................51 FINANCIAL ADVISOR.............................................................................................................52 ABSENCE OF LITIGATION.....................................................................................................52 FINANCIAL STATEMENTS.....................................................................................................52 TAX MATTERS..........................................................................................................................52 CONTINUING DISCLOSURE...................................................................................................56 RATINGS....................................................................................................................................56 PURCHASE AND REOFFERING.............................................................................................56 MISCELLANEOUS....................................................................................................................56 TABLE OF CONTENTS (continued) Page iii APPENDIX A – COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009....................................................................................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 OFFICIAL STATEMENT $80,000,000* ORANGE COUNTY SANITATION DISTRICT WASTEWATER REVENUE OBLIGATIONS SERIES 2010A (Federally Taxable Build America Bonds) 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 $80,000,000* aggregate principal amount of the Orange County Sanitation District Wastewater Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) (the “Revenue Obligations”), which are certificates of participation evidencing direct, fractional undivided interests 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 May 1, 2010 (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 and declared the conditions and terms upon which obligations such as the Installment Purchase Agreement, and the Installment Payments and the interest thereon, will be incurred and secured. Installment Payments under the Installment Purchase Agreement are payable solely from Net Revenues (as defined hereinafter) as provided in the Installment Purchase Agreement, consisting primarily of all income and revenue received by the District from the operation or ownership of the Wastewater System of the District (the “Wastewater System”) remaining after payment of Maintenance and Operation Costs, as further described in “SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS” herein. The Revenue Obligations are to be executed and delivered pursuant to a Trust Agreement, dated as of May 1, 2010 (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) finance certain improvements to the Wastewater System and (ii) pay the costs incurred in connection with the execution and delivery of the Revenue Obligations. See “PLAN OF FINANCE” herein. * Preliminary, subject to change. 2 The Revenue Obligations will be executed and delivered in the form of fully registered Revenue Obligations, dated as of the date of initial delivery thereof and will mature on February 1 in each 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 August 1, 2010. 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 more than 2.5 million people in the northern and central portion of the County of Orange (the “County”), in a service area of approximately 471 square miles, treating 221 million gallons per day (“mg/d”) of wastewater in Fiscal Year 2008-09. See “THE DISTRICT,” “DISTRICT REVENUES” and “FINANCIAL OBLIGATIONS” herein. Security and Sources of Payment for the Revenue Obligations The Revenue Obligations, which are certificates of participation, evidence direct, fractional undivided interests in the Installment Payments, and the interest thereon, paid by the District pursuant to the Installment Purchase Agreement. The obligation of the District to pay the Installment Payments and the interest thereon and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided under the Installment Purchase Agreement, solely from Net Revenues, and other funds as provided in the Installment Purchase Agreement. Net Revenues generally consist of all income and revenue received by the District from the operation or ownership of the Wastewater System remaining after payment of Maintenance and Operation Costs, all as further provided in the Master Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. The District currently has Outstanding Senior Obligations payable from Net Revenues on a parity with the Installment Payments under the Installment Purchase Agreement. See “ESTIMATED SOURCES AND USES OF FUNDS,” “FINANCIAL OBLIGATIONS – Existing Indebtedness” and “THE DISTRICT” herein and APPENDIX C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – Master Agreement” attached hereto. The District has no Subordinate Obligations currently outstanding. Pursuant to the Master Agreement, the District will, to the extent permitted by law, fix, prescribe and collect fees and charges for the services and facilities of the Wastewater System which will be at least sufficient to yield during each Fiscal Year (a) Net Revenues equal to 125% of Debt Service on Senior Obligations for such Fiscal Year and (b) Net Operating Revenues equal to 100% of Debt Service on all 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. 3 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. Designation of Revenue Obligations as “Build America Bonds” The District expects to designate the Revenue Obligations as “build America bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”), the interest on which is not excluded from gross income of the owners thereof for federal income tax purposes but is exempt from State of California personal income taxes. The District expects to receive a cash subsidy from the United States Treasury (“Federal Subsidy”) equal to 35% of the interest payable on the Revenue Obligations pursuant to the Stimulus Act. Any Federal Subsidy payments received by the District will constitute Revenues as defined in the Master Agreement. The District has not undertaken or made any covenant for the benefit of the Owners of the Revenue Obligations to comply with any conditions to receive the cash subsidy or to maintain the District’s right to retain or receive future subsidy payments in respect of the Revenue Obligations. The District is obligated to make all payments of principal of and interest on the Revenue Obligations from the sources described herein whether or not it receives the Federal Subsidy. 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 2009-10 Fiscal Year, and (b) to provide notices of the occurrence of certain enumerated events, if material. The specific nature of the information to be contained in the Annual Report or the notices of material 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 and any other agreements relating to the Revenue Obligations are qualified in their entirety by reference to such documents. Copies of the documents are on file and available for inspection at the corporate trust office of U.S. Bank National Association, Los Angeles, California Attention: Corporate Trust. 4 PLAN OF FINANCE Proceeds from the sale of the Revenue Obligations will be used to (i) finance the acquisition, construction and installation of certain improvements to the wastewater collection, treatment and disposal facilities of the District (the “Wastewater System”) and (ii) pay costs of issuance of the Revenue Obligations. Such improvements include the acquisition, construction, installation, rehabilitation, replacement, or repair of the Bitter Point Pump Station, Bitter Point Pump Station, Central Generation Automation, Sludge Disgester Rehabilitation at Plant No. 1, Secondary Activated Sludge Facility at Plant No. 1, Plant No. 2 Headworks Replacement, Trickling Filters at Plant No. 2, Rocky Point Pump Station, Magnolia Trunk Sewer and Headworks improvement at Plant No. 1. (collectively, the “Project”). From time to time, projects which are undertaken are delayed, redesigned or deferred by the District for various reasons and no assurance can be given that a project identified above or designated in the District's current Capital Improvement Program will be completed in accordance with its original schedule or that any project will be completed as currently planned. See “THE DISTRICT – Capital Improvement Plan” herein. ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds and other amounts in connection with the delivery of the Revenue Obligations are presented below. Sources Revenue Obligation Proceeds $ Total Sources $ Uses Acquisition Fund $ Initial Purchaser’s Discount Costs of Issuance(1) Total Uses $ ____________________ (1) Costs of Issuance include, among other things, fees of rating agencies, Special Counsel fees and expenses and the initial fees of the Trustee. THE REVENUE OBLIGATIONS General The Revenue Obligations will be prepared in the form of fully registered certificates 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 each 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 August 1, 2010. 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 made in book-entry form only. Purchasers of Revenue Obligations will not receive physical certificates representing their ownership interests in the Revenue Obligations purchased. 5 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 July 15, 2010, 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 with Make-Whole Payment. The Revenue Obligations will be subject to prepayment prior to maturity at the option of the District, as a whole or in part, on any Business Day, at the “Make-Whole Prepayment Price.” The “Make-Whole Prepayment Price” is the greater of (1) 100% of the principal amount of the Revenue Obligations to be prepaid or (2) the sum of the present value of the remaining scheduled payments of principal of and interest on the Revenue Obligations to be prepaid, not including any portion of those payments of interest accrued and unpaid as of the date on which the Revenue Obligations are to be prepaid, discounted to the date on which the Revenue Obligations are to be prepaid on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the “Treasury Rate” plus 30 basis points, plus, in each case, accrued and unpaid interest on the Revenue Obligations to be prepaid on the prepayment date. “Treasury Rate” means, with respect to any prepayment for a particular Revenue Obligation, the rate per annum truncated to the fifth decimal, expressed as a percentage of the principal amount, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. “Comparable Treasury Issue” means, with respect to any prepayment date for a particular Revenue Obligation, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the Revenue Obligation to be prepaid, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the Revenue Obligation to be prepaid. “Comparable Treasury Price” means, with respect to any prepayment date for a particular Revenue Obligation: 6 (i) the most recent yield data for the applicable U.S. Treasury maturity index from the Federal Reserve Statistical Release H.15 Daily Update (or any comparable or successor publication) reported, as of 11:00 a.m., New York City time, on the Valuation Date; or (ii) if the yield described in (i) above is not reported as of such time or the yield reported as of such time is not ascertainable, the average of four Reference Treasury Dealer Quotations for that prepayment date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or if the Designated Investment Banker obtains fewer than four Reference Treasury Dealer Quotations, the average of all quotations obtained by the Designated Investment Banker. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any prepayment date for a particular Revenue Obligation, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the Valuation Date. “Designated Investment Banker” means one of the Reference Treasury Dealers appointed by the District. “Reference Treasury Dealer” means each of four firms, specified by the District from time to time, that are primary United States Government securities dealers (each, a “Primary Treasury Dealer”); provided, that if any of them ceases to be a Primary Treasury Dealer, the District will substitute another Primary Treasury Dealer. “Valuation Date” means a day at least two Business Days and no more than forty-five calendar days preceding the prepayment date. Extraordinary Optional Prepayment. The Revenue Obligations are subject to prepayment prior to their respective stated maturity dates, at the option of the District, upon the occurrence of an Extraordinary Event, from any source of available funds, as a whole or in part (and, if in part, in such order of maturity as the District shall direct), at any time, at the Extraordinary Optional Prepayment Price. An “Extraordinary Event” will have occurred if the District determines that a material adverse change has occurred to section 54AA or section 6431 of the Internal Revenue Code of 1986 (the “Code”) or there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such sections or any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of an act or omission by the District to satisfy the requirements to receive the 35% cash subsidy payments from the United States Treasury with respect to the Revenue Obligations, pursuant to which the 35% cash subsidy payments from the United States Treasury with respect to the Revenue Obligations are reduced or eliminated. “Extraordinary Optional Prepayment Price” means, for each maturity of the Revenue Obligations, the greater of (i) 100% of the principal amount of the Revenue Obligations to be prepaid or (ii) the sum of the present value of the remaining scheduled payments of principal and interest on the Revenue Obligations of such maturity to be prepaid to the maturity date of such Revenue Obligations, not including any portion of those payments of interest accrued and unpaid as of the date on which the Revenue Obligations of such maturity are to be prepaid, discounted to the date on which the Revenue Obligations of such maturity are to be prepaid on a semi-annual basis, assuming a 360-day year containing twelve 30-day months, at the Treasury Rate (as defined above) plus one hundred (100) basis points, plus accrued interest on the Revenue Obligations of such maturity to be prepaid to the prepayment date. 7 Mandatory Sinking Account Prepayment. The Term Revenue Obligations maturing on February 1, 20__ are subject to prepayment prior to their stated maturity, in part, by lot, on any February 1 on and after February 1, 20__, at the principal amount thereof, plus accrued interest to the date fixed for prepayment, without premium, from Mandatory Sinking Account Payments deposited in the Principal Account. The Term Revenue Obligations maturing on February 1, 20__ shall be prepaid (or paid at maturity, as the case may be) by application of Mandatory Sinking Account Payments in the amounts and upon the dates set forth below: Term Revenue Obligations Maturing February 1, 20__ Mandatory Sinking Account Payment Dates (February 1) Mandatory Sinking Account Payments $ * _____________ * Maturity. Selection of Revenue Obligations for Prepayment. Whenever less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to 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, then (a) if the Revenue Obligations are in book-entry form at the time of such prepayment, the Trustee shall instruct the Depository to instruct the Participants to select the specific Revenue Obligations for prepayment pro rata, and neither the District nor the Trustee shall have any responsibility to ensure that the Depository or the Participants properly select such Revenue Obligations for prepayment, and (b) if the Revenue Obligations are not then in book–entry form at the time of such prepayment, on each prepayment date, the Trustee shall select the specific Revenue Obligations for prepayment pro rata. The portion of any registered Revenue Obligation of a denomination of more than $5,000 to be prepaid will be in Authorized Denominations. The Trustee will select such portions of Revenue Obligations to be prepaid in such manner as the Trustee in its discretion may deem to be fair and appropriate. 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. 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 8 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 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 the Trust Agreement shall be canceled by the Trustee and shall not be redelivered. Designation of Revenue Obligations as Qualified “Build America Bonds” The District is executing and delivering the Revenue Obligations as taxable bonds, and expects to designate the Revenue Obligations as “build America bonds” under section 54AA(d) of the Code, and as “qualified build America bonds” (Direct Subsidy) under section 54AA(g) of the Code. In connection with the execution and delivery of the Revenue Obligations, and as permitted by the Stimulus Act, the District will elect (which election is irrevocable pursuant to the provisions of the Stimulus Act) to receive directly from the United States Department of the Treasury, on or about each interest payment date for the Revenue Obligations a Federal Subsidy payment equal to 35% of the taxable interest it pays on the Revenue Obligations to the holders thereof. The Federal Subsidy payment does not constitute a full faith and credit guarantee of the United States Government, but is required to be paid by the United States Treasury under the Stimulus Act. Any Federal Subsidy payments received by the District will constitute Revenues as defined in the Master Agreement. If the District fails to comply with the conditions to receiving the Federal Subsidy payments throughout the term of the Revenue Obligations, it may no longer receive the Federal Subsidy payments and could be subject to a claim for the return of previously received 9 Federal Subsidy payments. The District has not undertaken or made any covenant for the benefit of the Owners of the Revenue Obligations to comply with any conditions to receive the Federal Subsidy payments or to maintain the District’s right to retain or receive future Federal Subsidy payments in respect of the Revenue Obligations. The District is obligated to make all payments of principal of and interest on the Revenue Obligations whether or not it receives Federal Subsidy payments pursuant to the Stimulus Act. SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS Installment Payments Pursuant to the Installment Purchase Agreement, the Project will be acquired 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 2000 Installment Purchase Agreement, the 2003 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 and the 2009B Installment Purchase Agreement and the term “Senior Obligations” as used in this Official Statement refers to the Existing Senior Obligations and 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 executed and delivered 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 10 Agreement, solely from Net Revenues and other funds provided for in the Installment Purchase Agreement, and does not constitute a debt of the District, the State or any political subdivision thereof, in contravention of any constitutional or statutory debt limitation or restriction. Neither the faith and credit nor the taxing power of the District, the State or any political subdivision thereof, is pledged to the payment of the Installment Payments, or the interest thereon, or other payments required to be made under the Installment Purchase Agreement. The Installment Purchase Agreement constitutes a Senior Obligation and, as such, is subject to the provisions of the Master Agreement and is afforded all of the advantages, benefits, interests and security afforded Senior Obligations pursuant to the Master Agreement. See “SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS” herein. 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, by and between predecessor County Sanitation District No. 14 of Orange County and the Irvine Ranch Water District (the “IRWD Agreement”) 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 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 11 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, 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 executed and delivered as provided in the Master Agreement; 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. 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. 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: 12 (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 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. 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: 13 (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 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) 14 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 provisions described above in paragraph (2) need not be complied with 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 provisions described in paragraph (2) above need not be complied with for such portion of such Senior Obligations incurred for the purpose of providing funds to refund or refinance such Obligations if (i) a portion (which may be all) of the Senior Obligations are incurred for the purpose of providing funds to refund or refinance any Obligations, (ii) 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 (iii) 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. 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. 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. 15 Allocation of Installment Payments Table 1 below sets forth the estimated Installment Payments with respect to the Revenue Obligations. Also set forth are the payments due on Outstanding Senior Obligations. Table 1 Estimated Installment Payments Relating to the Bonds and Outstanding Senior Obligation Payments of the District Fiscal Year Ending Installment Payments Relating to Bonds Outstanding Senior Obligation Payments(1) June 30(3) Principal Interest Principal Interest(2) Total 2010 $ 0 $ 2,977,753.15 $ 2011 $ $ 25,895,000 50,484,839.81 2012 26,670,000 49,383,659.32 2013 27,865,000 48,368,085.87 2014 43,040,000 47,219,558.42 2015 30,920,000 46,017,385.73 2016 32,080,000 44,911,567.64 2017 37,940,000 43,639,158.92 2018 35,310,000 42,361,793.91 2019 36,815,000 41,038,556.27 2020 38,455,000 39,664,846.66 2021 44,615,000 38,285,131.29 2022 40,170,000 37,151,365.84 2023 41,985,000 35,345,864.21 2024 43,860,000 33,465,824.79 2025 45,865,000 31,475,380.59 2026 47,925,000 29,414,545.21 2027 50,135,000 27,247,288.35 2028 52,315,000 25,077,888.07 2029 54,590,000 22,798,623.66 2030 57,785,000 20,434,248.98 2031 61,715,000 17,938,971.92 2032 62,540,000 15,174,667.95 2033 92,850,000 12,279,395.58 2034 38,775,000 7,882,743.83 2035 40,465,000 6,194,796.57 2036 42,230,000 4,429,901.37 2037 30,155,000 2,722,000.00 2038 11,845,000 1,214,250.00 2039 12,440,000 622,000.00 Total $ $ $ 1,207,250,000 $ 825,222,093.91 $ ______________ (1) The District intends to refinance its $165,865,000 Revenue Refunding Certificate Anticipation Notes, Series 2009B on or before their maturity on December 1, 2010. Assumes principal is amortized from 2022 through 2036 and a variable rate of interest of 3% per annum. See “FINANCIAL OBLIGATIONS – Recent and Anticipated Financings” herein. (2) 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, 2009” herein. (3) Excludes interest and principal due prior to May 11, 2010. 16 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 211 mg/d of wastewater in Fiscal Year 2008-09. The District serves approximately 81% of the County population in approximately 471 square miles, or 59% of the County. 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 1920’s 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 District’s Board of Directors (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 twenty-five 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 152 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. 17 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 of Supervisors. 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, 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, Ph.D. is the District’s Assistant General Manager, and has served in that capacity since July 2006. Mr. Ghirelli previously served as Director of Technical Services for the District since joining the District in 1998. Prior to joining the District, Mr. 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. Lorenzo Tyner is the District’s Director of Finance and Administrative Services. In September 2005, Mr. Tyner joined the District with nearly 15 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 Northrop. James Herberg, P.E. is the District’s Director of Engineering, and has served in that capacity since November 2006. 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. Ed Torres is the District’s Director of Technical Services for the District. He has served in this position since November 2006. Prior to joining the District in 1991, Mr. Torres served in a professional capacity for the California State University System and TRW Electronics and Defense Sector. Mr. Torres has 24 years of public and private sector experience in protecting public health and the environment. 18 Nick Arhontes, P.E. is the District’s Director of Operations and Maintenance 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. 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 operations are provided 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 and owns sanitary sewerage facilities with a replacement value of approximately $6.92 billion. [Remainder of page intentionally left blank.] 19 Table 2 below sets forth the estimated populations of cities and unincorporated areas served by the District as of January 1, 2009. Table 2 Estimated Populations of Cities and Unincorporated Areas Served by the Orange County Sanitation District As of January 1, 2009 City Population Anaheim 348,470 Brea 40,180 Buena Park 83,390 Costa Mesa 116,480 Cypress 49,650 Fountain Valley 58,310 Fullerton 137,620 Garden Grove 174,720 Huntington Beach 202,480 Irvine 212,790 La Habra 62,820 La Palma 16,210 Los Alamitos 12,220 Newport Beach 86,250 Orange 141,630 Placentia 51,930 Santa Ana 355,660 Seal Beach 25,910 Stanton 39,480 Tustin 74,830 Villa Park 6,280 Westminster 93,280 Yorba Linda 68,400 Cities Subtotal 2,458,990 Unincorporated Areas (estimated) 81,000 Total 2,539,990 ____________________ Sources: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and the State, 2001-2009, with 2000 Benchmark. Sacramento, California, May 2009 for city population data; Orange County Sanitation District for population of unincorporated areas. Employees As of April 1, 2010, the District had authorized ____ full-time equivalent (“FTE”) staff positions. Most of the employees who occupy these positions are represented by recognized employee organizations, which include the following: the Orange County Employees Association (“OCEA”), the International Union of Operating Engineers – Local 501 (“Local 501”), the Supervisor Group, and the Professional Group. As of April 1, 2010, the District had 601 represented and non-represented employees. Total represented employees as of April 1, 2010 numbered 555 (92%) as follows: 98 (16%) 20 were represented by the OCEA, 203 (34%) were represented by Local 501 and 254 (42%) were represented by the Supervisor and Professional Groups. New agreements with each of these employee organizations took effect on July 1, 2007. The OCEA and Local 501 agreements are in effect through June 30, 2011; the Supervisor and Professional Group agreements are in effect through June 30, 2010. The OCEA has represented administrative/clerical, technical services and engineering employees since 1979. Local 501 has represented operations and maintenance employees since October 1985. The Supervisor and Professional Groups have represented supervisory and professional employees since 1991. The Supervisor and Professional Groups are presently negotiating with the District. The District has historically enjoyed a good working relationship with its employee organizations and has experienced no work stoppages by represented personnel in the past. Retirement Plan The District participates in the Orange County Employee’s 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 participate in OCERS. 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 Tier I or Tier II member. As of July 1, 2006, the formula to calculate retirement benefits was enhanced to 2.5% at age 55, or employees retiring at age 55 or older receive 2.5% of their average salary for every year of service. Average salary is the highest consecutive 12 months of compensation for Tier I employees and the highest consecutive 36 months of compensation divided by three for Tier II employees. Benefits fully vest under the OCERS retirement plan on reaching five years of service. Employees who retire at or after age 50 with ten or more years of service are entitled to an annual retirement allowance. 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. [Remainder of page intentionally left blank.] 21 A current comparison of OCERS costs for Fiscal Years 2004-05 through 2008-09 and projected costs for Fiscal Years 2009-10 through 2010-11 is shown in the following table. Table 3 Orange County Sanitation District Comparison of OCERS Costs for Fiscal Years 2004-05 through 2008-09 and Projected Costs for Fiscal Years 2009-10 through 2010-11 Fiscal Year Rate(1) Cost(2) 2004-05 12.37% $ 5,524,673 2005-06 15.21 7,416,556 2006-07 19.78 9,848,854 2007-08 20.55 11,011,693 2008-09 21.34 12,193,601 2009-10(3) 21.95 13,227,971 2010-11(3) 24.20 14,577,978 ____________________ (1) Required contribution as a percent of covered payroll. Includes amortization of Unfunded Actuarial Accrued Liability. (2) Amounts represent employer contributions made or to be made by the District. (3) Projected. Source: Orange County Sanitation District. For Fiscal Years 2004-05 through 2008-09, 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, 2009, total payroll costs of employees covered by OCERS was $61,110,535. As of the December 31, 2008 valuation, OCERS has an aggregate UAAL ratio of 71.34%, for a total UAAL of $3.11 billion. For more information regarding OCERS and the District’s retirement plan as of June 30, 2008, see Note 6 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2008 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. Other Post-Employment Benefits The Governmental Accounting Standards Board (“GASB”) in April 2004 issued Statement No. 43, which requires state and local governmental employers to determine, on an actuarial basis, the total liability of post-employment benefits other than pension benefits (known as other post-employment benefits or “OPEB”), including healthcare and life insurance expenses and related liabilities, and an annual required contribution to fund such liabilities. In June 2004, GASB issued Statement No. 45, which requires state and local governmental employers to fund the actuarially determined annual required contribution (“ARC”) for its OPEB or record the entire amount of the unfunded liability of its OPEB in its financial statements. The District has implemented GASB Statement Nos. 43 and 45. 22 The District’s OPEB program currently includes medical and prescription drug benefits and a program of cash payments, known as Additional Retiree Benefit Account (“ARBA”) benefits. Benefits vest upon retirement after qualifying public service of ten years. Most of the District’s retirees under the age of 65 are covered under the same medical and prescription drug plans as active employees of the District, but an additional retiree-only fee for service plan called “Blue Card” is also available. According to the District’s actuary, Demsey Filliger Associates (the “Actuary”), the unfunded OPEB liability as of July 1, 2007 is approximately $17.4 million. The ARC is $1,764,000 for Fiscal Year 2008-09. 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 to the Wastewater System. The District is self-insured for portions of workers’ compensation, property damage and general liability. The self-insurance portion of workers’ compensation is $500,000 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 insurance administrators. The District believes that there are no unrecorded claims as of June 30, 2009 that would materially affect the financial position of the District. For more information regarding the District’s insurance coverage as of June 30, 2009, see Note 1 to the Comprehensive Annual Financial Report of the Orange County Sanitation District for Fiscal Year Ended June 30, 2009 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 effluent is conveyed to an Orange County Water District (the “OCWD”) plant for tertiary treatment prior to reclamation and ground water recharge. 23 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. Approximately 25 percent of the primary treated wastewater flows into the ocean outfall pumping station where it is blended with secondary treated wastewater before being discharged into the ocean. The other 75 percent is sent to secondary treatment for further processing. During secondary treatment, the wastewater is placed in aeration basins to which naturally occurring bacteria are used 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. Table 4 below sets forth the treatment plants’ approximate current and future treatment capacities. Table 4 Wastewater System Treatment Capacities (mg/d) 2008-09 Actual Flows Existing Primary Treatment Capacity Existing Secondary Treatment Capacity(1) Total Planned Secondary Capacity(2) Plant No. 1 86 204 122 182 Plant No. 2 125 168 90 150 Aggregate Treatment Plant Facilities 211 372 212 332 ____________________ (1) The existing secondary capacity is being expanded to meet secondary treatment standards by 2012. (1) 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 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 administered by the United States Environmental Protection Agency (the “EPA”) and the California Regional Water Quality Control Board (“RWQCB”). Regulations of these agencies deal primarily with the quality of effluent which may be discharged from the treatment plants and the nature of waste material discharged into the collection 24 system. 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 District’s permit, which included the Section 301(h) waiver of secondary treatment requirements, was issued on May 6, 1998 and expired on June 8, 2003. 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. See “Preferred Level of Treatment” and “Urban Runoff” below. As a result, the District established a policy to subject all wastewater discharges into the ocean to secondary treatment standards. See “Preferred Level of Treatment” below. To implement this policy, District staff was directed to immediately proceed with the planning, design, and implementation of treatment methods with the expressed purposes of eliminating the need for the permit waiver received under Section 301(h). Following the determination by the Board of Directors in 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 any necessary waiver. Achieving secondary treatment standards was originally projected to take six 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 Sec. 301(h)), the District decided to voluntarily seek a consent decree concurrently with the issuance of the new ocean discharge permit. This negotiated consent decree (the “Consent Decree”) approves the schedule and decrees that no penalties will be imposed for discharges that exceed the secondary treatment limits during the period of construction. The Consent Decree was signed by the District, the EPA and the RWQCB and filed with the U.S. District Court on November 15, 2004. The District is in compliance with the decree and has successfully completed four of the seven milestones within the specified deadlines required by the decree. The District is also subject to the requirements of the Federal Clean Air Act (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 adverse effects on human health and environment The South Coast Air Quality Management District (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 25 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. In addition, the District has developed the Air Toxic Emissions Reduction Strategic Plan in 2007 which evaluated the health risk impacts and risk reduction alternatives for Calendar Year 2012 when all treatment plant upgrades and improvements planned for completion were in place The District currently has all necessary AQMD permits to operate the Wastewater System. 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. 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 OCSD 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 Master Plan continues to support the July 17, 2002 Board of Directors’ 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 agency to meet Clean Water Act secondary treatment standards. The District currently estimates that it will complete these improvements by December 2012 at a total capital improvement cost of $627.1 million to reach secondary treatment discharge standards. 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. The District 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 2030, the District’s 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 15 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; • Disinfect the District’s ocean discharge to reduce bacterial levels below State bathing standards; • Reclaim 70 mg/d of the District’s effluent, or nearly one-third of the total daily flow (Groundwater Replenishment System); and 26 • Achieve full secondary treatment standards. The 2010 CIP validation resulted in proposed revisions to the CIP. The proposed CIP currently consists of 176 individual capital projects through Fiscal Year 2030-31 at a total cost of $3.255 billion, approximately $1.331 billion of which has been spent to date. The bulk of construction is scheduled during the next five years, with average annual expenditures of $166 million. Implementation of full secondary treatment standards is scheduled to be completed on or before December 31, 2012. A summary of total estimated capital costs for the proposed CIP for Fiscal Years 2010-11 through 2030-31 is set forth in Table 5 below. Table 5 Capital Improvement Program – Estimated Costs Fiscal Years 2010-11 through 2030-31 Project Cost Collection System Capacity $ 163,714,400 Collection System Repair, Rehabilitation, Replacement 345,518,350 Treatment Plant Capacity 228,092,650 Additional Secondary Treatment 193,106,000 Groundwater Replenishment System, Phase 1 0 Improved Treatment 188,012,400 Treatment Plant Repair, Rehabilitation, Replacement 681,057,800 Support Facilities 125,180,400 Total Validated Capital Improvement Program $1,924,682,000 ____________________ Source: 2010-12 Draft Budget, Orange County Sanitation District. The proposed CIP contains expenditures of $182.0 million in Fiscal Year 2010-11 and $122.6 million in Fiscal Year 2011-12, respectively. The largest cash outlay planed for plant facilities in Fiscal Year 2010-11 is $32.5 million for a new secondary treatment system at Reclamation Plant No. 1 (total project cost is expected to be $260.3 million). The largest cash outlay for plant facilities in Fiscal Year 2011-12 is $18.3 million for the rehabilitation of the digesters at Reclamation Plant No. 1 (total project cost is expected to be $$55.5 million). The proposed CIP’s largest collection system project for Fiscal Year 2010-11 is $11.8 million for the Replacement of Bitter Point Pump Station. For Fiscal Year 2011-12, the largest project is $9.1 million for the upgrade of the Dover Drive Trunk. 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. In 2009, GWRS produced a total of 61,000 acre-feet because there was not enough raw sewage flow being treated to produce 72,000 acre-feet of water. Phase 2 expansion is under design to add about 33,000 acre-feet per year. Phase 2 and all future phases will be funded solely by OCWD and could expand capacity up to 145,600 acre-feet per year. 27 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 Orange County Water District, and (3) the clearly stated public preference for upgrading wastewater treatment at the time. 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 while the District studies, designs and constructs permanent facilities, and considers alternate disinfection technologies. 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. Following 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.” Currently, the District estimates that it will take approximately three more years and require approximately $330.5 million to complete the additional secondary treatment capacity project. 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 approximately 675 tons per day (tpd) of digested and dewatered biosolids. Biosolids production is anticipated to peak in 2013 when new secondary treatment processes are fully operational, and then drop-off to about 625 – 650 tpd after IRWD’s solids processing facilities come online in 2014 along with the planned installation of centrifuges at the District. The District relies on the following technologies and locations for the management of its biosolids: land application of biosolids in Arizona, manufacturing composted soil amendment in Kern County, California, and La Paz County, Arizona, and conversion to a renewable coal substitute e-fuel in Rialto, California. The District has fail-safe back-up options in Arizona that include land application recycling and landfill disposal. Together, these options have the capacity to manage 7-8 times the District’s daily biosolids production to ensure 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. The LRBMP recommendations included new in-plant technologies to reduce the volume of biosolids, explore the production of high-grade biosolids products, and move into the energy and fuel production and compost markets. As a result of the LRBMP recommendations, the existing Synagro biosolids management contract was amended in April 2004 to have 250 tons per day of the District’s biosolids composted at Synagro’s 28 South Kern Compost Manufacturing Facility. 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 EnerTech solution is a relatively new, patented heat treatment process that increases the ability to dewater biosolids in order to maximize the efficiency of the production of fuel. The fuel product is being recycled and reused, under agreements with area cement kilns and other fuel users. Residual ash from the fuel combustion becomes part of the cement product, resulting in no residual waste product liability. The EnerTech facility began receiving biosolids from the District in November 2008 and is still in the commissioning phase of the project. Currently, the balance of the biosolids not managed by either Synagro or EnerTech is being managed by Tule Ranch pursuant to a five-year contract by either land application or landfill disposal (as a fail-safe back-up) in Arizona. As a result of the transition to compost and energy products the cost to the District for biosolids management has increased from $13.5 million in Fiscal Year 2007-08 to an estimated $20.1 million in Fiscal Year 2011-12. However, the solids have not increased to the level that the District had anticipated because of various process improvements, new and rehabilitated facilities, and the nitrification project. As a result, the District is on track to spend only 80% of this year’s budget and the budget is anticipated to decrease next year. Future solids production projections were recently decreased by about 100 tons per day. Urban Runoff In June 2002, legislation was passed that allows the District’s charter to include permissive language authorizing the diversion and management of dry weather urban runoff flows. This legislation allows the District to acquire, construct, operate, maintain, and furnish facilities for the diversion of urban runoff from drainage courses within the District, the treatment of the urban runoff, the return of the water to the drainage courses, or the beneficial use of the water. The legislation allows the District to divert up to 10 million gallons a day and consider more extensive options, such as building artificial wetlands that would naturally filter the runoff, or building a runoff treatment plant. Orange County’s’s beaches have been affected by storm water and urban runoff pollution. As a result, the Santa Ana Regional Water Quality Control Board has taken direct action to control discharge of pollutants to tributaries and recreational water bodies in Orange County by issuing a Storm Water Permit to the County of Orange (Permittee) and cities within Orange County (as co-permittees). To comply with the provisions of the permit and help protect Orange County’s water resources, the County of Orange and such cities have increased resources to fund municipal storm water/urban runoff management and treatment services. 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 29 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. 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 2008, the Board of Directors adopted a new comprehensive five-year strategic plan (the “Five-Year Plan”) to drive the District’s efforts and engage the organization to envision service and operations for the next five years. In October 2009, the staff-generated ideas were presented to the Board of Directors for discussion and deliberation of changes and additions to the Five-Year Plan. In November 2009, the Five-Year Plan was updated to continue looking at a five-year horizon. Following a similar process that was used in the original November 2008 plan, the General Manager's Office initiated the planning effort with the District’s Executive Management Team, then solicited input and ideas from managers and supervisors. Driven by the District’s mission, vision and core values, the updated Five- Year Plan continues the District’s efforts to meet the sanitation, health, and safety needs of its more than 2.5 million customers while protecting the environment. 30 In the past year, nearly 30 percent of the goals of the Five-Year Plan were achieved. The Fiscal Year 2009-10 Five-Year Plan presents the following five new goals: • Reaffirming the District’s commitment to expand the Groundwater Replenishment System, including completion of the Steve Anderson Lift Station (which has been completed) and studying the potential to include flows from the Santa Ana River Interceptor. • Analyzing whether adding chlorine to disinfect effluent into the ocean is cost-effective in comparison to other alternatives that also maintain protection of public health and safety. • Evaluating and promoting the District’s environmental initiatives and seeking additional opportunities to utilize emerging technologies. • Continuing to assess and identify risks to the District, including political and financial risks, and developing mitigation strategies. • Developing a comprehensive human resources strategic plan to connect employees with the overall mission, values, and vision of the organization and preparing employees for future leadership opportunities. 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 twenty-three and to provide for gradual rate increases in seven of the nine Revenue Areas. The increase in the number of categories provided a more equitable fee structure and also provided for future reductions in single- family residential Sewer Service Charges. 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. Each year thereafter, the Board of Directors has ratified the next year’s actual rate. 31 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 Irvine Ranch Water District (the “IRWD”) which directly collects fees from customers through a monthly billing procedure in Revenue Area No. 14. 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 upon a rational basis between the fees charged each customer and the services and facilities provided to each customer of the District, except those located in Revenue Area No. 14. The noticed public hearing held in connection with the 2002 Ordinance considered increases in the amount of the annual charges of approximately 20% per year for each of the then following five years. In May 2005, the Board of Directors adopted Ordinance No. OCSD-26 increasing the Fiscal Year 2005-06 single family residential rate, the underlying basis for all sewer service charges, by 31%, from $115.00 to $151.00 for all ratepayers, except those located in Revenue Area No. 14. In June 2007, the Board of Directors adopted Ordinance No. OCSD-32 increasing the Fiscal Year 2007-08 single family residential rate by 9.8%. On February 27, 2008, the Board of Directors approved increases in its sanitary sewer service charges for all single family and multi-family residential units, and for all commercial properties. The Board 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% for Fiscal Year 2009-10, 10% for Fiscal Year 2010-11, 9.8% for Fiscal Year 2011-12 and 9.8% for Fiscal Year 2012-13. Table 6 below sets forth the annual ordinance adoptions following the last Proposition 218 notice and presents a five-year comparison of the Sewer Service Charge rate for single-family residences. [Remainder of page intentionally left blank.] 32 Table 6 Annual Sewer Service Charges Single Family Residence Rate Five Year Rate Schedule Fiscal Years 2005-06 through 2009-10 Fiscal Year Ordinance No. Effective Date Sewer Service Charge Percent Increase 2005-06 OCSD-26 07/01/05 $151.00 31.3% 2006-07 OCSD-30B 07/01/06 165.80 9.8 2007-08 OCSD-32 07/01/07 182.00 9.8 2008-09 OCSD-35 07/01/08 201.00 10.4 2009-10 OCSD-35 07/01/09 221.00 10.0 _________________________ Source: Orange County Sanitation District. Table 7 below sets forth total average annual Sewer Service Charges for single-family residences 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 July 1, 2009. The District’s projected SFR rate of $294 in Fiscal Year 2012-13 remains below the current 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. Table 7 Comparison of Total Sewer Service Charges For Single-Family Residences As of July 1, 2009 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 $568 2 Yes No City of Los Angeles 428 360 4 Yes No East Bay MUD 80 259 4 No Yes Sacramento 140 237 3 No Yes Orange County Sanitation District 221 221 2 No Yes Los Angeles County 497 128 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: 2007-08 Wastewater User Charge Survey Report by the California State Water Resources Control Board. 33 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 2008-09 were approximately $99 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 – Capital Improvement Program,” the CIP Validation Study in the Spring of 2005 (as further updated in the 2008 CIP Validation Study) developed a capital improvement program to meet secondary treatment standards as quickly as possible while providing for increased flows and rehabilitation and refurbishment of existing facilities. As projected out to Fiscal Year 2020-21 the cash flow needs of the CIP total approximately $2.51 billion, approximately $1.5 billion of which has been spent as of December 31, 2009. The bulk of the remaining construction is scheduled during the next four years, with average annual expenditures of approximately $160 million. Additional Revenues The District has several sources of additional revenue, including property taxes, Capital Facilities Capacity Charges, capacity rights, permit and inspection fees and interest earnings. Property Taxes. The District receives approximately 2.5% of the one percent County ad valorem property tax levy, based on the allocation procedure under State law. Property tax revenues were $46.9 million in Fiscal Year 2003-04, $35.8 million in Fiscal Year 2004-05, $40.0 million in Fiscal Year 2005- 06, $60.6 million in Fiscal Year 2006-07, $65.2 million in Fiscal Year 2007-08 and $66.4 million in Fiscal Year 2008-09. The $11.2 million decrease in property tax revenues from Fiscal Year 2003-04 to Fiscal Year 2004-05 is reflective of the State of California’s then current fiscal crisis and the implementation of the first year of a two-year 40% secured property tax shift away from independent special districts. 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. This shift was effective for Fiscal Year 2004-05 and Fiscal Year 2005-06, resulting in a 40% secured property loss for the District. See “LIMITATIONS ON TAXES AND REVENUES – Proposition 1A.” This 40% reduction for Fiscal Year 2004-05 was somewhat offset by the then existing strength in the real estate market. 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) of $65.2 million in Fiscal Year 2007-08 and $66.4 million in Fiscal Year 2008-09. The District expects its property tax receipts to be approximately $65.2 million in Fiscal Year 2009-10. See Table 15 below. The District currently projects its property tax receipts to remain approximately level through Fiscal Year 2012-13. The apportionment of the ad valorem tax is 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 Directors policy. Capital Facilities Capacity Charges. Capital Facilities Capacity Charges (formerly known 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. Currently, the District has Capital Facilities Capacity Charges of $4,998 per residential unit (three-bedroom); however, under the current industrial use 34 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 1970’s. 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. Additional treatment plant capacity can be purchased in increments at the District’s current replacement cost. The Santa Ana River Interceptor Line (“SARI”) was built in the Chino Basin Preserve Area in order to remove dairy farm wastes and accommodate future urban development. Salts in the washwater generated from the cleaning of cows and milking equipment were leaching into the groundwater in the Chino Basin and the SARI was built to divert the washwater from this area. However, due to the nature of the Chino Basin Preserve, the development of any infrastructure in the area to accommodate the SARI was limited. The current SARI multi-phase project is designed to connect several dairies to the SARI. Future expansions of this project could include connecting other dairies and other waste streams with the SARI line. See “THE DISTRICT – Capital Improvement Program” herein. Wastewater Treatment History The average yearly influent flow to the District has remained relatively stable for the preceding four years. The wastewater flows for Fiscal Year 2005-06 through Fiscal Year 2008-09 were 235 mg/d, 229 mg/d, 221 mg/d and 211 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 2004-05 through 2008-09 and the projected number of customers served by the District for the Fiscal Years 2009-10 through 2013-14, 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 35 for a single family dwelling. This base amount is considered the “equivalent dwelling unit.” The EDUs set forth in Table 8 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 2004-05 through 2013-14 Fiscal Year Historical EDUs(1) Fiscal Year Projected EDUs 2004-05 893,501 2010-11 925,037(2) 2005-06 910,469 2011-12 927,812(3) 2006-07 907,986 2012-13 930,595(3) 2007-08 911,033 2013-14 933,387(3) 2008-09 921,782 2009-10 930,164 ____________________ (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 May 2009. [UPDATE?] (3) EDU growth during the projection period is estimated at approximately 0.4% per annum. Source: Orange County Sanitation District. Table 9 below shows 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 2004-05 through 2008-09 ($ in Millions) Residential/Commercial Industrial Fiscal Year Number of Equivalent Single- Family Dwellings(1) Total Revenue Percentage of Sewer Service Charge Revenues Number of Customer Accounts Total Revenue Percentage of Sewer Service Charge Revenues 2004-05 860,634 $ 99.0 90% 568 $10.5 10% 2005-06 872,859 132.0 92 557 12.2 8 2006-07 867,035 143.8 91 531 13.4 9 2007-08 875,739 159.4 93 520 12.1 7 2008-09 910,637 183.0 95 515 9.9 5 ____________________ (1) With respect to such Fiscal Years, presentation in the Statistical Section of the Comprehensive Annual Financial Report set forth in Appendix A includes EDUs that equate to total Sewer Service Charge collections rather than levies. Source: Orange County Sanitation District. 36 The ten largest principal sewer service customers of the District for the Fiscal Year ended June 30, 2009 are shown in Table 10 below. Table 10 Largest Principal Sewer Service Customers of the District for the Fiscal Year Ended June 30, 2009 User Sewer Service Charges Kimberly-Clark Worldwide, Inc. $1,091,757 MPC Foods, Inc. 1,045,850 Alstyle Apparel – A&G Inc. 849,942 Stremicks Heritage Foods, LLC 573,353 House Foods America Corp. 543,277 Ameripec Inc. 459,905 Pepsi-Cola Bottling Group 391,780 Nor-Cal Beverage Co. Inc. (NCB) 357,354 Favorite Foods, Inc. 324,637 Orange City Mills Ltd. Partnership 346,794 Total $5,984,649 ____________________ Source: Orange County Sanitation District. Assessed Valuation The assessed valuation of property in the County is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Due to changes in assessment required under State Constitution Article XIIIA, the County assessment roll no longer purports to be proportional to market value. See “LIMITATIONS ON TAXES AND REVENUES” herein. Generally, property can be reappraised to market value only upon a change in ownership or completion of new construction. The assessed value of property that has not incurred a change of ownership or new construction must be adjusted annually to reflect inflation at a rate not to exceed 2% per year based on the State consumer price index. In the event of declining property value caused by substantial damage, destruction, economic or other factors, the assessed value must be reduced temporarily to reflect market value. For the definition of full cash value and more information on property tax limitations and adjustments, see “LIMITATIONS ON TAXES AND REVENUES” herein. The County Assessor determines and enrolls a value for each parcel of taxable real property in the County every year. The value review may result in a reduction in value. Taxpayers in the County also may appeal the determination of the County Assessor with respect to the assessed value of their property. Table 11 below shows a five-year history of assessed valuations in the District since Fiscal Year 2005-06. 37 Table 11 Assessed Valuations of Property in the District Fiscal Years 2005-06 through 2009-10 ($ in Billions) Fiscal Year Value % Change 2005-06 $241.8 10.30% 2006-07 270.7 11.93 2007-08 292.7 8.14 2008-09 307.6 5.08 2009-10 305.2 (0.98) ____________________ Source: County of Orange Auditor-Controller. Prior to 2006, the housing market in Southern California experienced significant price appreciation. During this period, many homebuyers financed the purchase of their new homes using non- conventional loans. Such loans were made with little or no down payment and included adjustable interest rates subject to being reset at higher rates on a specified date or upon the occurrence of specified conditions. In addition, many of these loans allow the borrower to pay interest only for an initial period, in some cases up to ten years. Starting in 2006, housing developers, appraisers and real estate consultants began to report weakening of prices for single-family homes. There has been tightening of underwriting criteria for mortgage loans such that most lenders now require down payments, stricter verification, higher income to loan ratios, higher credit ratios or some combination of such factors. These factors have contributed to a decrease in home sales as prospective purchasers are unable to qualify for loans. Declining home sales in some areas of Southern California have resulted in a decrease in home prices. As home values decline, homebuyers may not be able to obtain replacement financing because the outstanding loan balances exceed the value of their homes. Due to the limiting effect of Proposition 13 on assessed valuations, declines in the market value of property in the County will not necessarily result in decreased property tax revenue in the near term. In fact, assessed valuations of property in the District for Fiscal Year 2008-09 increased by $14.9 billion, or 5.08%, over Fiscal Year 2007-08 valuations. For Fiscal Year 2009-10, however, the County reduced assessed valuations by 0.98% as a result of further decreases in market value, leading to decreased property tax collections. Assessed valuations tend to lag economic activity. Given the severity of the recent recession, the sharp decline in the market value of real estate, and the complexity of the methodology by which property is assessed, the District cannot accurately forecast the long-term impact of the recent recession on assessed valuations and property tax receipts. 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. 38 The County’s general fund is the designated recipient of future collections of penalties and interest on all delinquent taxes collected on behalf of participants in this alternative method of apportionment. In recent years, the County has experienced delinquencies of Sewer Service Charges in the District of approximately 2%. Table 12 below presents 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 2004-05 through 2008-09 (In Thousands) Fiscal Year Total Tax and Sewer Service Charge Levy 2004-05 $152,745 2005-06 191,290 2006-07 209,206 2007-08 228,622 2008-09 254,092 ____________________ Source: Orange County Auditor-Controller’s Office. Budgetary Process The District’s operating fund budget relies on revenues from property taxes and Sewer Service Charges, both of which are collected on the property tax bill. See “DISTRICT REVENUES — 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. 39 Prior year reserves or fund balances may be appropriated to fund items not previously included in the adopted budget. Reserves or fund balances exceeding minimum amounts required by fiscal policies may be appropriated if it is determined to be in the best interest of the District. Directors may also appropriate reserves in case of emergencies or unusual circumstances. Reserves The District has an established reserve policy with eight separate categories for its reserve funds. Collectively, these individual reserve requirements total over $475 million for each year of the current ten-year cash flow forecast. Financial Management staff and the Board of Directors have 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 7.8%. The following table sets forth actual reserves at June 30, 2008 and June 30, 2009, and projected reserves at June 30, 2010, for each fund. Reserve levels are calculated in accordance with the District’s reserve policy. Table 13 Actual and Projected Reserves June 30, 2008 through 2010 (In Millions) June 30, 2008 June 30, 2009 June 30, 2010(1) Cash Flow Requirements Reserve — Operating Expenses $ 70 $ 73 $ 78 Certificates of Participation Payments 65 84 92 Operating Contingencies Reserve 14 15 16 Capital Improvement Program Reserve 165 116 87 Catastrophe and Self Insurance 57 58 57 Capital Replacement and Refurbishment 54 55 56 Debt Service Required Reserves 108 133 129 Overlapping Reserve Adjustment - - (39) Total $ 533 $ 534 $ 476 ____________________ (1) Projected. Source: Orange County Sanitation District. Other than amounts in Debt Service Required Reserves, which are dedicated to specific financing issues of the District, all of the categories of District reserve funds described above are available to pay principal of and interest on the Revenue Obligations if Net Revenues are insufficient. The Cash Flow Requirements Reserve was established to fund operation, maintenance and certificates of participation debt service expenses for the first half of the fiscal year, prior to the receipt of the first installment of the property tax allocation and sewer service user fees which are collected as a separate line item on the property tax bill. The level of this reserve is established as the sum of an amount equal to six months operations and maintenance expense and the total of certificates of participation debt service expenses due in the subsequent fiscal year. The Operating Contingencies Reserve was established to provide for non-recurring expenditures that were not anticipated when the annual budget and Sewer Service Charges were adopted. The level of this reserve is equal to 10% of the District’s annual operating budget. The Capital Improvement Program Reserve was established to fund annual increments of the Capital Improvement Program with a target level at one-half of the average annual Capital Improvement Program through the year 2020. Levels higher and lower than the target can be expected while the long- 40 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 $6.92 billion. The initial reserve level for this fund was established at $50 million and is augmented by interest earnings and a portion of the annual Sewer Service Charges. Debt Service Required Reserves (or Obligation Reserve Funds as defined in the Master Agreement) are controlled by a trustee pursuant to the provisions of certificates of participation issues and are not available for the general needs of the District. The Rate Stabilization Reserve accumulates all available funds which exceed the targets for all other reserves. The Rate Stabilization Reserve is a separate fund from the Rate Stabilization Account established under the Trust Agreement. These funds are applied to future years’ needs and must be maintained at specified levels. There is currently no established target for this reserve and, because the reserves of all other funds have not been exceeded, the reserve level for this reserve fund is zero for Fiscal Years 2005-06 through 2008-09. See APPENDIX A — “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009.” Summary of Operating Data Set forth in Table 14 below is a summary of historic operating results for the District for Fiscal Years 2004-05 through 2008-09. The information presented in the summary should be read in conjunction with the financial statements and notes. See APPENDIX A — “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009.” [Remainder of page intentionally left blank.] 41 Table 14 Summary of Historical District Revenues and Expenses and Other Financial Information For Fiscal Years 2004-05 through 2008-09 ($ in Millions) 2004-05 2005-06 2006-07 2007-08 2008-09 Revenues: Sewer Service Charges(1) $ 99.0 $ 132.0 $143.8 $159.4 $183.0 Industrial Sewer Service Charges 10.5 12.2 13.4 12.1 9.9 Revenue Area No. 14 Fees 6.9 5.3 5.2 7.1 10.3 Ad Valorem Taxes 35.8 40.0 60.6 65.2 66.4 Interest Earnings 15.1 10.4 22.2 20.2 14.8 Capital Facilities Capacity Charges (“CFCC”) 9.8 15.6 31.3 19.8 9.8 Other Revenues 6.1 9.2 8.3 6.9 5.8 Total Revenues $183.2 $224.7 $284.8 $290.7 $300.0 Operations and Maintenance Expenses(2) $101.8 $105.6 $112.2 $131.9 $164.6(5) Net Revenues(3) $ 71.6 $103.5 $141.3 $139.0 $125.6 Debt Service $ 37.9 $ 41.9 $ 48.6 $ 42.8 $ 57.6 Coverage Ratios(3) 1.89x 2.47x 2.90x 3.25x 2.18x CIP Outlay $187.9 $260.8 $287.5 $275.5 $254.9 Ending Reserves(4) $407.0 $406.0 $287.0 $434.0 $439.0 ____________________________________ (1) Net of rebates, if any, to commercial users. (2) Excludes depreciation and amortization expenses. (3) Calculated in accordance with the Master Agreement, which excludes CFCC from Net Revenues. (4) Excludes Debt Service Required Reserves in accordance with the District’s reserve policy. (5) During the fiscal year ended June 30, 2009, independent agreed-upon procedures were conducted on Revenue Area 14 to substantiate the Irvine Ranch Water District’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. See APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009 – Note 8.” Source: Orange County Sanitation District. Projected Operating Data Set forth in Table 15 below are projected operating results for the District for Fiscal Years 2009- 10 through 2013-14. These projections assume the number of projects and scheduled build out set forth in the CIP Validation Study, and reflect Board-approved annual increases in sewer service rates of 10.5%, 10%, 10%, 9.8% and 9.8% over this five-year period. Principal expenditure components of these projections are derived from the CIP Validation Study, which identified 114 large capital projects managed by the Engineering Department through 2020-21 at a total cost of $2.48 billion, and currently projected to include over $1.1 billion in the next five years. The District’s CIP cash flow budget for Fiscal Year 2009-10 is $259.1 million. This CIP budget finances joint works treatment and disposal system improvement projects, and collection system improvement projects. The preparation of such projections was based upon certain assumptions and certain forecasts with respect to conditions that may occur in the future. While the District believes that these assumptions and forecasts are reasonable for the purposes of the projected selected operating data, it makes no representations that they will in fact occur. To the extent that actual future conditions differ from those assumed herein, the data will vary. 42 Table 15 Summary of Projected District Revenues and Expenses and Other Financial Information for Fiscal Years 2009-10 through 2013-14 ($ in Millions) 2009-10 2010-11 2011-12 2012-13 2013-14 Revenues: Residential & Commercial Sewer Service Charges $210.5 $232.6 $254.8 $280.8 $301.1 Industrial Sewer Service Charges 9.2 10.1 11.1 12.2 13.1 Revenue Area No. 14 Fees 22.7 18.9 18.7 26.1 22.6 Ad Valorem Taxes 65.2 65.2 65.2 65.2 68.5 Interest Earnings 15.2 15.6 17.6 20.2 22.2 Capital Facilities Capacity Charges (“CFCC”) 10.6 11.1 11.7 12.3 13.0 Other Revenues 17.2 22.7 18.4 19.1 39.2 Total Revenues $350.6 $376.2 $397.5 $435.9 $479.7 Operations and Maintenance Expenses 156.1 166.7 178.9 193.1 204.4 Net Revenues(1) $183.9 $198.4 $206.9 $230.5 $262.3 Debt Proceeds (excluding refundings) $ 70.0 $110.0 $ 60.0 $170.0 0 Debt Service(2) $ 77.1 $ 92.3 $ 97.6 $105.2 $124.5 CIP Outlays $259.1 $200.4 $150.0 $188.2 $ 94.2 Ending Reserves(1) $348.0 $362.9 $385.5 $418.1 $413.4 Coverage Ratios(3) 2.39x 2.15x 2.12x 2.19x 2.11x _________________ Assumptions: (a) Annual growth in equivalent dwelling units is projected to increase 0.4% over the next five years. (b) The Residential and Commercial Sewer Service Charge and the Industrial Sewer Service Charges are forecasts based on the total projected equivalent dwelling units, the actual 10% increase for 2009-10, 10% increase for 2010-11, 9.8% increase for 2011-12 and 9.8% increase for 2012-13. (c) The Capital Facilities Capacity Charge forecast is based on the total projected equivalent dwelling units along with a 5.0% project annual increase in the rate. (d) Revenue Area No. 14 fees are derived based on the projected contribution of sewage flows to the District from the Irvine Ranch Water District. (e) Ad valorem tax revenues are projected to remain level through Fiscal Year 2012-13. (f) Interest earnings are projected as 4.0% of average annual cash balances. (g) Operating and Maintenance Expenses are projected to increase 7.0% per year. (h) Annual CIP Outlays based on the cash flow projections developed from the CIP Validation Study. (1) Calculated in accordance with the Trust Agreement, which excludes CFCC from Net Revenues. (2) Assumes the refinancing of the 2009 Notes with Senior Obligations amortizing over a term of approximately 25 years. (3) Excludes Debt Service Required Reserves in accordance with the District’s reserve policy. Source: Orange County Sanitation District. 43 Management’s Discussion and Analysis of Operating Data The District’s Fiscal Year 2009-10 total operating and capital improvement budget is $495.1 million, a 17.6% decrease over the prior year budget of $601.0 million. The District’s Fiscal Year 2009-10 budget includes $259.1 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 2009-10 operations budget for the collection, treatment, and disposal of wastewater is $156.1 million, a $7.4 million increase from the prior year budget of $148.7 million. This increase is primarily attributable to the increase in personnel costs and are necessary to be in compliance with the terms of the existing employee contract agreements as the authorized full time equivalent staffing levels have remained at approximately 640. Personnel costs increased $8.0 million, or 9.5%. The contractual services budget remained flat at $28.5 million. The major component of this category is biosolids removal and transport costs totaling $20.6 million. Contracts have been executed with firms for agricultural reuse of residual solids. The utility budget of $9.8 million increased by only 1.0%, as utility rates are expected to remain basically flat in comparison with the prior year. Electricity is the largest utility cost incurred by the District and is used to run the plant processes. In preparation for the Fiscal Year 2008-09 budget, strategic planning workshop were held by the Board of Directors to layout a capital program to deliver the level of services desired by the Board. These levels of services and resulting capital projects are included in the District’s Five-Year Strategic Plan, and include approximately $50 million of new CIP over the next ten years. In addition, District staff reviewed each ongoing CIP project to ensure that the scope of the project remains appropriate, and that the cost estimates have been accurately updated. The Fiscal Year 2009-10 CIP cash flow budget was approved at $259.1 million. The Fiscal Year 2009-10 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 CIP also includes the identification of 21 new future rehabilitation and replacement projects based on the District’s condition assessment program. These future CIP needs will increase the amount of the overall CIP Program by $118 million but will not further impact future user rates as these rehabilitation, renewal, and replacements have already been anticipated in the District’s current ten year cash flows. Over _____ period, the CIP will accomplish: • Rehabilitation of the existing headworks, primary treatment, secondary treatment, outfall pumping, and solids handling facilities at both treatment plants; • Replacement and rehabilitation of nine of the District’s outlying pumping stations, and rehabilitation and upgrade of 29 trunk sewer improvement projects; • Optimization of the production of “power” and “biosolids” at each of the treatment plants; • Reclamation of 70 mg/d of the District’s effluent, or nearly one-third of the total daily flow through the Groundwater Replenishment System; and • Secondary treatment standards by December 2012. The 2008 CIP Validation Study reaffirmed the need for further 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 which increased the sanitary sewer service charges by approximately 10% each year for the five years 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 44 rate, the basis for all sewer user fee rates, from $201 to $221 in Fiscal Year 2009-10. 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 (“PIMCO”). Mellon Trust (“Mellon Trust”) serves as the District’s independent custodian bank for its investment program. Callan Associates (“Callan”) serves as the District’s independent advisor. As of March 1, 2010, the District’s externally managed fund consisted of a short-term investment portfolio of $54.7 million with an average maturity of 55 days, and a long-term investment portfolio of $223.0 with average maturities of 2.7 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 Installment Payment under the Installment Purchase Agreement. The table below describes the District’s outstanding certificates of participation as of April 1, 2010. The payment obligations in connection with each series of these certificates 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 outstanding general obligation bonds. 45 Table 16 Outstanding Certificates of Participation As of April 1, 2010 Original Principal Amount Issue Date Outstanding Balance Final Maturity 2000 Certificates $218,600,000 08/31/00 $ 194,900,000 08/01/30 2003 Certificates 280,000,000 08/26/03 191,500,000 02/01/33 2007A Certificates 95,180,000 05/22/07 93,265,000 02/01/30 2007B Certificates 300,000,000 12/20/07 290,130,000 02/01/37 2008A Certificates 77,165,000 05/29/08 46,430,000 08/01/13 2008B Certificates 27,800,000 09/11/08 27,390,000 08/01/16 2009A Certificates 200,000,000 05/07/09 197,770,000 02/01/39 2009B Certificates(1) 165,865,000 12/01/09 165,865,000 12/01/10(1) Total Long-Term Debt $1,207,250,000 ________________________ (1) The District expects to refund the 2009B Certificates with Senior Obligations amortizing over a term of approximately 25 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 Orange County Sanitation District Refunding Certificates of Participation, Series 2000-A (the “2000-A Certificates”) and the Orange County Sanitation District Refunding Certificates of Participation, Series 2000-B (the “2000-B Certificates” and, together with the 2000-A Certificates, the “2000 Certificates”) in the original aggregate principal amount of $218,600,000, of which $[194,900,000] will be outstanding as of May 1, 2010. In connection with the execution and delivery of the 2000 Certificates, the District entered into an installment purchase agreement (the “2000 Installment Purchase Agreement”) and a Standby Agreement, dated as of August 1, 2000 (the “2000 Standby Agreement”), by and among the District, the Trustee and Dexia Crédit Local, acting through its New York Agency. The 2000 Standby Agreement currently expires on August 31, 2010. The 2000 Standby Agreement constitutes a Credit Facility Agreement and a Credit Facility under the Master Agreement. The obligation of the District to repay amounts drawn on or paid under the 2000 Standby Agreement, to pay interest on such amounts and to pay any other amounts in connection with such draw or payment constitutes a Reimbursement Obligation, each with respect to a Senior Obligation. Anticipated Financings From time to time the District expects to incur other obligations to finance and refinance portions of the CIP. Over the next [four] years, the District expects to incur further Additional Senior Obligations in an aggregate principal amount of approximately $[410] million for the purpose of funding the capital improvement program. 46 Direct and Overlapping Bonded Debt Table 17 below presents the aggregate direct and overlapping bonded debt of the District as of April 1, 2010. Table 17 Direct and Overlapping Bonded Debt of the District as of April 1, 2010 [to come] ________________________ Source: California Municipal Statistics. 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. 47 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 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. 48 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. 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. 49 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 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 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 50 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 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 51 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%, 10%, 9.8% and 9.8%, 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. 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 upon 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., Los Angeles, California, Disclosure Counsel to the District. 52 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 Mayer Hoffman McCann P.C., independent certified public accountants. See APPENDIX A – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009” herein. The District has received the Government Finance Officer’s Association Certificate of Achievement for “Excellence in Financial Reporting” for 13 consecutive years. The audited financial statements, including the footnotes thereto, should be reviewed in their entirety. Mayer Hoffman McCann P.C. has consented to the inclusion of its report as Appendix A but has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by Mayer Hoffman McCann P.C. with respect to any event subsequent to its report dated October 22, 2009. TAX MATTERS State Tax Exemption. In the opinion of Fulbright & Jaworski L.L.P., Special Counsel, under existing law, the interest component of the Installment Payment (the “Interest Component”) and the allocable portion thereof distributable in respect of each Revenue Obligation (the “Revenue Obligation Interest Distribution”) is exempt from personal income taxes of the State of California. 53 Federal Income Tax Considerations. The following is a general summary of certain United States federal income tax consequences of the purchase and ownership of the Revenue Obligations. The discussion is based upon laws, Treasury Regulations, rulings and decisions now in effect, all of which are subject to change (possibly, with retroactive effect) or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the conclusions reached herein. The District does not make any representation or covenant for the benefit of the Owners of the Revenue Obligations as to the present or future qualification of the Revenue Obligations as “build America bonds” within the meaning of section 54AA of the Code. The discussion below does not purport to deal with United States federal income tax consequences applicable to all categories of investors. Further, this summary does not discuss all aspects of United States federal income taxation that may be relevant to a particular investor in the Revenue Obligations in light of the investor’s particular personal investment circumstances or to certain types of investors subject to special treatment under United States federal income tax laws (including insurance companies, tax exempt organizations, financial institutions, broker-dealers, and persons who have hedged the risk of owning the Revenue Obligations). The summary is therefore limited to certain issues relating to initial investors who will hold the Revenue Obligations as “capital assets” within the meaning of section 1221 of the Code, and acquire such Revenue Obligations for investment and not as a dealer or for resale. This summary addresses certain federal income tax consequences applicable to beneficial owners of the Revenue Obligations who are United States persons within the meaning of section 7701(a)(30) of the Code (“United States persons”) and, except as discussed below, does not address any consequences to persons other than United States persons. Prospective investors should note that no rulings have been or will be sought from the IRS with respect to any of the United States federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE REVENUE OBLIGATIONS. Internal Revenue Service Circular 230 Notice. Investors should be aware that: (i) the discussion with respect to United States federal tax matters in this Official Statement was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer; (ii) such discussion was written to support the promotion or marketing (within the meaning of IRS Circular 230) of the transactions or matters addressed by such discussion; and (iii) each taxpayer should seek advice based on his or her particular circumstances from an independent tax advisor. This notice is to ensure compliance with IRS Circular 230. Interest with respect to the Revenue Obligations. Special Counsel has rendered no opinion regarding the exclusion pursuant to section 103(a) of the Code of the Interest Component with respect to the Revenue Obligations from gross income. However, the District has taken no action to cause, and does not intend, the Interest Component or any Revenue Obligation Interest Distribution to be excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Further, to the extent that the District designates a Revenue Obligation as a “build America 54 bond,” section 54AA(f)(1) of the Code provides that interest with respect to such Revenue Obligation shall be included in gross income. The District intends to treat the Revenue Obligations as debt instruments for all federal income tax purposes, including any applicable reporting requirements under the Code. THE DISTRICT EXPECTS THAT THE INTEREST COMPONENT PAID WITH RESPECT TO A REVENUE OBLIGATION GENERALLY WILL BE INCLUDED IN THE GROSS INCOME OF THE OWNER THEREOF FOR FEDERAL INCOME TAX PURPOSES WHEN RECEIVED OR ACCRUED, DEPENDING UPON THE TAX ACCOUNTING METHOD OF THAT OWNER. Original Issue Discount. If a substantial amount of the Revenue Obligations of any stated maturity is purchased at original issuance for a purchase price (the “Issue Price”) that is less than their face amount by more than one quarter of one percent times the number of complete years to maturity, the Revenue Obligations of any stated maturity will be treated as being issued with “original issue discount.” The amount of the original issue discount will equal the excess of the principal amount payable on such Revenue Obligations at maturity over their Issue Price, and the amount of the original issue discount on such Revenue Obligations will be amortized over the life of Revenue Obligations using the “constant yield method” provided in the Treasury Regulations. As the original issue discount accrues under the constant yield method, the beneficial owners of such Revenue Obligations, regardless of their regular method of accounting, will be required to include such accrued amount in their gross income as interest. This can result in taxable income to the beneficial owners of the Revenue Obligations that exceeds actual cash distributions to the beneficial owners in a taxable year. The amount of any original issue discount that accrues on the Revenue Obligations each year will be reported annually to the IRS and to the beneficial owners. The portion of the original issue discount included in each beneficial owner’s gross income while the beneficial owner holds the Revenue Obligations will increase the adjusted tax basis of the Revenue Obligations in the hands of such beneficial owner. Disposition of Revenue Obligations and Market Discount. A beneficial owner of Revenue Obligations will generally recognize gain or loss on the prepayment, sale or exchange of the Revenue Obligations equal to the difference between the prepayment or sales price (exclusive of the amount paid for accrued interest) and the beneficial owner’s adjusted tax basis in the Revenue Obligations. Generally, the beneficial owner’s adjusted tax basis in the Revenue Obligations will be the beneficial owner’s initial cost, increased by any original issue discount previously included in the beneficial owner’s income to the date of disposition. Any gain or loss generally will be capital gain or loss and will be long-term or short- term, depending on the beneficial owner’s holding period for the Revenue Obligations. Under current law, a purchaser of Revenue Obligations who did not purchase the Revenue Obligations in the initial public offering (a “subsequent purchaser”) generally will be required, on the disposition of the Revenue Obligations, to recognize as ordinary income a portion of the gain, if any, to the extent of the accrued “market discount.” In general, market discount is the amount by which the price paid for the Revenue Obligations by a subsequent purchaser is less than the principal amount payable at maturity (or, in the case of Revenue Obligations issued with original issue discount, the sum of the Issue Price and the amount of original issue discount previously accrued on the Revenue Obligations), except that market discount is considered to be zero if it is less than one quarter of one percent of the principal amount times the number of complete remaining years to maturity. The Code also limits the deductibility of interest incurred by a subsequent purchaser on funds borrowed to acquire Revenue Obligations with market discount. As an alternative to the inclusion of market discount in income upon disposition, a subsequent purchaser may elect to include market discount in income currently as it accrues on all market discount instruments acquired by the subsequent purchaser in that taxable year or thereafter, in which case the interest deferral rule will not apply. The recharacterization of gain as ordinary income on a subsequent disposition of Revenue Obligations could have a material effect on the market value of the Revenue Obligations. 55 Defeasance. Persons considering the purchase of a Revenue Obligation should be aware that the bond documents permit the District under certain circumstances to deposit monies or securities with the Trustee, resulting in the release of the security interests created under the Trust Agreement (a “defeasance”). Such a defeasance could result in the realization of gain or loss by the owner of the Revenue Obligation for federal income tax purposes, without any corresponding receipts of monies by the owner. Such gain or loss generally would be subject to recognition, as in the case of a sale or exchange described above. In addition, for federal income tax purposes, the character and time of receipt of payments on the Revenue Obligations subsequent to any such defeasance could also be affected. Holders are advised to consult their own tax advisers with respect to the tax consequences resulting from such events. Backup Withholding. Under section 3406 of the Code, a beneficial owner of the Revenue Obligations who is a United States person, as defined in section 7701(a)(30) of the Code, may, under certain circumstances, be subject to “backup withholding” of current or accrued interest on the Revenue Obligations or with respect to proceeds received from a disposition of the Revenue Obligations. This withholding applies if such beneficial owner of Revenue Obligations: (i) fails to furnish to the payor such beneficial owner’s social security number or other taxpayer identification number (“TIN”); (ii) furnishes the payor an incorrect TIN; (iii) fails to report properly interest, dividends, or other “reportable payments” as defined in the Code; or (iv) under certain circumstances, fails to provide the payor with a certified statement, signed under penalty of perjury, that the TIN provided to the payor is correct and that such beneficial owner is not subject to backup withholding. Backup withholding will not apply, however, with respect to payments made to certain beneficial owners of the Revenue Obligations. Beneficial owners of the Revenue Obligations should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedures for obtaining such exemption. Withholding on Payments to Nonresident Alien Individuals and Foreign Corporations. Under sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding at the current rate of 30% (subject to change) on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest income of such a beneficial owner of the Revenue Obligations is not treated as effectively connected income within the meaning of section 864 of the Code, such interest will be subject to 30% withholding, or any lower rate specified in an income tax treaty, unless such income is treated as portfolio interest. Interest will be treated as portfolio interest if: (i) the beneficial owner provides a statement to the payor certifying, under penalties of perjury, that such beneficial owner is not a United States person and providing the name and address of such beneficial owner; (ii) such interest is treated as not effectively connected with the beneficial owner’s United States trade or business; (iii) interest payments are not made to a person within a foreign country that the IRS has included on a list of countries having provisions inadequate to prevent United States tax evasion; (iv) interest payable with respect to the Revenue Obligations is not deemed contingent interest within the meaning of the portfolio debt provision; (v) such beneficial owner is not a controlled foreign corporation, within the meaning of section 957 of the Code; and (vi) such beneficial owner is not a bank receiving interest with respect to the Revenue Obligations pursuant to a loan agreement entered into in the ordinary course of the bank’s trade or business. Assuming payments on the Revenue Obligations are treated as portfolio interest within the meaning of sections 871 and 881 of the Code, then no withholding under section 1441 and 1442 of the Code and no backup withholding under section 3406 of the Code is required with respect to beneficial owners or intermediaries who have furnished Form W-8 BEN, Form W-8 EXP or Form W-8 IMY, as applicable, provided the payor does not have actual knowledge or reason to know that such person is a United States person. 56 Reporting of Interest Payments. Subject to certain exceptions, interest payments made to beneficial owners with respect to the Revenue Obligations will be reported to the IRS. Such information will be filed each year with the IRS on Form 1099 which will reflect the name, address, and TIN of the beneficial owner. A copy of Form 1099 will be sent to each beneficial owner of a Revenue Obligation for United States federal income tax purposes. 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 2009-10 Fiscal Year, and (b) to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Trustee on behalf of the District, with the Municipal Securities Rulemaking Board and with the State Repository, if any. The notices of material events will be filed by the Trustee on behalf of the District with the Municipal Securities Rulemaking Board and with the State Repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material 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 material events. RATINGS The Revenue Obligations will be rated “____” by Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc. (“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 Group, 55 Water Street, New York, New York 10041 and Fitch Ratings, One State Street Plaza, New York, New York 10004. There is no assurance that any such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the respective rating agencies, if in the judgment of any such rating agency circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Revenue Obligations. PURCHASE AND REOFFERING _____________, (the “Initial Purchaser”) has purchased the Revenue Obligations from the District at a competitive sale for a purchase price of $________ (representing the aggregate principal amount of the Revenue Obligations, plus a net original issue 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. 57 The execution and delivery of this Official Statement has been duly authorized by the District. ORANGE COUNTY SANITATION DISTRICT By: Chair of the Board of Directors A-1 APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE ORANGE COUNTY SANITATION DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2009 B-1 APPENDIX B THE COUNTY OF ORANGE – ECONOMIC AND DEMOGRAPHIC INFORMATION C-1 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS D-2 APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT 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 Standard & Poor’s highest rating: AAA. 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 and www.dtc.org. The information on such websites 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 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). Prepayment proceeds, distributions, and dividend payments on the Revenue Obligations will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the District or the Trustee on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, nor its nominee, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. E-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. 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 Revenue Obligations Series 2010A (Federally Taxable Build America Bonds) Ladies and Gentlemen: We have acted as Special Counsel in connection with the $__________ aggregate principal amount of Orange County Sanitation District Wastewater Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) (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 May 1, 2010 (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 May 1, 2010 (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) finance certain improvements to the Wastewater System 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 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, enforceable against such parties in accordance with its respective terms, 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. Based upon existing provisions of the California Revenue and Taxation Code, we are of the opinion that the component of each payment designated as interest in the Installment Purchase Agreement (the “Payment Interest”) allocable to the portion thereof distributable in respect of each Revenue Obligation (the “Interest Distribution”) in respect of each Revenue Obligation are not subject to taxation under the California personal income tax. We have not undertaken to advise in the future whether any events after the date of delivery of the Installment Purchase Agreement may affect the tax status of the Payment Interest or Interest Distributions. Furthermore, we express no opinion as to any federal, state, or local tax law consequences with respect to the Installment Purchase Agreement, Revenue Obligations, Payment Interest, or 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. We express no opinion as to any federal or, except as stated in the preceding two paragraphs, state tax consequences of the ownership or disposition of the Installment Purchase Agreement or the Revenue Obligations. We have not been requested to express, and do not express, any view as to the compliance by any person with federal and state securities laws. With the exception of the opinions expressed above, we have not been requested to express and do not express, any opinion as to any matter affected by any taxing or other law of the State of California. 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 F-3 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 and are not binding on the Internal Revenue Service; 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, 90031341.4 Fulbright & Jaworski L.L.P. – Draft 04/06/10 OFFICIAL NOTICE INVITING BIDS $80,000,000∗ ORANGE COUNTY SANITATION DISTRICT WASTEWATER REVENUE OBLIGATIONS SERIES 2010A (FEDERALLY TAXABLE BUILD AMERICA BONDS) (Book-Entry-Only) NOTICE IS HEREBY GIVEN that bids will be received by the Orange County Sanitation District (the “District”) for the purchase of $80,000,000* original principal amount of Orange County Sanitation District Wastewater Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) (the “Revenue Obligations”). Bids for less than all of the Revenue Obligations will not be accepted. The bids will be received in the form, at the place, and up to the time specified below (unless postponed as described herein): Date: Tuesday, May 11, 2010 11:00 a.m., New York Time Place: Orange County Sanitation District 10844 Ellis Avenue Fountain Valley, CA 92708-7018 Electronic Bids: As an accommodation to bidders, 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 Bids: No bids will be accepted by facsimile. Terms of the Revenue Obligations The Preliminary Official Statement for the Revenue Obligations, dated April 30, 2010, including the cover page and all appendices thereto (the “Preliminary Official Statement”), provides certain information concerning the sale and delivery of $80,000,000* 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 May 1, 2010 (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 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 * Preliminary, subject to change. 90031341.4 2 read the entire Preliminary Official Statement to obtain information essential to making an informed investment decision. 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) finance certain improvements to the Wastewater System 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 May 1, 2010 (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 April 28, 2010, the District and the Corporation authorized the execution and delivery of the Installment Purchase Agreement and the Trust Agreement in connection with the execution and delivery of 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 2003 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 and the 2009B Installment Purchase Agreement. Security and Source of Payments The Revenue Obligations are certificates of participation which evidence direct, undivided fractional interests in the Installment Payments, and the interest thereon, paid by the District pursuant to the Installment Purchase Agreement. The obligation of the District to pay the Installment Payments and the interest thereon and other payments required to be made by it under the Installment Purchase Agreement is a special obligation of the District payable, in the manner provided under the Installment Purchase Agreement, solely from Net Revenues and other funds as provided in the Installment Purchase Agreement. Net Revenues generally consist of all income and revenue received by the District from the operation or ownership of the Wastewater System remaining after payment of Maintenance and Operation Costs, all as further provided in the Master Agreement. The District’s obligation to make Installment Payments from Net Revenues is on a parity with the District’s obligation to make payments with respect to its other outstanding obligations described as Senior Obligations and all Reimbursement Obligations with respect to Senior Obligations, as provided in 90031341.4 3 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. Currently, there are no Subordinate Obligations outstanding. 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” 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. See “SECURITY AND SOURCES OF PAYMENT FOR THE REVENUE OBLIGATIONS — Limitations on Issuance of Additional Obligations” in the Preliminary Official Statement. 90031341.4 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 August 1, 2010. 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 $80,000,000∗ and will be subject to principal amortization through serial maturities on February 1 in the years 2034 through 2040 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 one or more term maturities, each 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 maturities 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. * Preliminary, subject to change. 90031341.4 5 Prepayment Optional Prepayment with Make-Whole Payment. The Revenue Obligations will be subject to prepayment prior to maturity at the option of the District, as a whole or in part, on any Business Day, at the “Make-Whole Prepayment Price.” The “Make-Whole Prepayment Price” is the greater of (1) 100% of the principal amount of the Revenue Obligations to be prepaid or (2) the sum of the present value of the remaining scheduled payments of principal of and interest on the Revenue Obligations to be prepaid, not including any portion of those payments of interest accrued and unpaid as of the date on which the Revenue Obligations are to be prepaid, discounted to the date on which the Revenue Obligations are to be prepaid on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the “Treasury Rate” plus 30 basis points, plus, in each case, accrued and unpaid interest on the Revenue Obligations to be prepaid on the prepayment date. “Treasury Rate” means, with respect to any prepayment for a particular Revenue Obligation, the rate per annum truncated to the fifth decimal, expressed as a percentage of the principal amount, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the prepayment date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker. “Comparable Treasury Issue” means, with respect to any prepayment date for a particular Revenue Obligation, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the Revenue Obligation to be prepaid, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the Revenue Obligation to be prepaid. “Comparable Treasury Price” means, with respect to any prepayment date for a particular Revenue Obligation: (i) the most recent yield data for the applicable U.S. Treasury maturity index from the Federal Reserve Statistical Release H.15 Daily Update (or any comparable or successor publication) reported, as of 11:00 a.m., New York City time, on the Valuation Date; or (ii) if the yield described in (i) above is not reported as of such time or the yield reported as of such time is not ascertainable, the average of four Reference Treasury Dealer Quotations for that prepayment date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or if the Designated Investment Banker obtains fewer than four Reference Treasury Dealer Quotations, the average of all quotations obtained by the Designated Investment Banker. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any prepayment date for a particular Revenue Obligation, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the Valuation Date. “Designated Investment Banker” means one of the Reference Treasury Dealers appointed by the District. “Reference Treasury Dealer” means each of four firms, specified by the District from time to time, that are primary United States Government securities dealers (each, a “Primary Treasury Dealer”); 90031341.4 6 provided, that if any of them ceases to be a Primary Treasury Dealer, the District will substitute another Primary Treasury Dealer. “Valuation Date” means a day at least two Business Days and no more than forty-five calendar days preceding the prepayment date. Extraordinary Optional Prepayment. The Revenue Obligations are subject to prepayment prior to their respective stated maturity dates, at the option of the District, upon the occurrence of an Extraordinary Event, from any source of available funds, as a whole or in part (and, if in part, in such order of maturity as the District shall direct), at any time, at the Extraordinary Optional Prepayment Price. An “Extraordinary Event” will have occurred if the District determines that a material adverse change has occurred to section 54AA or section 6431 of the Internal Revenue Code of 1986 (the “Code”) or there is any guidance published by the Internal Revenue Service or the United States Treasury with respect to such sections or any other determination by the Internal Revenue Service or the United States Treasury, which determination is not the result of an act or omission by the District to satisfy the requirements to receive the 35% cash subsidy payments from the United States Treasury with respect to the Revenue Obligations, pursuant to which the 35% cash subsidy payments from the United States Treasury with respect to the Revenue Obligations are reduced or eliminated. “Extraordinary Optional Prepayment Price” means, for each maturity of the Revenue Obligations, the greater of (i) (1) 100% of the principal amount of the Revenue Obligations to be prepaid or (ii) the sum of the present value of the remaining scheduled payments of principal and interest on the Revenue Obligations of such maturity to be prepaid to the maturity date of such Revenue Obligations, not including any portion of those payments of interest accrued and unpaid as of the date on which the Revenue Obligations of such maturity are to be prepaid, discounted to the date on which the Revenue Obligations of such maturity are to be prepaid on a semi-annual basis, assuming a 360-day year containing twelve 30-day months, at the Treasury Rate (as defined above) plus one hundred (100) basis points, plus accrued interest on the Revenue Obligations of such maturity to be prepaid to the prepayment date. Mandatory Sinking Account Prepayment. If the successful bidder designates principal amounts to be combined into one or more term maturities, each 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 maturities 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. Selection of Revenue Obligations for Prepayment Whenever less than all the Outstanding Revenue Obligations are to be prepaid on any one date pursuant to 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, then (a) if the Revenue Obligations are in book-entry form at the time of such prepayment, the Trustee shall instruct the Depository to instruct the Participants to select the specific Revenue Obligations for prepayment pro rata, and neither the District nor the Trustee shall 90031341.4 7 have any responsibility to ensure that the Depository or the Participants properly select such Revenue Obligations for prepayment, and (b) if the Revenue Obligations are not then in book–entry form at the time of such prepayment, on each prepayment date, the Trustee shall select the specific Revenue Obligations for prepayment pro rata. The portion of any registered Revenue Obligation of a denomination of more than $5,000 to be prepaid will be in Authorized Denominations. The Trustee will select such portions of Revenue Obligations to be prepaid in such manner as the Trustee in its discretion may deem to be fair and appropriate. 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 one-one thousandths (1/1000) of one percent (1%), and no interest rate can exceed 8.0% 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, not later than 5:00 p.m. (Pacific Daylight Time) on the third business day immediately following the award of the Revenue Obligations, 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), that states with respect to each maturity of the Revenue Obligations that such successful bidder either (A) has purchased that maturity of the Revenue Obligations for its own account and not with a view to distribution or resale and not in the capacity of a bond house, broker or other intermediary and the aggregate amount that was paid to or for the benefit of the District for the Revenue Obligations of that maturity, or (B) (1) has made a bona fide public offering to the public of that maturity of the Revenue Obligations at the price indicated in the information supplied on the date of the award for that maturity, and (2) the first price at which a substantial portion (at least equal to 10 percent) of that maturity of the Revenue Obligations actually was sold to the public. For the purposes of the information submitted on the date of the award and the Certificate of Initial Purchaser, the “public” does not include bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers. The successful bidder also will be required to state on the Certificate of Initial Purchaser in offering a maturity of the Revenue Bonds it offered or caused to be offered any “derivative product” (e.g., a tender option), by the bidder or any affiliate and, if so, the terms of that derivative product. At any time before or after delivery of the Revenue Bonds 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 90031341.4 8 initial sale of a substantial portion of any maturity of the Revenue Bonds to the public was at a materially higher price than the price stated for that maturity in the Certificate of Initial Purchaser. Bidders may bid to purchase the Revenue Obligations from the District at a discount; however, no bid will be considered if the bid is to purchase Revenue Obligations at an aggregate price less than 99% or more than 101% of the aggregate principal amount of the Revenue Obligations. Purchaser’s discount shall not exceed 1% of the principal amount of the Revenue Obligations. The reoffering price for each maturity of the Revenue Obligations shall not be less than 98% or more than 100% of the principal amount of such maturity; provided, that any maturity in excess of 20 years that is not subject to optional redemption prior to maturity (other than to optional redemption at a price not less than the greater of a “make-whole” price or the initial purchase price of such maturity set forth in the Certificate of Initial Purchaser) may have a reoffering price not in excess of 102% . 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. 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. 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 90031341.4 9 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 (212-849-5021). 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 certified or cashier’s check payable in same day or next day funds drawn on a responsible bank having an office in Orange County, California equal to $800,000.00 (“Bid Security Deposit”) payable to the order of “Orange County Sanitation District,” (ii) a financial surety bond (“Surety Bond”) in the amount of the Bid Security Deposit issued by an insurance company rated in one of the top two rating categories by Moody’s Investors Service, Fitch Ratings or Standard & Poor’s Ratings Services, without regard to any modification of the rating, and licensed to issue such a bond in the State of California, naming the District as the beneficiary and identifying the bidder whose deposit is guaranteed by the Surety Bond, or (iii) a wire transfer of immediately available federal funds. Checks. The check accompanying any accepted bid shall be cashed and 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. Any check accompanying an unaccepted bid will be returned promptly. All checks must be confirmed as received by an e-mail from the District to the bidder. Surety Bonds. If the successful bidder has provided a Surety Bond, such bidder shall wire transfer to the District the amount of the Bid Security Deposit in immediately available federal funds not later than 3:00 p.m. (New York Time) on the business day next succeeding the day of acceptance of the bid, which amount shall be deposited in an escrow fund or account or a similar fund and applied to the purchase price of the Revenue Obligations at the time of delivery of the Revenue Obligations. If the District has not received such federal funds wire transfer by the time stated, the District may draw upon the Surety Bond to satisfy the successful bidder’s Bid Security Deposit requirements. Wire Transfers. Any Bid Security Deposit wire transfers must be received in federal funds prior to the deadline for examination of the bids, and should be directed as follows: Bank: U.S. Bank N.A. (St. Paul, Minnesota) ABA No.: 091-000-022 For benefit of: U.S. Bank Trust N.A. Account No.: 180121167365 Further credit to: Orange County Sanitation Dist COP 2010A Attn: Linda Verstufyt (213) 615-6052 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. 90031341.4 10 If after the award of the Revenue Obligations, the successful bidder fails to complete the purchase on the terms stated in its bid, unless such failure of performance shall be caused by any act or omission of the District, the Bid Security Deposit, whether paid by check, 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 the date of this Official Notice Inviting Bids, 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 150 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 May 18, 2010. 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 90031341.4 11 assignment of CUSIP numbers to the Revenue Obligations will be the responsibility of the successful bidder. California Debt and Investment Advisory Commission The successful bidder will be required to pay all fees due to the California Debt and Investment Advisory Commission (“CDIAC”) under California law. CDIAC will invoice the successful bidder after the delivery of the Revenue Obligations. Legal Opinions The District will furnish to the successful bidder at the delivery 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 exempt from State of California personal income taxes. Special Counsel will express no opinion regarding any federal or other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Revenue Obligations. Closing Documents The District will furnish to the successful bidder at the time of delivery of the Revenue Obligations: (1) a certificate certifying (i) that as of and at the time of delivery of the Revenue Obligations, there is no action, suit, proceeding or investigation, pending or, to the best knowledge of the District, threatened against or affecting the District, (A) which affects or seeks to prohibit, restrain or enjoin the execution and delivery of the Revenue Obligations or the Trust Agreement, (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 the occurrence of certain events, if material. 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 90031341.4 12 at: Public Resources Advisory Group, 11845 West Olympic Boulevard, Suite 640, 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 May 10, 2010, by 3:00 p.m., New York Time and communicated through Thomson Municipal Market Monitor (available at http://www.tm3.com) and by facsimile transmission to any qualified bidder timely requesting such notice. Bidders are required to bid upon 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 Market Monitor. 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 Market Monitor 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 Market Monitor at the time the sale date and time are announced. Dated: April 30, 2010 90031341.4 OFFICIAL BID FORM $80,000,000∗ ORANGE COUNTY SANITATION DISTRICT WASTEWATER REVENUE OBLIGATIONS SERIES 2010A (Federally Taxable Build America Bonds) May 11, 2010 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 $80,000,000* aggregate principal amount of the Orange County Sanitation District (the “District”) Wastewater Revenue Obligations Series 2010A (Federally Taxable Build America Bonds) (the “Revenue Obligations”), more particularly described in your Official Notice Inviting Bids, dated April 30, 2010, which is incorporated herein by reference, and made a part thereof, at a purchase price of $_________________ (which purchase price is not less than 99% or more than 101% of the aggregate principal amount of the Revenue Obligations). 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, which is considered to be informative only and not a part of the bid, is ________%. Our discount does not exceed 1% of the principal amount of the Revenue Obligations. (PLEASE CHECK ONE OF THE FOLLOWING THREE PARAGRAPHS) [ ] There is enclosed herewith a certified check or cashier’s check for $800,000.00 drawn on a responsible bank having an office in Orange County, California payable in same day or next day funds to the order of the Orange County Sanitation District. All checks must be confirmed as received by an e-mail from the District to the bidder. [ ] A surety bond has been provided to the District in the amount of $800,000.00 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. * Preliminary, subject to change. 90031341.4 2 [ ] With this bid we are providing the District a wire transfer in immediately available federal funds in the amount of $800,000.00 to an account specified by the District or its representative, in accordance with the Official Notice Inviting Bids, dated April 30, 2010. We have noted that payment of the purchase price is to be made in immediately available Federal Funds at the time of delivery of the Revenue Obligations. If we are the successful bidder, we will (1) within 30 minutes after being notified of the verbal award of the Revenue Obligations, advise the District of the initial public offering prices of the Revenue Obligations; and (2) prior to delivery of the Revenue Obligations furnish a certificate, acceptable to Special Counsel, Fulbright & Jaworski L.L.P., as to the “issue price” of the Revenue Obligations within the meaning of _________________. Maturity (February 1) Principal Amount* Interest Rate Serial Maturity Sinking Account Prepayment (Check one column) 2034 $10,125,000 2035 10,530,000 2036 10,955,000 2037 11,395,000 2038 11,850,000 2039 12,325,000 2039 12,820,000 Total $80,000,000 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. We acknowledge and confirm that, should we be awarded the Revenue Obligations, we will be required to, and will, submit by no later than 5:00 p.m. (PDT) of the third business day immediately following the award to the District our Certificate of Initial Purchaser in the form attached to the Official Notice Inviting Bids. Respectfully Submitted, Account Manager: By: Address: City: State: Telephone: * Preliminary, subject to change. 90031341.4 3 Following (or attached) is a list of the members of our account on whose behalf this bid is made. Fulbright & Jaworski L.L.P. – Draft 04/06/10 NOTICE OF INTENTION TO SELL $80,000,000∗ Orange County Sanitation District Wastewater Revenue Obligations Series 2010A (Federally Taxable Build America Bonds) NOTICE IS HEREBY GIVEN that the Orange County Sanitation District (the “District”) intends to receive sealed bids and electronic bids until 11:00 a.m., New York time, on Tuesday, May 11, 2010, 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 District’s Wastewater Revenue Obligations, Series 2010A (Federally Taxable Build America Bonds) (the “Certificates”), 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 Certificates 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 Certificates may be obtained from the District’s financial advisor, Public Resources Advisory Group, 11845 West Olympic Boulevard, Suite 640, Los Angeles, California 90064, 310-477-8487, via e-mail: lchoi@pragla.com. Orange County Sanitation District Dated: ___________, 2010 ∗ Preliminary, subject to change. Page 1 ADMINISTRATION COMMITTEE Meeting Date 04/14/10 To Bd. of Dir. AGENDA REPORT Item Number 5 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services GENERAL MANAGER'S RECOMMENDATION Informational item re OCSD FY 2010-11 and 2011-12 Budget. SUMMARY Discussion of the OCSD FY 2010-11 and 2011-12 Budget was initiated at the March 10,2010, Administration Committee meeting. Additional materials are now being provided to further this discussion (attached). Included in the materials being provided are line-item details for the Operating Budget. The Budget will be presented for adoption at the June 23, 2010, Board meeting. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION N/A CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS 1. FY 2010-11 and 2011-12 Budget Summary 2. FY 2010-11 and 2011-12 Budget Development-Additional Detail JDR:LT:MW:BC 2009-10 2010-11 2011-12 Description Projected Proposed Proposed 1 Salaries, Wages, & Benefits 64.9 65.9 65.9 2 Benefits 27.2 28.9 29.7 3 Operating Materials & Supplies 21.3 24.6 25.4 4 Contractual Services 21.3 24.1 26.6 5 Repairs & Maintenance 9.2 11.1 11.1 6 Utilities 7.8 9.2 11.3 7 Professional Services 1.9 3.2 2.7 8 Other Operating Supplies 1.8 1.9 2.0 9 Administrative Expenses 1.1 1.1 1.1 10 Research & Monitoring 1.0 1.0 1.0 11 Other Non-Operating Expenses 1.6 0.9 0.9 12 Training & Meetings 0.6 1.2 1.2 13 Printing & Publication 0.7 0.7 0.7 14 Cost Allocation (24.2) (25.6) (25.6) Net Operating Requirements $136.2 $148.2 $154.0 2010-11 and 2011-12 Budget Development - Expenditure Summary 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 1 1) SALARIES AND WAGES $64.9 $65.9 $65.9 1a) Regular Salaries $59.8 $60.7 $60.7 Salaries for 641 full-time equivalent (FTE) positions in FY 2010-11 and FY 2011-12 are included in this line item. Additional salaries for a proposed increase of 5 FTEs in FY 2011-12 have not yet been incorporated. Salary increases have only been included per existing bargaining agreements. The Vacancy Factor was set at 3 percent based on trend information. 1b) Leave Payoffs $ 2.9 $ 2.9 $ 2.9 Leave Payoffs for retirements are anticipated to remain constant for the next two years. 1c) Overtime $ 2.2 $ 2.3 $ 2.3 A 3.0% increase in overtime, $68,500, is expected in FY 2010-11 and FY 2011-12 overtime budgets of $2.3 million. Of this total, over $2.0 million is budgeted in Operations and Maintenance primarily for required overtime as the plants are in operation 24/7 (vacation, sick, shift overlap), emergencies, unscheduled maintenance, backlog and off-shift construction support. The remaining $250,000 is budgeted in other divisions and has remained essentially the same; a decrease of 0.6%. 2) BENEFITS $27.2 $28.9 $29.7 2a) Orange County Emp. Ret. System $16.7 $17.6 $17.6 District employees are members of the Orange County Employees’ Retirement System (OCERS). The employer’s required contribution rate has been increased by OCERS from 21.95 percent (FY 2009-10) to 24.20 percent (FY2010-11). 2b) Group Insurance $ 7.7 $ 8.5 $ 9.3 Includes Medical, Dental, Vision, Life Insurance, Medicare, Disability. In FY 2010-11, the proposed group insurance budget includes approximately $13,250 per employee (641approved positions), an estimated 10.6 percent increase over the prior year. 2c) Benefits, Other $ 2.8 $ 2.8 $ 2.8 Includes Workers’ Compensation, Tuition Reimbursement, Development Pay and Uniform Rental. Workers’ Compensation ($0.58 million in FY 2010-11 and $0.55 million in FY 2011-12) is used to maintain the level of accumulated reserves within the Workers’ Compensation self-insurance funds. The Development Pay Program ($300,000) is intended to promote employee efforts that increase job knowledge, skills, and abilities. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 2 3) OPERATING MAT’LS & SUPPLIES $21.3 $24.6 $25.4 3a) Chemical Coagulants $ 6.8 $ 8.0 $ 9.2 Anionic Polymer – Anionic polymer is added to the primary clarifiers in combination with ferric chloride to enhance primary clarifier performance. The projected usage will increase over the next two years at Plant 2 because anionic polymer has not been used during bleach dosing in the primaries. When the trickling filters begin operating at Plant 2, bleach dosing will stop and anionic polymer addition will restart. The budget increase is due to the increased usage and expected increase in the unit cost. The projected usage for FY 2010-11 is 80,250 active pounds at a cost of $274,800. The estimated anionic polymer use for FY 2011-12 is 115,000 active pounds at a cost of $413,000. Cationic Polymer – Cationic polymer is added to digested sludge prior to dewatering in order to improve the sludge and water separation process. Cationic polymer is also added to the waste activated sludge dissolved air flotation thickeners (DAFTs) to improve solid(s) coagulation. Usage at both plants will increase because of additional secondary sludge production as Plant No. 1 returns to the BOD mode of operation; the trickling filters are operational; and the new activated sludge facility at Plant No. 1 is on line. The cationic polymer usage for FY 2010-11 is projected to be 925,000 active pounds at a cost of $2,127,500. During FY 2011-12, the usage is expected to increase to 1,051,000 active pounds to handle increased solids production from secondary treatment at a cost of $2,522,400. Ferric Chloride – Ferric chloride is an iron salt which is currently used to increase the solids removal efficiencies in the primary treatment process and to control digester hydrogen sulfide. The anticipated 17.7% and 11.2% budget increases over the next two years is due to an increase in usage and an expected 15% and 10% increase in unit rate. As the amount of ferric chloride is optimized in primary treatment an additional amounts of ferric chloride are added to the digesters to control hydrogen sulfide. The projected ferric chloride usage for FY 2010-11 is 8,323 dry tons at a cost of $5,618,900. The proposed ferric chloride usage for FY 2011-12 is 8,410 dry tons, at an estimated cost of $6,246,000. 3b) Odor Control $ 7.5 $ 8.2 $ 8.9 Hydrogen Peroxide – Hydrogen peroxide is used in the trunk sewers for control of sulfides and in the foul air scrubbers to control hydrogen sulfide. The projected usage in the treatment plants for FY 2010-11 is approximately 482,000 gallons with an estimated cost of $991,600. Hydrogen peroxide usage for FY 2011-12 is estimated to be 884,000 gallons at a cost of $1,079,900. Usage will decrease in the future as a result of a planned conversion to bleach in the plant foul air scrubbers. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 3 In the Collection System, there will be usage of approximately 63,000 gallons during the next two fiscal years. The respective budgets are $144,000 and $179,000, the budget increasing is due to an expected rate increase of 25%. Sodium Hydroxide (Caustic Soda) – Caustic soda is used in the foul air scrubbers and in the District’s main trunk lines tributary to the treatment plants. For FY 2010-11, it is projected that the District will use 457 dry tons of caustic soda in the scrubbers and 442 dry tons in the trunk lines. In treating the trunk sewers for sulfides, it has been determined that 40 percent of the usage and cost applies to the treatment plant and the remaining 60 percent applies to the collection facilities. The projected total cost of caustic soda for FY 2010-11 is $569,400. For FY 2011-12, staff proposes the usage for the scrubbers to be 472 dry tons and the usage for the collection system to be 466 dry tons for a total caustic soda budget of $635,100. Muriatic Acid – Muriatic Acid (hydrochloric Acid) is used to backwash the media in the foul air scrubbers, associated piping and pumps. This cleans deposits caused by hard water, sulfides from the reaction with the foul air, and caustic soda used in the scrubbing process. The projected usage for FY 2010-11 is 26,665 gallons at a cost of $52,400. The FY 2011-12 proposed use is 28,200 gallons with a budgeted cost of $58,100. Odor Neutralizers – Odor neutralizers are used in the solids processing facilities of both plants to mask the odors from the processed biosolids as they are loaded into the trucks for reuse. In FY 2010-11 and FY 2011-12, the projected budgets are $15,700 for approximately 65 gallons of highly concentrated solution. Magnesium Hydroxide, Trunklines – Magnesium hydroxide reduces the formation of hydrogen sulfide which causes odor and corrosion. Contract services include supply, operational monitoring, sampling, reporting and on-going maintenance services for odor control chemical dosing systems within the wastewater collection and conveyance system. Usage will be approximately 1,222,000 gallons and the projected expense for FY 2010-11 is $2,392,000. In FY 2011-12, the proposed usage is the same at a proposed cost of $2,511,000, assuming a 5% unit cost increase. Ferrous Chloride, Trunklines – Ferrous Chloride is used in the trunks to reduce hydrogen sulfide generation. This contract provides supply, operational monitoring, sampling, reporting and on-going maintenance services for odor control chemical dosing systems within the wastewater collection and conveyance system. In FY 2010-11, the estimated usage will be 1,124,100 gallons with a projected expense of $2,597,000. The usage is projected to be the same in FY 2011-12. The proposed budget is $2,856,000 because of an estimated rate increase of 10%. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 4 Calcium Nitrate, Trunklines – Calcium nitrate is a biological approach to controlling odors in wastewater. It provides the naturally occurring bacteria with an alternate source of oxygen which, when metabolized, produces nitrogen gas as a byproduct rather than the sulfides produced by the naturally occurring sources of oxygen. The projected usage for FY 2010-11 is 442,600 gallons at a cost of $1,151,000. The FY 2011-12 proposed use is the same with, an increase in budgeted cost of $1,266,000 due to an estimated 10% unit rate increase. Bleach, Treatment Plant Odor Control – Bleach will be used in more treatment plant odor control scrubbers in the future to replace more expensive chemicals; some are now in conversion. The projected total cost of odor control bleach for FY 2010-11 is $291,300 and usage is estimated at 433,600 gallons. For FY 2011-12, staff proposes the usage for the scrubbers to be 470,500 gallons with an estimated budget of $331,900. Project P2-66, the new Plant 2 headworks, will increase the usage of scrubber bleach. 3c) Disinfection $ 4.8 $ 6.0 $ 5.0 Sodium Hypochlorite (Bleach) – Over 91.9% of the bleach is used for effluent disinfection. The remaining bleach usage is for odor control, disinfection of plant water, and the control of filamentous organisms in activated sludge in the secondary treatment process. In 2009-10, the operation of the Plant No. 1 activated sludge process in a nitrification/de-nitrification mode required more plant process bleach for disinfection than anticipated because of filamentous Nocardia growth. Bleach use is projected to decrease over the next two years by 18.7% and 18.0% respectively as new secondary facilities (P1-102 new activated sludge facilities at Plant No. 1 and P2-09 new trickling filter solids contact facilities at Plant 2 ) become operational. The decrease will occur because there will be no longer be primary bleach dosing at Plant 2 when the new trickling filters are in operation. It is anticipated that the District will use 7.9 million gallons and 61 million gallons of bleach in FY 2010-11 and FY 2011-12 respectively with associated budgets of $636,100 and $4,534,300. Sodium Bisulfite – Sodium bisulfite is used for dechlorination of outfall effluent at Plant 2 to ensure that no residual chlorine is discharged into the ocean. Sodium bisulfite usage is expected to increase in FY 2010-11 and FY 2011-12 because, with the new trickling filters solids contact process operating, there will be no primary bleach dosing; all bleach will be dosed after the two secondary processes. This will actually require more sodium bisulfite because of the short detention time before the effluent reaches the outfall. It is anticipated that the District will use 411,000 gallons at and 422,000 gallons of sodium bisulfite costs of $397,000 and $427,900 in FY 2010-11 and FY 2011-12 respectively. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 5 3d) Tools and Safety Equipment / Tools $ 0.7 $ 0.8 $ 0.8 O&M uses 68% of these budgets. There have been increases in these budgets since the definition of capital equipment has changed; tools and equipment that cost less than $5,000 have a minimum useful life of three years and are not considered to be capital. 3e) Laboratory Chemicals and Supplies $ 0.7 $ 0.7 $ 0.7 Over 90% of this budget supports the Environmental Sciences Laboratory purchases of glassware, filtration supplies, solvents used for organic extractions, acids and bases used in metals digestion and glassware cleaning, reagents, a variety of standards used in quality assurance of the tests, specialty gases, microbiology supplies and growth media, chromatography columns, test organisms for bioassay, toxicity, and various other laboratory supplies. 3f) Gas, Diesel and Oil $ 0.4 $ 0.4 $ 0.4 Gasoline, compressed natural gas, diesel, and oil used in the operation of the mobile equipment, within generators and other operating equipment. The future price of gasoline and natural gas are the major impacts to these budgets. 3g) Other $ 0.4 $ 0.5 $ 0.4 Other smaller operating expenses collectively reported within this one line item such as janitorial supplies and miscellaneous operating supplies. 4) CONTRACTUAL SERVICES $21.3 $24.1 $26.6 4a) Solids Removal $15.9 $17.8 $20.1 Biosolids – Production for FY 2010-11 is projected to be 265,000 wet tons. The total cost for FY 2010-11 is projected to be $17,755,000 as budgeted. For FY 2011-12, biosolids production is estimated to be 287,000 wet tons, with increases in production at both plants as new secondary treatment begins operation. The total estimated budgets for biosolids have decreased from projections due to the EnerTech facility not operating as expected. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 6 4b) Other Residual Solids and Waste $ 1.1 $ 1.8 $ 1.9 The other residual solids and waste category includes disposal costs for grit and screening waste, digester cleaning waste, and hazardous materials. The Grit and Screening budget includes supplying bins to collect then haul and dispose of grit, screenings, and drying bed material to a landfill. The grit is generated from the grit chambers, and the screenings is the material collected off the bar screens. Drying bed material is typically made up of the material cleaned out of pipes in the collection system by District’s crews and other city crews in the District’s service area. The FY 2010-11 and FY 2011-12 proposed budgets for other residual solids and waste includes the cost of cleaning three digesters each year for $1.05 million. The proposed budget for disposal of grit, screenings and other waste is $790,000 in FY 2010-11 and $893,000 in FY 2011-12. 4c) Grounds keeping/Janitorial/Security $ 1.1 $ 1.2 $ 1.2 Security Services will increase by over 30% in FY 2010-11with additional security staff at each treatment plant, and with only a Consumer Price Index adjustment the following year. There are decreases in the Grounds-keeping budget and only 2.7% and 2.2% increases in Janitorial for the next two years, although the anticipated expenses are $0.25 and $0.5 million respectively.. 4d) County Service Fee $ 0.4 $ 0.4 $ 0.4 The County Service Fee is the fee charged by the County of Orange for the inclusion of the District’s sanitation fees on the County of Orange Property Tax Bill and for the collection of these fees by the County on behalf of the District. 4e) Oxygen Plant Operations $ 0.4 $ 0.4 $ 0.5 The District has had a maintenance service contract for 25 years. The budget also includes the purchase of oxygen when the plant is not operating due to shutdowns or mechanical failures. The contract will increase in FY 2011-12 because the current oxygen plant will no longer be in service and the oxygen will be provided by a new technology or a combination of oxygen purchases and new technology. Those costs are uncertain at this time. 4f) Temporary Services $ 0.2 $ 0.1 $ 0.1 In FY 2009-10, District staff has greatly decreased the use of temporary services by eliminating long-term temporary help and finding alternative solutions in-house (reallocation of labor and work as required, essential overtime). 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 7 4g) Outside Lab Services $ 0.1 $ 0.1 $ 0.1 The District contracts out certain laboratory services that are not cost-efficient to perform in-house. Examples include air quality analyses, oil analyses for transformers and internal combustion engines, contaminants of potential concern, and hi-resolution mass spectroscopy. Contracted biosolids testing meets the State of Arizona requirement for analyses to be performed in an Arizona certified laboratory. 4h) Contracted Services, Other $ 2.1 $ 2.3 $ 2.3 Over 95% of contracted services are in support of operating and maintaining the collection system and the treatment plants. These services include line cleaning, closed circuit television of lines, manhole rehabilitation and replacement, tunnel cleaning, and over $500,000 to the Orange County Water District (OCWD) for GWRS expense sharing (power, uv bulbs, and hydrogen peroxide for additional disinfection costs). These expenses with OCWD should be eliminated with the new agreement. 5) REPAIRS AND MAINTENANCE $ 9.2 $ 11.1 $ 11.1 5a) Materials & Services $ 7.7 $ 9.0 $ 9.0 Over 94% of these budgets support the maintenance of the collection system and the treatment plants. O&M Contracted materials and services for FY 2010-11 and FY 2011-12 include: CenGen engine overhauls ($450K and $490K); belt press maintenance and repair ( $940K and $750K); digester rehabilitation ($400K and $300K); process painting ($688K with renewals not to exceed $725K); root and pest control; street overlays/manhole raising; manhole cover purchases; easement improvements ($900K); and various maintenance services and operating materials, including warehouse stock. The budget for basic scheduled, predictive, and preventive maintenance and emergency maintenance are included in these budgets which are proposed based on historical experience and cost trends. 5b) Service Agreements $ 1.5 $ 2.1 $ 2.1 Approximately 55% and 35% of service contracts are computer-related or O&M maintenance-related respectively. Major contracts for Information Technology include IBM Software Maintenance for Maximo and FileNet-AS; Microsoft License Agreements; JDE-Primavera-Oracle support; and various smaller service agreements. O&M service contracts include crane certification; fire extinguisher and fire sprinkler certification; Uninterruptible Power Supply electrical maintenance; filter carbon media exchanges; and various other plant maintenance agreements. Additional service maintenance agreements covering various equipment items are budgeted throughout the District. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 8 6) UTILITIES $ 7.8 $ 9.2 $11.3 6a) Power $ 5.9 $ 6.7 $ 8.3 Electricity – The treatment plants and support buildings estimated consumption and resulting costs for electrical energy purchased from Southern California Edison for the 2010-11 fiscal year are shown in the table below and total $5,857,000. The proposed budget for electricity for Collections and pump stations adds approximately $717,450 for a total electricity budget of $6,574,450. The 2010-11 proposed budget is 6% lower than the 2009-10 budget. The reduction is due to lower rate estimations for the plants compared to the previous budget. The lower rates were because anticipated rate increases from Edison did not occur, the 66kV substation at Plant 1 was completed which reduced rates, and a lower standby rate was negotiated for Plant 2. FY 2010-11 Item Estimated Consumption (kWh/year) Cost per kWh Proposed Budget Value Plant No. 1 Energy Charges 28,000,000 @$0.06 $1,680,000 Plant No. 1 Demand Charges ----- ----- $ 650,000 Plant No. 1 Fixed Charges ----- ----- $ 450,000 Total for Plant 1 28,000,000 $2,780,000 Plant No. 2 Energy Charges 31,000,000 @$0.06 $1,860,000 Plant No. 2 Demand Charges ----- ----- $ 450,000 Plant No. 2 Fixed Charges ----- ----- $ 280,000 Total for Plant 2 31,000,000 $2,590,000 Plant 1 Control Center 70,000 @$0.14 $ 10,000 Total Plants 59,000,000 $5,380,000 Laboratory 3,000,000 @$0.12 $ 360,000 Administration Building 900,000 @$0.13 $ 117,000 Total 62,900,000 $5,857,000 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 9 6b) Water $ 1.4 $ 1.5 $ 1.5 Green Acres Project (Gap) Water – GAP water is made up of secondary treated effluent from the District that is further treated by the Orange County Water District. GAP water is significantly less expensive than potable water and is used in the process wherever possible. The major uses of GAP water include cooling water, solids handling, and landscaping. The proposed budget for FY 2010-11 is $1,365,100 and the proposed budget for FY 2011-12 is $1,413,000. A project to allow the use of plant water is in process and the GAP water costs will be significantly reduced. Potable Water – The potable water budget includes the water supplied by the City of Fountain Valley for Plant No. 1 and the City of Huntington Beach for Plant No. 2. Approximately 5% of the potable water at Plant No. 1 is used for domestic uses and less than 1% is used for irrigation. The majority of the irrigation at both plants uses reclaimed water. Less than 1 percent of the potable water used at Plant No. 2 is for domestic uses due to the relatively small number of employees at Plant No. 2. For FY 2010-11 at Plant No. 1, both usage and unit cost are estimated to increase by 5 percent; for Plant 2, usage is expected to increase by 3% and the unit cost increase by 5%. The proposed total potable water cost for FY 2010-11 is $456,600, an 8.5% increase. 6c) Natural Gas $ 0.5 $ 1.0 $1.5 Natural Gas – The total FY 2010-11 gas estimate is $968,000, slightly lower than last fiscal year because of new permit requirements. Plant 2 CenGen used 21.9% less natural gas than anticipated with the operation of the engines changing from three at 80% efficiency to 2 at 100% efficiency. The “core subscription” gas at Plant 2 increased considerably when the auxiliary boilers that provide supplemental heat to the digesters changed from digester gas to natural gas, providing more digester gas to CenGen to support two engines and still comply with the AQMD limits for use of natural gas. The “core subscription” is natural gas purchased directly from The Gas Company and used mainly for building heating and supplemental process heating. Natural gas used for central generation is purchased from a gas marketer, Occidental Energy, and transported through The Gas Company conveyance system at a cost of $0.11/therm. FY 2010-11 Estimates User Estimated Use Cost Total Cost Plant No. 1 Central Generation 350,000 therms $0.82/therm $287,000 Plant No. 1 Core Subscription 110,000 therms $0.86/therm $ 95,000 Plant No. 2 Central Generation 400,000 therms $0.82/therm $328,000 Plant No. 2 Core Subscription 300,000 therms $0.86/therm $258,000 Total 1,160,000 therms $968,000 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 10 7) PROFESSIONAL SERVICES $ 1.9 $ 3.2 $ 2.7 7a) Legal Services ($500K) Legal services are the services provided by General Counsel including hours at the District, hours attending committee and board meetings, and general legal support. 7b) Engineering Services ($400K-$850K) These services provide technical support that in-house staff cannot provide or do not have the time to provide. In FY 20010-11 requested engineering services include an electrical system arc flash OSHA-required study, structural and mechanical studies, Dig Alert support, surveying support, and core sampling and seismic studies. 7c) Advocacy Efforts ($200K) These are consultant services for promoting the District’s interests in Sacramento and Washington D.C concerning legislation and funding. 7d) Audit and Accounting ($150K) These services represent the cost for the District’s independent annual financial audit and contracted internal auditing services. 7e) Software Program Consultant ($300K) These support costs are required to supplement programming staff as new software versions and new programs are implemented and revised; they are also in support of the SCADA/ (supervisory control and data acquisition) system for process monitoring and controlling.. 7f) Other ($500K-$1.1M) Professional services also includes ($ 0.8M) labor and industrial hygiene services. Collectively reported within the one line item “Other” are various smaller services including: underground service alerts; SOP development; County Area Spill Containment Program support; and collection system chemical analysis. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 11 8) OTHER OPERATING SUPPLIES $ 1.8 $ 1.9 $ 2.0 8a) Prop. and General Liability Insurance ($1.0M) The District’s outside excess general liability insurance coverage is $30 million with a self- insurance retention of $250,000. The District’s property insurance coverage of $1 billion for perils other than flood and $300 million for flood is subject to a self-insurance retention of $250,000. The District is self-insured for all property damage from the perils of earthquake. The proposed appropriation of $1.0 million is needed to maintain the recommended level of reserve within the general liability and property self-insurance fund. 8b) Regulatory Operating Fees ($600K) Payments to the Regional Water Quality Control Board for the NPDES Permit and to the South Coast Air Quality Management District for permit fees. 8c) Other ($300K) Other material, supplies, and services collectively reported within this one line item. 9) ADMINISTRATIVE EXPENSE $ 1.1 $ 1.1 $ 1.1 9a) Small Computer Items ($500K) New Computers/Notebooks/Tablets, printers, monitors, Networking equipment, Computer peripherals, Digital equipment, PDAs, Digital Cameras, etc. 9b) Memberships ($300K) OCSD’s largest membership costs are for District-wide participation in groups such as the National Association of Clean Water, the Orange County Business Council, the California Association of Sanitation Agencies, the Southern California Alliance of Publicly Owned Treatment Works, the Association of California Water Agencies, and the Center for Demographic Research. A minor portion of these expenses is for staff memberships in professional associations. 9c) Office Supplies ($100K) Office supplies include such items as envelopes, letterhead, notebooks, calendars, etc. 9d) Other ($200K) Other smaller administrative expenses collectively reported within this one line item. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 12 10) RESEARCH AND MONITORING $ 1.0 $ 1.0 $ 1.0 10a) Environmental Monitoring ($300K) The budget line item for “Environmental Monitoring” includes costs associated with the District’s National Pollution Discharge Elimination System (or NPDES) permit-required ocean monitoring program. Regional Monitoring occurs every 4-5 years and samples the coastal ocean from Point Conception in the north to the US-Mexico Border in the south. This is a cooperative, multi-agency effort; most recently, it included 65 other agencies and organizations. In addition to the funds needed to conduct the permit-required ocean monitoring program, Environmental Monitoring also includes operating funds and insurance fees for the District’s ocean monitoring vessel, the M/V Nerissa. 10b) Air Quality Monitoring ($100K) Periodic monitoring and analysis of air emissions requires testing from various sources including the central generation facilities, validation of emissions from continuous monitoring equipment, source testing after CIP installation/modification (i.e. P1 trickling filters, P1 primary basin install and modifications, etc.). Periodically, there is a requirement to test the waste gas flares. 10c) Other Research ($600K) OCSD contributes annually to research organizations such as the Southern California Coastal Water Research Project and the Water Environmental Research Foundation. 11) OTHER NON-OPERATING EXPENSE $ 1.6 $ 0.9 $ 0.9 11a) General Manager Contingency ($400K) These funds are centrally budgeted and expended through the direct discretion and specific approval of the General Manager to support unanticipated District needs or requests of the Board. 11b) Prior year Appropriations ($400K) Since the operating budget lapses at the end of each fiscal year, funds need to be set aside for contacts, purchases, commitments, and other legal obligations that have been incurred prior to June 30 in the prior year but goods or services have not been delivered until after June 30 in the new budget year. (Revised FY 2009-10 budget reflects application of these funds.) 11c) Capital Grants to Member Agencies ($0K) 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL Projected Proposed Proposed 2009-10 2010-11 2011-12 13 There is no longer a budget for Capital Grants. However, if a member city or agency presents a possible cost-savings project, the District will evaluate the project as a budget cost-savings measure and participate accordingly. 11d) Other ($100K) Other non-operating expenses and obsolete inventory are in this group of expenses. 12) TRAINING AND MEETINGS $ 0.6 $ 1.2 $ 1.2 12a) Training ($1M) An amount equal to approximately 1.5 percent of the Regular Salaries budget is allocated to Training. Training activities are coordinated though the Human Resources Division. This category includes ongoing technical and safety training and materials for staff; expansion of the Leadership Academy training program, required training for computerized plant monitoring and control systems and training to allow for a more adaptive and flexible work force. 12b) Meetings ($200K) The General Manager has reviewed all meeting request budgets for necessity, duplication, and redundancy and has limited this amount to a responsible level. 13) PRINTING AND PUBLISHING $ 0.7 $ 0.7 $ 0.7 13a) In-House Publishing ($500K) Although the budget provides for some outside reproduction, the majority of OCSD printing activities are completed In-house, reflecting an expanded management information system and administrative requirements. As well as continuing demand by the public and regulatory agencies for information. These activities including printing of District’s maps, brochures, Board reports and agenda items, budget materials, etc. 13b) Other ($200K) Other printing and publishing expenses collectively reported within this one line item. 14) COST ALLOCATION ($24.2) ($25.6) ($25.6) This represents direct and indirect labor, benefits, materials, and services charged to the Capital Improvement Program (CIP) where the related work was performed. 2010-11 AND 2011-12 BUDGET DEVELOPMENT – ADDITIONAL DETAIL 14 OCSD Web site redesign – Proposed to be including in the Professional Services Budget Last year, during the Strategic Plan discussions, staff presented a communications strategy to modernize OCSD’s communication materials. After these discussions, the Board directed staff to update educational and informational materials in-house but staff did indicate that the Web site needed to be modernized and this would become part of the budget process. Why does OCSD.com need to be updated? Staff is proposing a complete update to the Web site because the current site is about nine years old and does not have the modern communication tools needed to educate and communicate effectively with the public. Put simply, the architecture of the current site does not lend itself providing educational and information materials in a way the public responds. Also, the tools staff uses to maintain and update the site are out-of- date. Only a complete redesign with a new content management system will accomplish this task. It is important to note that there are many more content management systems to assist with Web sites today than when we first developed the site. The newer products are much more robust and easier to use. Part of a larger effort by staff The Public Affairs division is modernizing all of our communications materials and part of this effort is moving away from printed materials to electronic. This move will promote our mission of being green and save on printing and distribution costs. To further this goal, the Web site will play in integral role in the dissemination of materials and must be updated to accommodate new tools such as video, e-books, Twitter and Facebook integration. Moreover, the Web site needs to be compatible with mobile devices because more and more, people are accessing information from their smartphones as opposed to their computers. What will be involved? Staff will issue an RFP for design services but the day-to-day maintenance and updating will be done in-house. The RFP process will be completely open so we get the most competition and the best value. The final selection will be based not only on the price, but the past work of the firm, the ability to meet our needs of having an easy-to-use site and staff’s ability to produce and maintain Web pages without having to hire outside consultants. We anticipate the process taking about 6-8 months at a cost of $50,000-$100,000. The results In the end, the thousands of people that visit OCSD’s Web site will be presented with a more modern and streamlined site that enables them to access information quickly and educates them about how we protect the environment and public health. We anticipate the Web site being a portal of information about the wastewater treatment process and providing more education, as well as career information and how they can tour our facilities. Many of our member cities have updated their Web sites because they realize that in greater numbers, people are turning to the Web for more information and education and a modern site with current tools will help us better reach our ratepayers.