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2012-08-23 - Board of Directors Meeting Agenda Packet
AGENDA YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS REGULAR MEETING Thursday, August 23, 2012, 8:30 AM 1717 E Miraloma Ave, Placentia CA 92870 1. CALL TO ORDER 2. PLEDGE OF ALLEGIANCE 3. ROLL CALL Phil Hawkins, President Gary T. Melton, Vice President Michael J. Beverage Ric Collett Robert R. Kiley 4. ADDITIONS/DELETIONS TO THE AGENDA 5. PUBLIC COMMENTS Any individual wishing to address the Board is requested to identify themselves and state the matter on which they wish to comment. If the matter is on the agenda, the Board will recognize the individual for their comment when the item is considered. No action will be taken on matters not listed on the agenda. Comments are limited to matters of public interest and matters within the jurisdiction of the Water District. Comments are limited to five minutes. 6. CONSENT CALENDAR All items listed on the consent calendar are considered to be routine matters, status reports, or documents covering previous Board instructions. The items listed on the consent calendar may be enacted by one motion. There will be no discussion on the items unless a member of the Board, staff, or public requests further consideration. 6.1. Minutes of the Board of Directors Meeting Held August 8, 2012 Recommendation: That the Board of Directors approve the minutes as presented. 6.2. Minutes of the Board of Directors Regular Meeting Held August 9, 2012 Recommendation: That the Board of Directors approve the minutes as presented. 6.3. Payments of Bills, Refunds, and Wire Transfers Recommendation: That the Board of Directors ratify and authorize disbursements in the amount of $1,598,077.26. 6.4. ACWA/JPIA Workers' Compensation Program Renewal for FY 2012/13 Recommendation: That the Board of Directors approve the ACWA/JPIA Workers' Compensation Program renewal and estimated deposit premium of $104,393.56 for July 1, 2012 through June 30, 2013. 6.5. ACWA/JPIA General Liability Insurance Deposit Premium for the October 1, 2012 to September 30, 2013 Policy Year and Retrospective Allocation Point Recommendation: That the Board of Directors approve the ACWA/JPIA General Liability Insurance deposit premium for the policy year October 1, 2012 through September 30, 2013 in the amount of $215,272 and continue with the Retrospective Allocation Point of $25,000. 6.6. Internet Services Upgrade Recommendation: That the Board of Directors authorize staff to upgrade internet services from Business Class Cable Internet to Dedicated Internet Access with Time Warner Cable for a monthly cost of $999.00 plus taxes and fees. 7. ACTION CALENDAR This portion of the agenda is for items where staff presentations and Board discussions are needed prior to formal Board action. 7.1. Response to OC Grand Jury Report: "Transparency Breaking Up Compensation Fog- But Why Hide Pension Costs?" Recommendation: That the Board of Directors approve the response to the Orange County Grand Jury's Report on transparency regarding pension costs. 7.2. Amending Employee Compensation Letters Recommendation: That the Board of Directors adopt Resolution No. 12-17 Amending Resolution Nos. 12-07 and 12-08 to Clarify the Method of District Contributions to Employee Deferred Compensation Plans. 7.3. Authorizing Line of Credit Recommendation: That the Board of Directors adopt Resolution No. 12-18 Authorizing a Line of Credit in an Amount Up To $7,000,000 and Making Certain Other Findings in Connection Therewith, and Approving Execution and Delivery of Certain Documents in Connection Therewith, and Authorizing the General Manager to Carry Out Such Agreement. 7.4. Revenue Refunding Bonds, Series 2012A Recommendation: That the Board of Directors adopt Resolution No. 12-19 Authorizing the Issuance of Not to Exceed $10,000,000 Refunding Revenue Bonds, Series 2012A, and Approving the Execution and Delivery of Certain Documents in Connection Therewith and Certain Other Matters. 8. REPORTS, INFORMATION ITEMS, AND COMMENTS 8.1. President's Report 8.2. Directors' Report 8.3. Acting General Manager's Report 8.4. General Counsel's Report 8.5. Future Agenda Items and Staff Tasks 9. COMMITTEE REPORTS 9.1. Executive-Administrative-Organizational Committee (Hawkins/Melton) · Minutes of meeting held August 22, 2012 at 3:00 p.m. (To be provided at the next regular Board meeting.) · Meeting scheduled September 17, 2012 at 4:00 p.m. 9.2. Finance-Accounting Committee (Kiley/Hawkins) · Meeting scheduled August 27, 2012 at 4:00 p.m. 9.3. Personnel-Risk Management Committee (Beverage/Collett) · Minutes of meeting held August 7, 2012 at 4:00 p.m. · Meeting scheduled September 6, 2012 at 10:00 a.m. 9.4. Planning-Engineering-Operations Committee (Collett/Kiley) · Minutes of meeting held August 2, 2012 at 3:00 p.m. · Meeting scheduled September 6, 2012 at 3:00 p.m. 9.5. Public Affairs-Communications-Technology Committee (Melton/Beverage) · Minutes of meeting held August 6, 2012 at 4:00 p.m. · Meeting scheduled September 4, 2012 at 4:00 p.m. 9.6. YLWD-MWDOC-OCWD Joint Agency Committee (Hawkins/Beverage) · Meeting scheduled September 25, 2012 at 4:00 p.m. 9.7. Citizens Advisory Committee (Beverage) · Meeting scheduled August 27, 2012 at 8:30 a.m. 10. INTERGOVERNMENTAL MEETINGS 10.1. MWDOC Board - August 15, 2012 (Staff) 10.2. OCWD Board - August 15, 2012 (Staff) 10.3. YL Planning Commission - August 15, 2012 (Kiley) 10.4. YL City Council - August 21, 2012 (Melton) 11. BOARD OF DIRECTORS ACTIVITY CALENDAR 11.1. Meetings from August 24, 2012 - September 30, 2012 12. CLOSED SESSION The Board may hold a closed session on items related to personnel, labor relations and/or litigation. The public is excused during these discussions. 12.1. Conference with Legal Counsel – Pending Litigation Pursuant to Subdivision (a) of Section 54956.9 of the California Government Code Name of Case: ACWA/JPIA, et al vs. Insurance Company of the State of Pennsylvania, et al (OC Superior Court - Case No. 00486884) 12.2. Conference with Legal Counsel - Anticipated Litigation Pursuant to Subdivision (b) of Section 54956.9 of the California Government Code Number of Potential Cases: One Existing Facts and Circumstances under Section 54956.9(b)(3)(B): Dispute with Orange County Transportation Authority over payment of cost to relocate District water pipelines to make way for construction of Lakeview Avenue overcrossing of ATSF rail tracks and Orangethorpe Avenue. 13. ADJOURNMENT 13.1. An additional Board of Directors meeting to conduct a Closed Session has been scheduled for Wednesday, September 5, 2012 at 9:00 a.m. The next regular meeting of the Board of Directors will be held Thursday, September 13, 2012 at 8:30 a.m. Items Distributed to the Board Less Than 72 Hours Prior to the Meeting Pursuant to Government Code section 54957.5, non-exempt public records that relate to open session agenda items and are distributed to a majority of the Board less than seventy-two (72) hours prior to the meeting will be available for public inspection in the lobby of the District’s business office located at 1717 E. Miraloma Avenue, Placentia, CA 92870, during regular business hours. When practical, these public records will also be made available on the District’s internet website accessible at http://www.ylwd.com/. Accommodations for the Disabled Any person may make a request for a disability-related modification or accommodation needed for that person to be able to participate in the public meeting by telephoning the Executive Secretary at 714-701-3020, or writing to Yorba Linda Water District, P.O. Box 309, Yorba Linda, CA 92885-0309. Requests must specify the nature of the disability and the type of accommodation requested. A telephone number or other contact information should be included so the District staff may discuss appropriate arrangements. Persons requesting a disability-related accommodation should make the request with adequate time before the meeting for the District to provide the requested accommodation. ITEM NO. 6.1 AGENDA REPORT Meeting Date: August 23, 2012 Subject:Minutes of the Board of Directors Meeting Held August 8, 2012 STAFF RECOMMENDATION: That the Board of Directors approve the minutes as presented. ATTACHMENTS: Name:Description:Type: 080812_BOD_-_Minutes.docx BOD Mtg Minutes 08/08/12 Minutes Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/RK 4-0-1 (RC was absent.) 1 MINUTES OF THE YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS REGULAR MEETING August 8, 2012 1. CALL TO ORDER The August 8, 2012 regular meeting of the Yorba Linda Water District Board of Directors was called to order by President Hawkins at 9:07 a.m. in the Board Room at the District’s Administrative Building located at 1717 E Miraloma Avenue in Placentia, California 92870. 2. PLEDGE OF ALLEGIANCE Director Hawkins led the pledge. 3. ROLL CALL DIRECTORS PRESENT STAFF PRESENT Phil Hawkins, President Steve Conklin, Engineering Manager Gary T. Melton, Vice President Gina Knight, Human Resources Manager Michael J. Beverage Annie Alexander, Executive Secretary Ric Collett Robert R. Kiley OTHER ATTENDEES Art Kidman, Partner, Kidman Law LLP Richard Kreisler, Partner, Liebert Cassidy Whitmore 4. PUBLIC COMMENTS None. 5. CLOSED SESSION The meeting was adjourned to Closed Session at 9:08 a.m. All Directors were present. Also present were Messrs. Kidman and Kreisler and Mrs. Knight. 5.1. Public Employee Performance Evaluation Pursuant to Section 54957 of the California Government Code Title: General Manager 5.2. Public Employee Discipline/Dismissal/Release Pursuant to Section 54957 of the California Government Code Mr. Conklin joined the Closed Session at this time. 5.3. Public Employee Appointment Pursuant to Section 54957 of the California Government Code Title: Interim General Manager 2 5.4. Conference with Labor Negotiators Pursuant to Section 54956.7 of the California Government Code Agency Designated Representatives: Gina Knight Richard Kreisler Employee Organization: Yorba Linda Water District Employees Association The Board reconvened in Open Session at 10:15 am. President Hawkins announced that in regards to Item No. 5.3., the Board had appointed Mr. Conklin as the Acting General Manager. No other action was taken during Closed Session that was required to be reported under the Brown Act. 6. ADJOURNMENT 6.1. The meeting was adjourned at 10:16 am. The next regular meeting of the Board of Directors is scheduled Thursday, August 9, 2012 at 8:30 a.m. Annie Alexander Assistant Board Secretary ITEM NO. 6.2 AGENDA REPORT Meeting Date: August 23, 2012 Subject:Minutes of the Board of Directors Regular Meeting Held August 9, 2012 STAFF RECOMMENDATION: That the Board of Directors approve the minutes as presented. ATTACHMENTS: Name:Description:Type: 080912_BOD_-_Minutes.doc BOD Mtg Minutes 08/09/12 Minutes Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/RK 4-0-1 (RC was absent.) 1 MINUTES OF THE YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS REGULAR MEETING Thursday, August 9, 2012, 8:30 a.m. 1717 E Miraloma Ave, Placentia CA 92870 1. CALL TO ORDER The August 9, 2012 Regular Meeting of the Yorba Linda Water District Board of Directors was called to order by President Hawkins at 8:35 a.m. The meeting was held in the Board Room at the District’s Administrative Building located at 1717 East Miraloma Avenue in Placentia, California 92870. 2. PLEDGE OF ALLEGIANCE President Hawkins led the pledge. 3. ROLL CALL DIRECTORS PRESENT STAFF PRESENT Phil Hawkins, President Steve Conklin, Acting General Manager Gary T. Melton, Vice President Gina Knight, Human Resources Manager Michael J. Beverage Stephen Parker, Finance Manager Ric Collett Art Vega, Interim IT Manager Robert R. Kiley John DeCriscio, Chief Plant Operator Jesus Sosa, Construction Inspector Harold Hulbert, Operations Assistant Rachel Padilla, Customer Service Supervisor Pati Medina, Customer Service Rep III Cindy Botts, Management Analyst Cody Peterson, Public Affairs Intern Annie Alexander, Executive Secretary ALSO PRESENT Brett Barbre, Director, Municipal Water District of Orange County Nancy Rikel, Councilmember, City of Yorba Linda Art Kidman, Partner, Kidman Law LLP Eddy Beltran, Senior Counsel, Kidman Law LLP Richard Kreisler, Partner, Liebert Cassidy Whitmore Daniel Mole, Chair, YLWD Citizens Advisory Committee 4. ADDITIONS/DELETIONS TO THE AGENDA None. 5. PUBLIC COMMENTS None. 2 6. SPECIAL RECOGNITION 6.1. Recognition of Employees for Their Service to the District Harold Hulbert, Operations Assistant (5 Years) Jesus Sosa, Construction Inspector (5 Years) John DeCriscio, Chief Plant Operator (15 Years) Pati Medina, Customer Service Representative (20 Years) Mr. DeCriscio introduced Mr. Hulbert and provided an overview of his work history. Mr. Conklin introduced Messrs. Sosa and DeCriscio and provided an overview of their work history. Mr. Parker introduced Ms. Medina and provided an overview of her work history. Mr. Conklin presented Messrs. Hulbert, Sosa and DeCriscio and Ms. Medina with a pin commemorating the number of years they had worked for the District. The Board then commended these staff members for their dedication. Messrs. Hulbert, Sosa and DeCriscio and Messes. Medina and Padilla left the meeting at this time. 7. COMMITTEE REPORTS 7.1. Citizens Advisory Committee (Beverage) Minutes of the meeting held July 23, 2012 at 8:30 a.m. were provided in the agenda packet. Mr. Mole and Director Beverage provided an overview of matters that were discussed during the meeting. Next meeting is scheduled August 27, 2012 at 8:30 a.m. Mr. Mole and Director Barbre left the meeting at this time. 8. CONSENT CALENDAR Director Kiley made a motion, seconded by Director Collett, to approve the Consent Calendar. Motion carried 5-0. 8.1. Minutes of the Board of Directors Special Meeting Held July 19, 2012 Recommendation: That the Board of Directors approve the minutes as presented. 8.2. Minutes of the Board of Directors Regular Meeting Held July 26, 2012 Recommendation: That the Board of Directors approve the minutes as presented. 3 8.3. Minutes of the Board of Directors Special Meeting Held July 30, 2012 Recommendation: That the Board of Directors approve the minutes as presented. 8.4. Payments of Bills, Refunds and Wire Transfers Recommendation: That the Board of Directors ratify and authorize disbursements in the amount of $2,381,320.29. 8.5. Investment Report for Period Ending June 2012 Recommendation: That the Board of Directors receive and file the Investment Report for the Period Ending June 2012. 8.6. Progress Payment No. 2 for the Yorba Linda Blvd Pipeline Project Recommendation: That the Board of Directors approve Progress Payment No. 2 in the net amount of $451,867.50 to Garcia Juarez Construction, Inc. for construction of the Yorba Linda Blvd Pipeline Project, Job No. 200817. 8.7. Progress Payment No. 3 for Construction of Green Crest Lift Station Repairs Recommendation: That the Board of Directors approve Progress Payment No. 3 in the net amount of $54,643.29 to Pascal & Ludwig Constructors for construction of the Green Crest Lift Station Repairs, Job No. 2011-16S. 9. ACTION CALENDAR 9.1. Approval of Change Orders No. 2 & 3 for Pressure Regulating Stations Upgrade Project, Phase 1 Mr. Conklin explained that these Change Orders had been considered by the Planning-Engineering-Operations (PEO) Committee and were directly tied to Item No. 9.2. The contractor is making good progress on the project even though the wall thicknesses of one of the concrete vaults was considerably thicker than the 9 inches shown on record drawings. Director Collett confirmed that this matter had been reviewed by the PEO Committee. Director Collett made a motion, seconded by Director Kiley, to approve Change Orders No. 2 & 3 for 3 additional work days and $14,904.07 to Vido Samarzich, Inc. for construction of the Pressure Regulating Stations Upgrade Project, Job No. 201108. Motion carried 5-0. 4 9.2. Progress Payment No. 1 for Pressure Regulating Station Upgrades, Phase 1 Mr. Conklin reported that that one quarter of the total project was now complete. Director Collett noted that PEO Committee had reviewed this matter and that the contractor was ahead of schedule. Director Collett made a motion, seconded by Director Kiley, to approve Progress Payment No. 1 in the net amount of $86,601.12 to Vido Samarzich, Inc. for construction of Pressure Regulating Station Upgrades Project, Phase 1. Job No. J-201108. Motion carried 5-0. 9.3. Line of Credit Value Mr. Parker explained that the Board previously considered obtaining a line of credit from Wells Fargo in the amount of $7 million at a workshop meeting held in April. Staff is requesting confirmation of this dollar amount. Following brief discussion, the Board decided not to take action on this matter as the dollar amount was included in the recently approved budget for FY 2012/13. 10. REPORTS, INFORMATION ITEMS, AND COMMENTS 10.1. President’s Report None. 10.2. Interim General Manager’s Report Mr. Conklin and Mr. DeCriscio reported on staff’s response following the 2 earthquakes. Both then responded to questions from the Board regarding reservoir storage following these types of events. Mr. Conklin further reported that staff had submitted the District’s response to the NOP for the proposed Cielo Vista development project. Two additional responses have been submitted by the City of Yorba Linda and LAFCO. Concerning the proposed Yorba Linda Estates development project, Mr. Conklin reported that an informational meeting regarding the project has been tentatively scheduled by the developers for August 23, 2012 at 6:00 p.m. at the Travis Ranch School. Staff plans to attend this meeting and will advise the Board once confirmation of the date, time and location has been received. He noted that OCFA has been scheduled to provide a presentation regarding their agency’s services to the Citizen’s Advisory Committee in October and that annexation of the Locke Ranch area has been completed. Mr. Conklin then concluded his comments and stated that the construction for the Yorba Linda Boulevard Pipeline Project is currently ahead of schedule. Director Beverage commended the contractor for their exemplary cleanup work. 10.3. General Counsel’s Report Mr. Kidman reported that he was scheduled to provide a presentation at the next Citizen’s Advisory Committee meeting regarding the conclusion of the Freeway Complex Fire litigation. He then commented on the District’s ability to regulate the release of the Certificate of Occupancy which would be issued by the District for the proposed Cielo Vista development project. 5 10.4. Directors’ Report Director Collett stated that he would be unavailable to attend meetings from August 12-31, 2012. Director Melton stated that he would be unavailable to attend meetings through August 21, 2012. 10.5. Future Agenda Items and Staff Tasks None. Mr. Conklin invited the Board to attend the staff luncheon and horseshoe tournament taking place later that day. 11. COMMITTEE REPORTS CONTINUED 11.1. Executive-Administrative-Organizational Committee (Hawkins/Melton) Minutes of the meeting held July 30, 2012 at 4:00 p.m. were provided in the agenda packet. Next meeting is scheduled August 22, 2012 at 4:00 p.m. 11.2. Finance-Accounting Committee (Kiley/Hawkins) Minutes of the meeting held July 23, 2012 at 4:00 p.m. were provided in the agenda packet. Next meeting is scheduled August 27, 2012 at 4:00 p.m. 11.3. Personnel-Risk Management Committee (Beverage/Collett) Minutes of the meeting held August 7, 2012 at 4:00 p.m. will be provided at the next regular Board meeting. Next meeting is scheduled September 11, 2012 at 4:00 p.m. 11.4. Planning-Engineering-Operations Committee (Collett/Kiley) Minutes of meeting held August 2, 2012 at 3:00 p.m. will be provided at the next regular Board meeting. Next meeting is scheduled September 6, 2012 at 3:00 p.m. 6 11.5. Public Affairs-Communications-Technology Committee (Melton/Beverage) Minutes of the meeting held August 6, 2012 at 4:00 p.m. will be provided at the next regular Board meeting. Next meeting is scheduled September 3, 2012 at 4:00 p.m. 11.6. YLWD-MWDOC-OCWD Joint Agency Committee (Hawkins/Beverage) Minutes of the meeting held July 24, 2012 at 4:00 p.m. Next meeting is scheduled September 25, 2012 at 4:00 p.m. 12. INTERGOVERNMENTAL MEETINGS 12.1. MWDOC/MWD Workshop – August 1, 2012 (Melton/Staff) Director Melton attended and commented on a PowerPoint presentation provided during the meeting regarding the status of the Bay-Delta Conservation Plan. The presentation also included an overview of the dual tunnel project which is estimated to be completed in 2026. 12.2. OCWD Board – August 1, 2012 (Kiley/Staff) Director Kiley attended and noted that it was a short meeting and that the draft EIR for the District’s annexation to OCWD is expected to be made available in October. Director Hawkins asked if the property for the proposed Cielo Vista development project was included in the annexation request. Mr. Conklin confirmed that it was. 12.3. WACO – August 3, 2012 (Hawkins) Director Kiley attended and commented on a PowerPoint presentation regarding public pensions which was provided during the meeting. 12.4. YL City Council – August 7, 2012 (Hawkins) Director Hawkins attended and commented on a report regarding the status of the proposed Cielo Vista development project. He further stated that he appreciated the comments provided by Councilmembers Rikel, Anderson and Lindsey related to the matter. 7 13. BOARD OF DIRECTORS ACTIVITY CALENDAR 13.1. Meetings from August 10, 2012 – September 30, 2012 The Board reviewed the meetings calendar. Director Collett noted that Director Kiley would be attending the YL Planning Commission meeting on August 15, 2012 and that he believed the subsequent meeting scheduled August 29, 2012 had been cancelled. Ms. Alexander stated that she would verify the cancellation and notify both Directors. Councilmember Rikel left the meeting at this time. 14. CONFERENCES, SEMINARS, AND SPECIAL EVENTS 14.1. UWI Annual Water Policy Conference – August 22-24, 2012 ISDOC – August 30, 2012 Director Kiley expressed an interest in attending both events. On a motion by Director Beverage, seconded by Director Kiley, the Board authorized Director attendance at both of the above listed events. Motion passed 5-0. 15. CLOSED SESSION The meeting was adjourned to Closed Session at 9:14 a.m. All Directors were present. Also present were Messrs. Kidman, Beltran and Kreisler and Mrs. Knight. 15.1. Public Employee Performance Evaluation Pursuant to Section 54957 of the California Government Code Title: General Manager 15.2. Public Employee Discipline/Dismissal/Release Pursuant to Section 54957 of the California Government Code (Item No. 15.3. was not discussed.) 15.3. Public Employee Appointment Pursuant to Section 54957 of the California Government Code Title: Interim General Manager Mrs. Knight and Mr. Kreisler left the Closed Session at this time. 8 15.4. Conference with Legal Counsel – Pending Litigation Pursuant to Subdivision (a) of Section 54956.9 of the California Government Code Name of Case: ACWA/JPIA, et al vs. Insurance Company of the State of Pennsylvania, et al (OC Superior Court – Case No. 00486884) Mr. Conklin and Mrs. Knight joined the Closed Session at this time. Name of Case: City of Yorba Linda vs. Newport Equity Capital Corporation, et al. (OC Superior Court – Case No. 00549459) The Board reconvened in Open Session at 10:28 a.m. President Hawkins announced that no action was taken during Closed Session that was required to be reported under the Brown Act. President Hawkins stated that the Board had scheduled an additional meeting on September 5, 2012 at 9:00 a.m. to conduct a Closed Session. 16. ADJOURNMENT 16.1. The meeting was adjourned at 10:29 a.m. The next regular meeting of the Board of Directors will be held Thursday, August 23, 2012 at 8:30 a.m. Annie Alexander Assistant Board Secretary ITEM NO. 6.3 AGENDA REPORT Meeting Date: August 23, 2012 Budgeted:Yes To:Board of Directors Funding Source:All Funds From:Steve Conklin, Acting General Manager Presented By:Stephen Parker, Finance Manager Dept:Finance Prepared By:Maria Trujillo, Accounting Assistant I Subject:Payments of Bills, Refunds, and Wire Transfers SUMMARY: Section 31302 of the California Water Code says the District shall pay demands made against it when they have been approved by the Board of Directors. Pursuant to law, staff is hereby submitting the list of disbursements for Board of Directors' approval. STAFF RECOMMENDATION: That the Board of Directors ratify and authorize disbursements in the amount of $1,598,077.26. DISCUSSION: The wires and major items on this disbursement list are as follows: A wire of $928,797.75 to MWDOC for June 2012 water purchase; a wire of $108,988.40 to OCWD for June LTSS in-lieu program; a check of $86,601.12 to Vido Samarzich, Incorporated for Pressure Reducing Station Upgrades' progress payment; and, a check of $48,168.56 to Kidman Law, LLC for July 2012 legal services rendered. The balance of $191,315.09 is routine invoices. The Accounts Payable check register total is $1,363,870.92; Payroll No. 16 total is $234,206.34; and, the disbursements of this agenda report are $1,598,077.26. A summary of the checks is attached. PRIOR RELEVANT BOARD ACTION(S): The Board of Directors approves bills, refunds and wire transfers semi-monthly. ATTACHMENTS: Name:Description:Type: CkReg82312_BOD.pdf Check Register Backup Material 12-CS_823.doc Cap Sheet Backup Material 12_CC_823(1).pdf Credit Card Summary Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/RK 4-0-1 (RC was absent.) . August 23, 2012 CHECK NUMBERS: Void Checks 59070 and 59414 $ (86.23) Manual Checks 59670—59670 $ 94,755.12 Computer Checks 59601—59669 $ 231,415.88 $ 326,084.77 WIRES: W-81412 MWDOC $ 928,797.75 W-81412A OCWD $ 108,988.40 $1,037,786.15 TOTAL OF CHECKS AND WIRES $ 1,363,870.92 PAYROLL NO. 16: Direct Deposits $ 150,088.81 Third Party Checks 5350—5358 $ 43,394.00 Payroll Taxes $ 40,723.53 TOTAL OF PAYROLL $ 234,206.34 ---------------------------------------------------------------------------------------------------------------------- DISBURSEMENT TOTAL: $ 1,598,077.26 ================================================================== APPROVED BY THE BOARD OF DIRECTORS MINUTE ORDER AT BOARD MEETING OF AUGUST 23, 2012 ================================================================== DateVendor NameAmountDescription 08/03/12Mail Finance313.30 Postage Meter Lease Aug‐Nov TOTAL313.30 DateVendor NameAmountDescription 08/03/12ACWA/JPIA170.00 Conference Ojeda 08/03/12ACWA/JPIA1,275.00 Conference OPS 08/03/12AWWA580.00 Water Seminar OPS 08/03/12Home Depot41.83 Sod 08/03/12USA Bluebook162.65 CL2 System parts 08/03/12Home Depot344.78 Respirator 08/03/12Stefano's275.00 Lunch/MWDOC Wtr Efficiency mtg 08/06/12Grainger216.50 Exhaust fan 08/07/12Blake's Place606.27 Lunch/YLWD Horseshoe Tourn 08/08/12USA Bluebook558.85 CL2 System parts 08/08/12Farmer Boys17.71 Lunch/Bond Counsel 08/09/12MWDOC34.00 ISDOC qtr mtg/Conklin, Dir Kiley 08/09/12Urban Water Institute425.00 UWI Conference Dir Kilet TOTAL4,707.59 8/3/2012‐8/23/2012 Cash Rewards Credit Card Bank of America 8/3/2012‐8/23/2012 Cal Card Credit Card U S Bank ITEM NO. 6.4 AGENDA REPORT Meeting Date: August 23, 2012 Budgeted:Yes To:Board of Directors Cost Estimate:$104,393 Funding Source:Operating Funds From:Steve Conklin, Acting General Manager Account No:Various Presented By:Gina Knight, HR/Risk Manager Dept:Human Resources/Risk Management Prepared By:Gina Knight, HR/Risk Manager Subject:ACWA/JPIA Workers' Compensation Program Renewal for FY 2012/13 SUMMARY: The ACWA Joint Powers Insurance Authority (JPIA) manages the District's Workers' Compensation program. In addition, the District is a member of JPIA's liability and property insurance programs. JPIA offers a multiple program discount for agencies enrolled in more than one program. In the case of Workers' Compensation premiums, the District will receive a 5% discount in the upcoming year. The discount is included in the invoice. STAFF RECOMMENDATION: That the Board of Directors approve the ACWA/JPIA Workers' Compensation Program renewal and estimated deposit premium of $104,393.56 for July 1, 2012 through June 30, 2013. COMMITTEE RECOMMENDATION: The Personnel/Risk Management Committee reviewed this item at its August 7 meeting and recommends that the Board of Directors approve the ACWA-JPIA Workers' Compensation Program renewal and estimated deposit premium of $104,393.56 for July 1, 2012 through June 30, 2013. DISCUSSION: ACWA-JPIA submitted the Workers' Compensation insurance deposit premium estimate for fiscal year 2012-2013. The deposit premium page is attached for the Board of Directors' review. This year the JPIA's Executive Committee approved renewal of the program with no change in the rates charged for each of the payroll classifications, effective July 1, 2012. The estimated deposit premium for the period July 1, 2012 through June 30, 2013 is $104,393.56. The premium is based on actual payroll. Last year the deposit premium estimate was $109,021.00. The experience modification factor (e-mod) is 0.81. This is lower than last year's e-mod factor which was 0.90. The workers' compensation costs are not listed as a line item in the approved Budget but are included in the Personnel costs section. PRIOR RELEVANT BOARD ACTION(S): Each year at this time, the Workers' Compensation deposit premiums are presented to the Board of Directors for review. ATTACHMENTS: Name:Description:Type: ACWAJPIA_Workers_Comp.pdf ACWA-JPIA Workers Compensation Deposit Premium Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/RK 4-0-1 (RC was absent.) ITEM NO. 6.5 AGENDA REPORT Meeting Date: August 23, 2012 Budgeted:Yes Total Budget:$220,000 To:Board of Directors Cost Estimate:$215,272 Funding Source:Water Operating Fund From:Steve Conklin, Acting General Manager Account No:7020-0690-20 Presented By:Gina Knight, HR/Risk Manager Dept:Human Resources/Risk Management Reviewed by Legal:No Prepared By:Amelia Cloonan, Personnel Technician CEQA Compliance:N/A Subject:ACWA/JPIA General Liability Insurance Deposit Premium for the October 1, 2012 to September 30, 2013 Policy Year and Retrospective Allocation Point SUMMARY: In accordance with the District's Risk Management Policy, staff is required to present all insurance premiums to the Board of Directors for approval. Attached for the Board's review is ACWA/JPIA's general liability insurance deposit premium for the period October 1, 2012 through September 30, 2013. STAFF RECOMMENDATION: That the Board of Directors approve the ACWA/JPIA General Liability Insurance deposit premium for the policy year October 1, 2012 through September 30, 2013 in the amount of $215,272 and continue with the Retrospective Allocation Point of $25,000. COMMITTEE RECOMMENDATION: The Personnel-Risk Management Committee reviewed this item at its meeting held August 7, 2012 and supports staff's recommendation. DISCUSSION: Each August the District receives the liability insurance premium from ACWA-JPIA for the upcoming policy year. The deposit premium is for the period October 1, 2012 through September 30, 2013. This year's premium is $215,272 representing an 11% increase from last year's, which was $193,296. In 2010 and 2009, the District's premiums were $175,724 and $166,522, respectively. The deposit premium is due September 1, 2012, and must be paid or postmarked by September 30, 2012 or be subject to interest charges. The main reason for the increase in rates is due to the increase in the District's e-mod factor. In this premium year, the e-mod factor is 1.3600 whereas last year the e-mod factor was 1.3000. JPIA calculated the e-mod using three consecutive years worth of losses. The three year period moves each year with the earliest year dropping off and a new year coming on. Therefore, a particular loss will affect the e-mod calculation for a total of three years. Losses below $15,000 or the Retrospective Allocation Point (hereinafter referred to as a "deductible" or RAP), whichever is less, are not used in the e-mod calculation. In addition, all losses are capped at $75,000. The District's deductible is $25,000. The deductible is that portion of the loss for which the District is ultimately responsible. It also designates the point at which the District begins to participate in the pooled losses. When the retrospective premium adjustment is calculated (45 months after the first coverage period), all losses and portions of losses are deducted from the deposit premium. The remaining losses go into the pool and are shared by all the members of the program. Each member is charged a proportionate share of the total losses in the pool according to its deposit premium. Adjustments continue annually thereafter until all claims in the pool for that specific policy year are closed. Finally, if the costs are below the deposit premium, a debit is applied against the retrospective premium adjustment fund. The retrospective premium adjustment fund was created in 1999 to stabilize retrospective premium adjustments and reduce or eliminate billing members for prior policy years by banking member refunds. The funds are used to offset any amounts due to the member for the prior years. The retrospective premium adjustment fund was established with a cap of 50% of the basic premium. Once a member's fund balance exceeds 50% of its deposit premium, the difference is refunded to the member. The District will not receive a refund this year. The District has the option of increasing the deductible from $25,000 to $50,000 or $100,000. Staff does not recommend changing the RAP, since it is extremely difficult to predict the number of future claims that may be filed against the District and other agencies. The minimum deductible is financially safer if an agency experiences a high frequency of losses. The District identified $220,000 in the Fiscal Year 2012-2013 adopted budget for the annual liability insurance premium. PRIOR RELEVANT BOARD ACTION(S): The annual liability insurance deposit premiums are presented to the Board of Directors each August/September. ATTACHMENTS: Name:Description:Type: ACWAJPIA_General_Liability.pdf Backup Material Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/RK 4-0-1 (RC was absent.) ACWAIJOINT POWERS INSURANCE AUTHORITY LIABILITY PROGRAM E-MODIPREMIUM CALCULATION WORK SHEET AT 7/24/2012 Yorba Linda Water District 101112012-2013 ANNUAL ESTIMATED PAYROLL:$5,665,480 LOSSES FOR PERIOD 10/1/2008 THRU 9/30/2011 RETRO ALLOCATION POINT: $25,000 AMOUNT USED IN CLAIMS OVER E-MOD CALC YEAR CLAIM 0 TOTAL LOSS RAP RAP(or$15,000)' (Capped at$75,000) 101112008-2009 09-0419 $6,938,833.55 $25,000 $6,938,633.55 $75,000.00 101112009-2010 10-1543 $83,558.56 $25,000 $83,558.56 $75,000.00 101112009-2010 11-0006 $1,001.55 $25,000 $0.00 $0.00 101112009-2010 11-0613 $30,000.00 $25,000 $30,000.00 $30,000.00 101112010-2011 12-0468 $217.94 $25,000 $0.00 $0.00 101112010-2011 12-0669 $100.00 $25,000 $0.00 $0.00 1011/2010-2011 12-0418 $1,000.00 $25,000 $0.00 $0.00 THREE YEAR LOSS TOTAL $7,054,511.60 $7,052,192.11 $180,000.00 EXPERIENCE MODIFICATION FORMULA STEP 1 $2,250 + [ Payroll x PIR Modifier x ( 7 1 Log of Payroll ? ) Basic Premium $2,250 + ( $5,665,480 x 0.080608 x ( 7 1 15.549902 } ) _ $207,832 STEP 2 ( Three Year Loss Total 1 3 J 1 Basic Premium = District Rate ( $180,000 1 3 ) 1 $207,832 = 0.2887 STEP 3 District Rate ! Average Rate = Unweighted Modification Factor 0.288695 1 0.136986 = 2.107478 STEP 4 Square root of ( Basic Premium 1 $2,000,000 ) = Credibility Factor Square root of ( $207,832 1 $2,000,000 ) - 0.3224 STEP 5 { Credibility Factor x Unweighted Modification Factor ) + ( 1.0 - Credibility Factor ) = E-MOD { 0.3224 x 2.1075 } + ( 1.0 - 0.3224 ) = 1.3600 DEPOSIT PREMIUM FORMULA STEP 1 Basic Premium x E-MOD = Gross Premium $207,832 x 1.3600 = $282,652 STEP 2 (3 Programs=5.00%) Gross Premium x Multiple Program Discount Factor = Deposit Premium + Adjustment = Adjusted Deposit Premium $282,652 x 0.95 = $268,519 + $0 = $268,519 THE MINIMUM RAP FOR THE PREMIUM SHOWN ABOVE IS$25,000 YOUR CURRENT RAP 15$25,000 IF YOU WISH TO SELECT A HIGHER RAP,PLEASE CONTACT MEMBER SERVICES 'AMOUNT DERIVED BY DETERMINING THE LOWER OF THE CHOSEN RAP VS$15,000. 1F TOTAL LOSS'COLUMN EXCEEDS THIS FIGURE THEN THE TOTAL LOSS IS ENTERED HERE. ITEM NO. 6.6 AGENDA REPORT Meeting Date: August 23, 2012 Budgeted:Yes Total Budget:$11,000 To:Board of Directors Cost Estimate:$999/month From:Steve Conklin, Acting General Manager Account No:1-6020-0600-34 Presented By:Art Vega, Acting IT Manager Dept:Information Technology Prepared By:Art Vega, Acting IT Manager CEQA Compliance:N/A Subject:Internet Services Upgrade SUMMARY: The District currently has internet services provided by two different vendors for redundancy and more bandwidth (additional data capacity). Time Warner cable provides Business Cable internet service and AT&T provides Business class DSL internet service. The bandwidth provided by these services is becoming a bottleneck. Bandwidth on both these services are at capacity and cannot be increased without changing the service type. This item was discussed at the IT Workshop on December 12 and funding for a solution was budgeted for the 2012-2013 budget year. STAFF RECOMMENDATION: That the Board of Directors authorize staff to upgrade internet services from Business Class Cable Internet to Dedicated Internet Access with Time Warner Cable for a monthly cost of $999.00 plus taxes and fees. COMMITTEE RECOMMENDATION: The Public Affairs-Communications-Technology Committee discussed this item at its meeting held August 6, 2012 and supports staff's recommendation. DISCUSSION: As the District relies more on internet services, the need for more bandwidth is becoming critical. While downloading bandwidth (data coming into the District) is sufficient for the time being, the upload bandwidth (data leaving the District) is much slower. As more employees are deployed with CMMS notebook PCs in the field, for example, users will be competing for available bandwidth. The end result is a slower computer as the computer waits to receive information from District servers. Staff has researched and obtained services upgrade quote/proposals from Time Warner Cable and AT&T. The proposed monthly service fee to upgrade to AT&T's MIS (Managed Internet Services) would be $1266.08 a month with no installation costs. Time Warner's DIA (Dedicated Internet Access) would be $999.00 a month with no installation costs with a 3-year term. One of the benefits of this upgrade is that as the need for bandwidth increases in the future it can be increased within hours with a phone call. Lead time for installation is approximately 2 months. Based on review of the proposals and fees, staff recommends upgrading to Dedicated Internet Access with Time Warner Cable for $999 per month plus taxes and fees. STRATEGIC PLAN: OE 1-A: Identify the Current Functionality of Existing Technology and Determine if it is Being Utilized to Full Capacity ATTACHMENTS: Name:Description:Type: Time_Warner_Service_Order.pdf Time Warner Service Order Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/RK 4-0-1 (RC was absent.) lc TIME WARNER CABLE Business Class Business Class Customer Service Order anAccount Executive: David Morris Phone: (562)677-0470 ext: Cell Phone: (562)324-7543 Fax: (704)414-9343 Email: david.morris3 @twcable.com YORBA LINDA Business Name WATER DISTRICT Customer Type: Existing Customer Federal Tax ID Tax Exempt Status Tax Exempt Certificate# Billing Address Account Number 913 RICHFIELD RD PLACENTIA CA 92870 8448400250088478 Billing Contact Billing Contact Phone Billing Contact Email Address Maria Trujillo 714 701-3000 mtru illo Iwd.com Authorized Contact Authorized Contact Phone Authorized Contact Email Address Art Vega 714 701-3000 avega@ylwd.com Technical Contact Technical Contact Phone Technical Contact Email Address Rick Walkeme er 714 448-0149 rwalkemeyer@ylwd.com Dedicated Internet, Metro Ethernet, and Private Line Service Order Information For 913 RICHFIELD RD PLACENTIA CA 92870 Location Customer Requested Site Name Address Location Type Bandwidth Due Date 10 Mbps x 10 913 RICHFIELD RD PLACENTIA, CA 92870 1 Mbps DIA Current Services and Monthly charges At 913 RICHFIELD RD , PLACENTIA CA 92870 Monthly Description Quantity Sales Price Recurring Total Bcv A/O 1 1 $15.00 $15.00 Bcv A/O 2 1 $15.00 $15.00 Bcv A/O 3 1 $15.00 $15.00 Bci 13 Stip 1 $0.00 $0.00 Bcv Bas Pri 1 $29.95 $29.95 Bc Double Vh 1 1 $0.00 $0.00 Bci 10 St Em 1 $0.00 $0.00 Bci Cntrct3Y 1 $0.00 $0.00 Bcv Brod Pri 1 $25.00 $25.00 *Total $99.95 *Prices do not include taxes and fees. Page 1 of 3 lc TIME WARNER CABLE Business Class New and Revised Services and Monthly Charges At 913 RICHFIELD RD , PLACENTIA CA 92870 Monthly Description Quantity Sales Price Recurring Total Contract Term Los Angeles BCF Fiber I-Net 1 $999.00 $999.00 36 Months *Total $999.00 *Prices do not include taxes and fees. One Time fees At 913 RICHFIELD RD , PLACENTIA CA 92870 Description Quantity Sales Price Total BCF Fiber Install 1 $0.00 $0.00 Total $0.00 *Prices do not include taxes and fees. Page 2 of 3 lc TIME WARNER CABLE Business Class Special Terms The services, products, prices and terms identified on this Service Order constitute Time Warner Cable's offer to provide such services on such terms. Until Customer has accepted this offer by signing as appropriate below, Time Warner Cable reserves the right to rescind this offer at any time, at its sole discretion. The Agreement shall be renewable for successive terms unless at least thirty (30) days prior to the expiration of the then- current term, either party notifies the other party of such party's intent not to renew this Agreement. Agreement term and corresponding monthly billing will commence on actual service installation date. Cable television and Work-at-home services are subject to annual price change. 10Mbps x 10Mbps Fiber Internet. Electronic Signature Disclosure By signing and accepting below you are acknowledging that you have read and agree to the terms and conditions outlined in this document. Authorized Signature for Time Warner Cable Authorized Signature for Customer Printed Name and Title Printed Name and Title Date Signed Date Signed Page 3 of 3 ITEM NO. 7.1 AGENDA REPORT Meeting Date: August 23, 2012 To:Board of Directors From:Steve Conklin, Acting General Manager Presented By:Steve Conklin, Acting General Manager Dept:Administration Reviewed by Legal:No Prepared By:Cindy Botts, Management Analyst Subject:Response to OC Grand Jury Report: "Transparency Breaking Up Compensation Fog- But Why Hide Pension Costs?" SUMMARY: The County of Orange Grand Jury has prepared and released a report entitled "Transparency Breaking Up Compensation Fog- But Why Hide Pension Costs?" The Yorba Linda Water District is one of the agencies included in the report and is mandated by Penal Code Section 933.05 to respond in writing to address the findings and recommendations at the end of this report. The Grand Jury's report was released to the public on June 12, 2012. The District must submit a response to this report prior to September 12, 2012. STAFF RECOMMENDATION: That the Board of Directors approve the response to the Orange County Grand Jury's Report on transparency regarding pension costs. COMMITTEE RECOMMENDATION: The Executive-Administrative-Organizational Committee will review this item at its meeting on August 22, 2012. Staff will report the Committee's recommendation at the Board meeting. DISCUSSION: Staff has prepared a draft response to the OC Grand Jury report for consideration by the Board of Directors. The recommendations that may be considered by the Board include minor modifications to the District's website enhancing ease of use and transparency with the information items identified in the report. PRIOR RELEVANT BOARD ACTION(S): The Board of Directors has responded to several OC Grand Jury reports over the years, with the most recent being July 26, 2012. ATTACHMENTS: Name:Description:Type: Grand_Jury_Transparency_Response_DRAFT_1.docx OC Grand Jury Response- Transparency on Pension Costs Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/GM 4-0-1 (RC was absent.) September 14, 2012 The Honorable Thomas J. Borris, Presiding Judge Superior Court 700 Civic Center Drive West Santa Ana, CA 92701 Dear Judge Borris: Thank you the opportunity to review and comment on the “Transparency Breaking Up Compensation Fog – But Why Hide Pension Costs?” report. The comments provided address the findings and recommendations requiring a response from the Yorba Linda Water District. Regards, Phil Hawkins YLWD Board of Directors CC: Orange County Grand Jury Yorba Linda Water District Findings F.1: Accessibility Ratings for Cities, Special Districts and JPA’s. Response: Agrees with Finding The Yorba Linda Water District (YLWD) agrees that the accessibility of its employee compensation could be improved. Presently the information is available by individual position under the Job Descriptions page. F.2: Content & Clarity Ratings for EXECUTIVE Compensation Cost. Response: Agrees with Finding YLWD acknowledges that the content and clarity of its executive compensation costs as detailed on its website are not in meeting with the Grand Jury’s grading criteria. Those considered “executive” staff by the Grand Jury, based strictly upon their salary, are currently included in the list of all YLWD employees, rather than on their own page. The monthly salaries of all employees, including the “executive” employees are listed. F.3: Content & Clarity for EMPLOYEE Compensation Cost Ratings. Response: Agrees with Finding As with the first two findings of the Grand Jury, YLWD recognizes that there is much room to improve its compensation cost transparency and intends to make further improvements with its new website. F.4: Transparency of Employer Pension Contribution Rates. Response: Agrees with Finding F.5: Inclusion of Overtime and On-Call Pay in Employee Compensation Costs. Response: Agrees with Finding R.1: Access for Compensation Costs Transparency. Response: The recommendation has not yet been implemented, but will be implemented in the future YLWD has been working for the past several months on redesigning its website, and will ensure that when it launches it will meet the Grand Jury’s standards of Accessibility. R.2: Content & Clarity of EXECUTIVE Compensation Costs. Response: The recommendation will not be implemented because it is not reasonable YLWD agrees that the information should be listed but disagrees with displaying “executive” information in a separate table, being that it is already displayed in the general employee table. This duplication could prove to be highly confusing, as it would give the impression of a greater number of “executives” than truly exist, and would not serve to further transparency goals. If it is the Grand Jury’s intent to highlight the higher salaries of certain employees, simply listing employees in ascending order of salary would serve this purpose. R.3: Content & Clarity of EMPLOYEE Compensation Costs. Response: The recommendation will not be implemented because it is not warranted, nor is it reasonable. YLWD believes that the parameters of the recommendation are such that to include fees, bonuses, auto allowances, overtime, and on-call pay for individual employees on an actual costs basis is unreasonable. The amount of work required to produce this information on a regular basis would potentially require additional personnel. YLWD can and will provide on its website salaries and benefits information, as required by law to the State Controller’s Office, but does not believe it is reasonable to create additional staff positions to provide more information than what is required by law. R.4: Transparency of Employer Pension Contribution Rates. Response: The recommendation has not yet been implemented, but will be implemented in the future. R.5: Transparency of Overtime Pay and On-Call Pay in Employee Compensation Cost Reporting. Response: The recommendation will not be implemented because it is not warranted, nor is it reasonable. Please see response to R.3. ITEM NO. 7.2 AGENDA REPORT Meeting Date: August 23, 2012 Budgeted:Yes To:Board of Directors Funding Source:All Funds From:Steve Conklin, Acting General Manager Presented By:Gina Knight, HR/Risk Manager Dept:Human Resources/Risk Management Reviewed by Legal:Yes Prepared By:Gina Knight, HR/Risk Manager Subject:Amending Employee Compensation Letters SUMMARY: On April 12, 2012, at a Regular Board of Directors meeting, the Board adopted both Resolution No. 12-07 & Resolution No. 12-08, Employee Compensation Letters and Pay Plans for the Management and Supervisory/Confidential employee groups. STAFF RECOMMENDATION: That the Board of Directors adopt Resolution No. 12-17 Amending Resolution Nos. 12-07 and 12-08 to Clarify the Method of District Contributions to Employee Deferred Compensation Plans. COMMITTEE RECOMMENDATION: The Personnel Risk Management Committee reviewed this item at its August 7, 2012 meeting and supports staff's recommendation. DISCUSSION: At a Department Managers' meeting, staff discussed the implementation of several provisions generated from the adoption of the Employee Compensation Letters and Pay Plans for both Management and Supervisory/Confidential employee groups. It appeared that one provision needed further clarification. Staff agreed that the language related to said provision should be revised to avoid any misunderstandings of the District's intent. Section XXI of both Employee Compensation Letters read as follows: Effective July 1, 2012, the District will match dollar for dollar not to exceed 2% of an employee's salary per year of his/her deposits in a Deferred Compensation Plan. Staff indicated that the above language would create an administrative challenge to track for each affected employee. Staff suggested that the 2% be applied to each employee's bi-weekly salary. Resolution No. 12-17, amends the above language to read as follows for Section XXI of each Employee Compensation Letter: Effective July 1, 2012, the District will match dollar for dollar not to exceed 2% salary earned per payroll period of an employee's salary or the employee's actual amount of deferred compensation per payroll period, whichever is lesser. This item was discussed with the Personnel Risk Management Committee on August 7, 2012. ATTACHMENTS: Name:Description:Type: Resolution_No__12-17.docx Resolution 12-17 Backup Material Management_Compensation_Letter_-_Exhibit_A-Final_FYs_2012- 2015-Amended_8-23-2012.doc Management Compensation Letter 12-07 Backup Material SUPERVISORY_CONFIDENTIAL_Compensation_Letter_Exhibit_A_- _FYs_2012-2015-Amended_8-23-2012.doc Supervisory Confidential Compensation Letter Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/GM 4-0-1 Roll Call (RC was absent.) Resolution No. 12-17 Amending Resolution Nos. 12-07 and 12-08 1 RESOLUTION NO. 12-17 RESOLUTION OF THE BOARD OF DIRECTORS OF THE YORBA LINDA WATER DISTRICT AMENDING RESOLUTION NOS. 12-07 AND 12-08 TO CLARIFY THE METHOD OF DISTRICT CONTRIBUTIONS TO EMPLOYEE DEFERRED COMPENSATION PLANS WHEREAS, the Board of Directors of the Yorba Linda Water District previously adopted the Employee Compensation Letters for Management, Supervisory, and Confidential Employees for Fiscal Years 2012-2015; and WHEREAS, it is the desire of the Board of Directors to amend these letters to clarify the method of District contributions to a deferred compensation plan for these employees. NOW THEREFORE BE IT RESOLVED by the Board of Directors of the Yorba Linda Water District as follows: Section 1. That Section XXI of the Management Employee Compensation Letter for Fiscal Years 2012-2015 incorporated as Exhibit “A” of Resolution No. 12- 07 be amended to read: XXI. Effective July 1, 2012, the District will match dollar for dollar not to exceed 2% salary earned per payroll period of a Management Employee’s salary or the employee’s actual amount of deferred compensation per payroll period, whichever amount is lesser. Section 2. That Section XXI of the Supervisory and Confidential Employee Compensation Letter for Fiscal Years 2012-2015 incorporated as Exhibit “A” of Resolution No. 12-08 be amended to read: XXI. Effective July 1, 2012, the District will match dollar for dollar not to exceed 2% salary earned per payroll period of a Supervisory and Confidential Employee’s salary or the employee’s actual amount of deferred compensation per payroll period, whichever amount is lesser. PASSED AND ADOPTED this 23rd day of August 2012 by the following called vote: AYES: NOES: ABSTAIN: ABSENT: Resolution No. 12-17 Amending Resolution Nos. 12-07 and 12-08 2 Phil Hawkins, President Yorba Linda Water District ATTEST: Annie Alexander, Assistant Board Secretary Yorba Linda Water District Reviewed as to form by General Counsel: Arthur G. Kidman, Esq. Kidman Law, LLP Management Compensation Letter FYs 2012/2015 Amended 8-23-2012 Exhibit A Resolution No. 12-07 Employee Compensation Letter And Pay Plan for Management Employees Fiscal years: 2012-2015 I. The General Manager shall prepare an Employee Compensation Letter for consideration by the Board of Directors. The Employee Compensation Letter shall describe the salaries, benefits and special conditions offered by the District to its Management Employee Group (Exhibit B). II. Effective July 1, 2012, the salary schedule attached hereto as Exhibit C shall be in effect for fiscal year 2012-2013. III. Effective July 1, 2013, the salary schedule attached hereto as Exhibit D shall be in effect for fiscal year 2013-2014. IV. Effective July 1, 2014, the salary schedule attached hereto as Exhibit E shall be in effect for fiscal year 2014-2015. V. The District’s current contract with CalPERS is for a retirement benefit based on the single highest year with a Fourth Level of 1959 Survivor Benefit Program. VI. Effective July 1, 2012, all Management Employees shall pay 43% of the 7% statutory CalPERS employee contribution rate to CalPERS (equivalent to 3% of compensation). VII. Effective July 1, 2013, all Management Employees shall pay 71% of the 7% statutory CalPERS employee contribution rate to CalPERS (equivalent to 5% of compensation). VIII. Effective July 1, 2014, all Management Employees shall pay 100% of the statutory CalPERS employee contribution rate to CalPERS. Individuals hired by the District on or after January 26, 2012, the date Resolution No. 12-01 was adopted, shall be enrolled in the 2% @ 60 retirement formula and shall pay 100% of the statutory CalPERS employee contribution rate to CalPERS. All payments will be credited to the employee's individual account with CalPERS. IX. The District shall continue to maintain a "414(h)(2)" plan under the Internal Revenue Code for the purpose of treating contributions to PERS as deferred income for tax purposes to the extent permitted by law. Contributions will continue to be deducted from the employee's actual Management Compensation Letter FYs 2012/2015 Amended 8-23-2012 gross salary as reflected on the employee's pay stub. Employees shall otherwise be responsible for all taxes related to fringe and reimbursement benefits and the District shall make deductions in accordance with the law. X. Each employee will be annually reviewed on a one-year interval following completion of their probationary period. An employee who receives a meets job expectations evaluation will be entitled to move one (1) step and an employee who receives an exceeds job expectations evaluation, shall be allowed to move up to two (2) steps. Movement shall take place until an employee has reached Step 9. The District shall endeavor to have performance reviews completed within two (2) weeks after the employee’s anniversary date with the effective date of any merit salary increase being on the anniversary date. If the evaluation is delayed, any subsequent salary increase to which the employee could otherwise be entitled shall be retroactive to the anniversary date. XI. All new hires shall be subject to a twelve (12) month probationary period. Such new hires shall accrue vacation commencing with the start of employment but shall be ineligible to use accrued vacation time prior to successful completion of six (6) months of service. An existing employee who has been promoted to a new position will be required to serve a six (6) month promotional probationary period in the new position. XII. Management Employees shall accrue vacation leave time with pay as follows: Duration of Continuous Hours Accrued per Pay Period Regular Employment During 1st through 60th month 3.077 hrs = 2.0 weeks/yr During 61st through 120th month 4.615 hrs = 3.0 weeks/yr During 121st through 180th month 5.384 hrs = 3.5 weeks/yr During 181st through 240th month 6.153 hrs = 4.0 weeks/yr During 241st month and thereafter 6.922 hrs = 4.5 weeks/yr XIII. The District shall continue to provide group life insurance in the amount of one times basic annual salary rounded to the next higher multiple of $1,000, for each full-time regular Management Employee under age 70, on the first day of the month following their date of hire, in accordance with the provisions of the contract between the District and any company of the District’s choosing providing such coverage. Management Employees may increase the coverage up to five time’s annual salary not to exceed $300,000 by authorizing the additional premium to be deducted from his/her salary. XIV. The District shall pay 100% of the premium for hospital and medical insurance for all Management Employees who work in excess of 30 hours Management Compensation Letter FYs 2012/2015 Amended 8-23-2012 per week, after they have worked for two calendar months, and up to 2/3 of the additional premium toward Management Employee dependent coverage for covered employees with one dependent or up to 2/3 of the additional premium toward Management Employee dependent coverage for covered Management Employees with more than one dependent in accordance with the provisions of any contract between the District and any company or companies of the District's choosing. The Management employee shall pay the cost of the difference in premium, to be deducted from his/her salary to cover the employee’s share of the dependent coverage. The Management Employees shall have the option of selecting a District-designated Health Maintenance Organization ("HMO"). The District contribution for HMO coverage will be in accordance with this paragraph. XV. The District shall pay 100% of the premium for dental insurance for all Management Employees who work 30 hours or more per week, after they have worked for two calendar months and up to 2/3 of the additional premium toward Management Employee dependent coverage for covered Management Employees with one dependent or up to 2/3 of the additional premium toward Management Employee dependent coverage for covered Management Employees with more than one dependent in accordance with the provisions of any contract between the District and any company or companies of the District's choosing. The individual Management Employees shall pay the cost of the difference in premium, to be deducted from his/her salary. The Management Employees shall have the option of selecting "Delta Care" with the contribution for "Delta Care" to be in accordance with this paragraph. XVI. District shall pay 100% of the premium for vision insurance for Management Employees who work more than 30 hours per week, on the first day of the month following their date of hire and up to 2/3 of the additional premium toward dependent coverage for covered Management Employees with one dependent or up to 2/3 of the additional premium toward dependent coverage for covered Management Employees with more than one dependent, in accordance with the provisions of any contract between the District and any company or companies of the District's choosing. The individual Management Employee shall pay the cost of the difference in premium, to be deducted from his/her salary. XVII. For a period of time which is equivalent to one (l) year or pro-ration thereof on a monthly basis for each three (3) years of service to the District or pro- ration thereof on a quarterly basis, and subject to carrier approval, the District shall pay the amounts provided in the paragraphs XIV, XV and XVI of this agreement for any Management Employee who was employed by the District on or before December 8, 2011, the date Resolution No. 11-22 was adopted and who retires from the District. Management Compensation Letter FYs 2012/2015 Amended 8-23-2012 To be eligible for this benefit, the employee must be at least 50 years of age, must have five (5) complete years of service with the District, must provide ninety (90) days notice of intent to retire must remain in a retired status and must retire from the District in good standing. When the Management retiree or his/her spouse reaches ages 65, and is eligible for Medicare, the coverage will convert to Medicare Supplement for the remainder of the benefit period. For purposes of this Agreement, retired status means that the Management Employee shall not work for compensation for more than nine hundred sixty (960) hours in any fiscal year (July 1 through June 30). The District shall require a Management Employee to certify under penalty of perjury that the Management Employee has remained on retired status and/or to submit to such additional verification, as the District deems necessary to demonstrate retired status. The retired Management Employee must make any contribution required of a regular Management Employee pursuant to paragraph XIV, XV and XVI prior to the first day of the month in which coverage is to be extended. Failure of a Management Employee to make such payment shall result in termination of coverage and termination of any right to any benefit pursuant to this section. Management Employees hired after the adoption of Resolution 11-22 (12- 8-2011) shall be ineligible to receive this benefit. A Management Employee who retires (in accordance with the Public Employees' Retirement System qualifications) shall be paid at the rate of his final salary for 3/8 of his/her accumulated days of sick leave, if any, at the time of separation from active employment. The remaining 5/8 of his/her accumulated days of sick leave will be converted into CalPERS service credit. If the Management Employee should die, his/her estate shall be entitled to such payment. XVIII. Management Employees who are laid off from District employment after being employed by the District for five (5) or more complete years of continuous regular employment, shall be compensated for accumulated, unused sick leave above 400 hours as follows: YEARS PERCENT PAYABLE ABOVE 400 HOURS ON THE BOOKS 5 through 9 20% 10 through 15 25% Management Compensation Letter FYs 2012/2015 Amended 8-23-2012 16 through 20 and above 30% Employees who are terminated from the District for cause, or who resign in lieu of termination, shall not be eligible for this benefit. XIX. To the extent possible, the District shall extend its current plan under Section 125 of the Internal Revenue Code to cover Management Employees. XX. The District shall provide a long-term disability plan for Management Employees which has a 90-day elimination period and provides at least sixty percent (60%) of salary for a designated period of time in accordance with coverage procured by the District from a carrier to be determined at the District's sole discretion. XXI. Effective July 1, 2012, the District will match dollar for dollar not to exceed 2% salary earned per payroll period of a Management Employee’s salary or the employee’s actual amount of deferred compensation per payroll period, whichever amount is lesser. XXII. Management Employees shall continue to be assigned to a four (4) day workweek, consisting of ten (10) scheduled hours of work each day (a 4/10 schedule Monday through Thursday). The Board of Directors clearly and unequivocally has the right to terminate the 4/10 schedule at any time during the term of this employee compensation letter. In such case, the schedule shall revert to the 9/80 schedule as existed immediately prior to implementation of the 4/10 schedule. XXIII. In situations where a Management Employee has been injured in a non- duty accident and his/her disability leave exceeds one calendar month or the total of his/her accumulated leaves, including sick leave, paid time off and vacation, that portion of the leave exceeding 30 days or the total of accumulated leaves, whichever is more, shall constitute a break in service and his/her merit review dates and anniversary date will be adjusted accordingly. XXIV. The District will pay up to a total of $2,000 annually to establish and administer a tax-advantaged flexible benefit plan, and a total of $5,000 annually to establish a tax advantaged dependent care plan. Plans will conform to the requirements of Section 125 of the Internal Revenue Code, and permits Management Employees to convert their share of insurance premiums, un-reimbursed medical expenses, child care and other qualifying expenditures to pretax dollars. Savings to the District through reductions to the payroll and worker's compensation tax base will accrue to the District and offset the costs of establishing and administering this program. Management Compensation Letter FYs 2012/2015 Amended 8-23-2012 XXV. The District shall reimburse Management Employees for sums paid to the appropriate agencies for obtaining, or renewing treatment and/or distribution certificates, and other professional certifications, registrations and job related training. XXVI. Management Employees who are required to wear safety boots in the performance of their job, as determined by the General Manager, shall be eligible for District-purchased boots in an amount not to exceed $200.00, provided that the boots are from a list pre-approved by the General Manager or his/her designee. The difference between $200.00 and the amount actually used may be carried over for one year and combined with a subsequent allocation for boot reimbursement. XXVII. The District shall provide educational reimbursement to Management Employees for costs of tuition, fees, books and parking relating to educational courses taken and completed at accredited institutions at a rate not to exceed standard resident fees as charged by the California State University. Course work must be job related as determined and approved in advance by the General Manager. Proof of payment and successful completion of the course must accompany the reimbursement request on a form provided by the District. Management Employee shall be responsible for any tax consequences as a result of education reimbursement. If for any reason, the employee separates from District employment prior to completion of one (1) calendar year from the date of distribution by the District of funds provided for herein, all such amounts distributed during that one (1) calendar year period shall be considered a judgment due and owing to the District. The judgment amount shall be deducted from the employee’s closing check. Any remaining non- reimbursed amount shall be paid to the District within ninety (90) calendar days of separation from District employment. Each employee receiving funds pursuant to this section shall sign a written agreement to comply with the terms of this section as a condition precedent to receipt of any such funds. XXVIII. Management Employees who have been employed by the District for more than one year may sell to the District up to forty (40) hours of accrued unused vacation time upon thirty (30) days prior notice, provided that the Management Employee takes a minimum of one-half the vacation time to which he/she is entitled within the same annual period of the sold vacation time. A member who has been employed by the District for more than one year may also buy from the District up to an additional forty (40) hours of vacation time within any calendar year for use during the same calendar year, provided that full and complete payment has been made for the purchased vacation time by salary modification prior to use of the vacation time. It is expressly understood that this benefit is provided at the sole discretion of the District and shall automatically terminate upon the Management Compensation Letter FYs 2012/2015 Amended 8-23-2012 expiration of this Management letter unless an extension is expressly agreed to by the District. XXIX. Management Employees will be entitled to either a District provided vehicle or a car allowance of $400.00/month as determined by the General Manager. The Engineering Manager, Finance Manager, IT Manager and Human Resources Manager positions shall receive a car allowance of $400.00 per month. XXX. Management Employees shall receive a maximum of forty (40) hours of administrative leave with pay each fiscal year. Unused administrative leave time at the end of each fiscal year, June 30, will be paid during the following month of July with said time being calculated at the employee’s then straight time hourly rate. There will be no carry-over of administrative leave time to the next fiscal year. XXXI. The Holiday schedule attached hereto as Exhibit F shall be in effect for full- time Management Employees covered by this Management letter. For purposes of holiday compensation, compensation shall be equal to the number of hours that the Management Employee normally would have worked other than for the holiday. For those Management Employees whose scheduled work week is Monday through Thursday, a holiday falling on a Friday or Saturday shall not result in Thursday being a holiday and a holiday falling on a Sunday, shall not result in Monday being a holiday. Instead observed holidays that fall on a Friday, Saturday or Sunday shall be recognized as floating holidays earned. The floating holidays earned as a result of the above situation shall be used within 12 months following the accrual of each floating holiday. In order to be eligible for holiday pay, a Management Employee must be either at work or on paid leave of absence on the regularly scheduled workday immediately preceding the day observed as the holiday and the regularly scheduled workday immediately following the day observed as the holiday. The term of this Compensation Letter for Management Employees is for the period of July 1, 2012 to June 30, 2015. ___________________________ __________________ Date General Manager Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 Exhibit A Resolution No. 12-08 Employee Compensation Letter And Pay Plan for Supervisory and Confidential Employees Fiscal years: 2012-2015 I. The General Manager shall prepare an Employee Compensation Letter for consideration by the Board of Directors. The Employee Compensation Letter shall describe the salaries, benefits and special conditions offered by the District to its Supervisory and Confidential Employee Group (Exhibit B). II. Effective July 1, 2012, the salary schedule attached hereto as Exhibit C shall be in effect for fiscal year 2012-2013. III. Effective July 1, 2013, the salary schedule attached hereto as Exhibit D shall be in effect for fiscal year 2013-2014. IV. Effective July 1, 2014, the salary schedule attached hereto as Exhibit E shall be in effect for fiscal year 2014-2015. V. The District’s current contract with CalPERS is for a retirement benefit based on the single highest year with a Fourth Level of 1959 Survivor Benefit Program. VI. Effective July 1, 2012, all Supervisory and Confidential Employees shall pay 43% of the 7% statutory CalPERS employee contribution rate to CalPERS (equivalent to 3% of compensation). VII. Effective July 1, 2013, all Supervisory and Confidential Employees shall pay 71% of the 7% statutory CalPERS employee contribution rate to CalPERS (equivalent to 5% of compensation). VIII. Effective July 1, 2014, all Supervisory and Confidential Employees shall pay 100% of the statutory CalPERS employee contribution rate to CalPERS. Individuals hired by the District on or after January 26, 2012, the date Resolution 12-01 was adopted, shall be enrolled in the 2% @ 60 retirement formula and shall pay 100% of the statutory CalPERS employee contribution to CalPERS. All payments will be credited to the employee's individual account with CalPERS. IX. The District shall continue to maintain a "414(h)(2)" plan under the Internal Revenue Code for the purpose of treating contributions to CalPERS as deferred income for tax purposes to the extent permitted by law. Contributions will continue to be deducted from the employee's actual gross salary as reflected on the employee's pay stub. Employees shall otherwise be responsible for all taxes related to fringe and reimbursement benefits and the District shall make deductions in accordance with the law. Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 X. Each employee will be annually reviewed on a one-year interval following completion of their probationary period. An employee who receives a meets job expectations evaluation will be entitled to move one (1) step and an employee who receives an exceeds job expectations evaluation shall be allowed to move up to two (2) step. Movement shall take place until an employee has reached Step 9. The District shall endeavor to have performance reviews completed within two (2) weeks after the employee’s anniversary date with the effective date of any merit salary increase being on the anniversary date. If the evaluation is delayed, any subsequent salary increase to which the employee could otherwise be entitled shall be retroactive to the anniversary date. XI. All new hires shall be subject to a twelve (12) month probationary period. Such new hires shall accrue vacation commencing with the start of employment but shall be ineligible to use accrued vacation time prior to successful completion of six (6) months of service. An existing employee who has been promoted to a new position will be required to serve a six (6) month promotional probationary period in the new position. XII. Supervisory and Confidential Employees shall accrue vacation leave time with pay as follows: Duration of Continuous Hours Accrued per Pay Period Regular Employment During 1st through 60th month 3.077 hrs = 2.0 weeks/yr During 61st through 120th month 4.615 hrs = 3.0 weeks/yr During 121st through 180th month 5.384 hrs = 3.5 weeks/yr During 181st through 240th month 6.153 hrs = 4.0 weeks/yr During 241st month and thereafter 6.922 hrs = 4.5 weeks/yr XIII. The District shall continue to provide group life insurance in the amount of one times basic annual salary rounded to the next higher multiple of $1,000, for each full-time regular Supervisory and Confidential Employee under age 70 on the first day of the month following their date of hire, in accordance with the provisions of the contract between the District and any company of the District's choosing providing such coverage. Supervisory and Confidential Employees may increase the coverage to up to five time’s annual salary not to exceed $300,000 by authorizing the additional premium to be deducted from his/her salary. XIV. The District shall pay 100% of the premium for hospital and medical insurance for all Supervisory and Confidential Employees who work in excess of 30 hours per week, after they have worked for two calendar months, and up to 2/3 of the additional premium toward Supervisory and Confidential Employee dependent coverage for covered employees with one dependent or up to 2/3 of the additional premium toward Supervisory and Confidential Employee dependent coverage for covered Supervisory and Confidential Employees with more than one dependent in accordance with the provisions of any contract between the District and any company Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 or companies of the District's choosing. The Supervisory and Confidential Employee shall pay the cost of the difference in premium, to be deducted from his/her salary to cover the employee’s share of the dependent coverage. Supervisory and Confidential Employees shall have the option of selecting a District-designated Health Maintenance Organization ("HMO"). The District contribution for HMO coverage will be in accordance with this paragraph. XV. The District shall pay 100% of the premium for dental insurance for all Supervisory and Confidential Employees who work 30 hours or more per week, after they have worked for two calendar months, and up to 2/3 of the additional premium toward Supervisory and Confidential Employee dependent coverage for covered Supervisory and Confidential Employees with one dependent or up to 2/3 of the additional premium toward Supervisory and Confidential Employee dependent coverage for covered Supervisory and Confidential Employees with more than one dependent, in accordance with the provisions of any contract between the District and any company or companies of the District's choosing. The individual Supervisory and Confidential Employees shall pay the cost of the difference in premium, to be deducted from his/her salary. Supervisory and Confidential Employees shall have the option of selecting "Delta Care" with the contribution for "Delta Care" to be in accordance with this paragraph. XVI. District shall pay 100% of the premium for vision insurance for Supervisory and Confidential Employees who work more than 30 hours per week, on the first day of the month following their date of hire, and up to 2/3 of the additional premium toward dependent coverage for covered Supervisory and Confidential Employees with one dependent or up to 2/3 of the additional premium toward dependent coverage for covered Supervisory and Confidential Employees with more than one dependent, in accordance with the provisions of any contract between the District and any company or companies of the District's choosing. The individual Supervisory and Confidential Employee shall pay the cost of the difference in premium, to be deducted from his/her salary. XVII. For a period of time which is equivalent to one (1) year or pro-ration thereof on a monthly basis for each three (3) years of service to the District or pro-ration thereof on a quarterly basis, and subject to carrier approval, the District shall pay the amounts provided in paragraphs XIV, XV and XVI of this agreement for any Supervisory and Confidential Employee who was employed by the District on or before December 8, 2011, the date Resolution No. 11-21 was adopted and who retires from the District. To be eligible for this benefit, the employee must be at least 50 years of age, must have five (5) complete years of service with the District, must retire from the District after the date of this Agreement while in good standing and upon ninety (90) days written notice and must remain in retired status. Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 When the Supervisory and Confidential retiree or his/her spouse reaches ages 65 and is eligible for Medicare, the coverage will convert to Medicare Supplement for the remainder of the benefit period. For purposes of this Agreement, retired status means that the Supervisory and Confidential Employee shall not work for compensation for more than nine hundred sixty (960) hours in any fiscal year (July 1 through June 30). The District may require a Supervisory and Confidential Employee to certify under penalty of perjury that the Supervisory and Confidential Employee has remained on retired status and/or submit to such additional verification, as the District deems necessary to demonstrate retired status. The retired Supervisory and Confidential Employee must make any contribution required of a regular Supervisory and Confidential Employee pursuant to paragraph XIV, XV and XVI prior to the first day of the month in which coverage is to be extended. Failure of a Supervisory and Confidential Employee to make such payment shall result in termination of coverage and termination of any right to any benefit pursuant to this section. Supervisory and Confidential Employees hired after the adoption of Resolution 11-21 (12-8-2011) shall be ineligible to receive this benefit. A Supervisory and Confidential Employee who retires (in accordance with the Public Employees' Retirement System qualifications) shall be paid at the rate of their final salary for 3/8 of their accumulated days of sick leave, if any, at the time of separation from active employment. The remaining 5/8 of his/her accumulated days of sick leave will be converted into CalPERS service credit. If the Supervisory and Confidential Employee should die, his/her estate shall be entitled to such payment. XVIII. Supervisory and Confidential Employees who are laid off from District employment after being employed by the District for five (5) or more complete years of continuous regular employment, shall be compensated for accumulated, unused sick leave above 400 hours as follows: YEARS PERCENT PAYABLE ABOVE 400 HOURS ON THE BOOKS 5 through 9 20% 10 through 15 25% 16 through 20 and above 30% Employees who are terminated from the District for cause, or who resign in lieu of termination, shall not be eligible for this benefit. XIX. To the extent possible, the District shall extend its current plan under Section 125 of the Internal Revenue Code to cover Supervisory and Confidential Employees. Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 XX. The District shall provide a long-term disability plan for Supervisory and Confidential Employees which has a 90-day elimination period and provides at least sixty percent (60%) of salary for a designated period of time in accordance with coverage procured by the District from a carrier to be determined at the District's sole discretion. XXI. Effective July 1, 2012, the District will match dollar for dollar not to exceed 2% salary earned per payroll period of a Supervisory and Confidential Employee’s salary or the employee’s actual amount of deferred compensation per payroll period, whichever amount is lesser. XXII. Supervisory and Confidential Employees shall continue to be assigned to a four (4) day workweek, consisting of ten (10) scheduled hours of work each day (a 4/10 schedule Monday through Thursday). The Board of Directors clearly and unequivocally has the right to terminate the 4/10 schedule at any time during the term of this employee compensation letter. In such case, the schedule shall revert to the 9/80 schedule as existed immediately prior to implementation of the 4/10 schedule. XXIII. In situations where a Supervisory and Confidential Employee has been injured in a non-duty accident and his/her disability leave exceeds one calendar month or the total of his/her accumulated leaves, including sick leave, paid time off and vacation, that portion of the leave exceeding 30 days or the total of accumulated leaves, whichever is more, shall constitute a break in service and his/her merit review dates and anniversary date will be adjusted accordingly. XXIV. The District will pay up to a total of $2,000 annually to establish and administer a tax-advantaged flexible benefit plan, and a total of $5,000 annually to establish a tax advantaged dependent care plan. Plans will conform to the requirements of Section 125 of the Internal Revenue Code, and permit Supervisory and Confidential Employees to convert their share of insurance premiums, un-reimbursed medical expenses, child care and other qualifying expenditures to pretax dollars. Savings to the District through reductions to the payroll and worker's compensation tax base will accrue to the District and offset the costs of establishing and administering this program. XXV. The District shall reimburse Supervisory and Confidential Employees for sums paid to the appropriate agencies for obtaining or renewing treatment and/or distribution certificates and other professional certifications, registrations and job related training. XXVI. Supervisory and Confidential Employees who are required to wear safety boots in the performance of their job, as determined by the General Manager, shall be eligible for District-purchased boots in an amount not to exceed $200.00, provided that the boots are from a list pre-approved by the General Manager or his/her designee. The difference between Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 $200.00 and the amount actually used may be carried over for one year and combined with a subsequent allocation for boot reimbursement. XXVII. The District shall provide educational reimbursement to Supervisory and Confidential Employees for costs of tuition, fees, books and parking relating to educational courses taken and completed at accredited institutions at a rate not to exceed standard resident fees as charged by the California State University. Course work must be job related as determined and approved in advance by the General Manager. Proof of payment and successful completion of the course must accompany the reimbursement request on a form provided by the District. Supervisory and Confidential Employee shall be responsible for any tax consequences as a result of education reimbursement. If for any reason, the employee separates from District employment prior to completion of one (1) calendar year from the date of distribution by the District of funds provided for herein, all such amounts distributed during that one (1) calendar year period, shall be considered a judgment due and owing to the District. The judgment amount shall be deducted from the employee’s closing check. Any remaining, non-reimbursed amount shall be paid to the District within ninety (90) calendar days of separation from District employment. Each employee receiving funds pursuant to this section shall sign a written agreement to comply with the terms of this section as a condition precedent to receipt of any such funds. XXVIII. Supervisory and Confidential Employees who have been employed by the District for more than one year may sell to the District up to forty (40) hours of accrued unused vacation time upon thirty (30) days prior notice, provided that the Supervisory and Confidential Employee takes a minimum of one-half the vacation time to which he/she is entitled within the same annual period of the sold vacation time. A member who has been employed by the District for more than one year may also buy from the District up to an additional forty (40) hours of vacation time within any calendar year for use during the same calendar year, provided that full and complete payment has been made for the purchased vacation time by salary modification prior to use of the vacation time. It is expressly understood that this benefit is provided at the sole discretion of the District and shall automatically terminate upon the expiration of this Supervisory and Confidential letter unless an extension is expressly agreed to by the District. XXIX. The Holiday schedule attached hereto as Exhibit F shall be in effect for full-time Supervisory and Confidential Employees covered by this Supervisory and Confidential letter. For purposes of holiday compensation, compensation shall be equal to the number of hours that the Supervisory and Confidential Employee normally would have worked other than for the holiday. For those Supervisory ad Confidential Employees whose scheduled work week is Monday through Thursday, a holiday falling on a Friday or Saturday shall not result in Thursday being a holiday, and a holiday falling Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 on a Sunday shall not result in Monday being a holiday. Instead observed holidays that fall on a Friday, Saturday or Sunday shall be recognized as floating holidays earned. The floating holidays earned as a result of the above situation shall be used within 12 months following the accrual of each floating holiday. In order to be eligible for Holiday pay, a Supervisory and Confidential Employee must be either at work or on paid leave of absence on the regularly scheduled workday immediately preceding the day observed as the holiday and the regularly scheduled workday immediately following the day observed as the holiday. XXX. The District shall reimburse Supervisory and Confidential Employees for sums paid to the appropriate state agencies for obtaining or renewing of production or distribution certificates. In addition, a one-time per fiscal year payment of $150.00 per certificate shall be provided to an affected employee who has qualified for and been issued a State of California Department of Health Services Treatment and/or Distribution Certificate, which has been determined in the sole discretion of the General Manager to be relevant to the employee’s duties and which is other than a certificate that is a job requirement. The $150.00 payment shall apply for any Distribution and/or Treatment Certificates issued by the State of California Department of Health Services that are required above and beyond the required certification for a specific classification within the District’s Operations Department and shall be issued during each year in which the applicable certificate(s) remains valid and remains other than a certificate which is a job requirement. The table below identifies the positions that require specific State of California Certifications. CLASSIFICATION REQ’D TREATMENT REQ’D DISTRIBUTION CHIEF PLANT OPERATOR T3 D5 SCADA ADMINISTRATOR T2 D3 SR. CONSTRUCTION INSPECTOR D2 WATER MAINTENANCE SUPERINTENDENT D5 WATER QUALITY ENGINEER D3 Supervisory and Confidential Compensation Letter FYs 2012/2015 Amended 8-23-2012 The term of this Compensation Letter for Supervisory and Confidential Employees is for the period of July 1, 2012 to June 30, 2015. ___________________________ ______________________ Date General Manager ITEM NO. 7.3 AGENDA REPORT Meeting Date: August 23, 2012 To:Board of Directors From:Steve Conklin, Acting General Manager Presented By:Stephen Parker, Finance Manager Dept:Finance Reviewed by Legal:Yes Prepared By:Stephen Parker, Finance Manager Subject:Authorizing Line of Credit STAFF RECOMMENDATION: That the Board of Directors adopt Resolution No. 12-18 Authorizing a Line of Credit in an Amount Up To $7,000,000 and Making Certain Other Findings in Connection Therewith, and Approving Execution and Delivery of Certain Documents in Connection Therewith, and Authorizing the General Manager to Carry Out Such Agreement. DISCUSSION: The Board first considered a Line of Credit at the April Budget Workshop. On September 10, the Board voted to use Kurt Yeager of Stradling Yocca Carlson & Rauth as bond counsel to pursue establishing a Line of Credit. Since that point, staff and bond counsel have worked with Wells Fargo's bond counsel to refine the language of the potential Line of Credit Note and Credit Agreement. At this point the language of the Note and Credit Agreement are substantially complete and agreed- upon. Staff is presenting the two documents in their current form and recommending the Board authorize the Acting General Manager to execute and deliver those documents to establish a Line of Credit. The Line of Credit needs to be established prior to the issuance of the Revenue Refunding Bonds, Series 2012A, as the Official Statement of the Revenue Refunding Bonds must include the terms of the Line of Credit. The main terms of the Credit Agreement and Note have not changed since this opportunity was first presented to the Board. The borrowing would be a revolving line of credit not to exceed $7,000,000 to be used for the District's capital improvement plan. Borrowings are due and payable 3 years after the line is established, and the maturity date can be extended by request of the District and agreement by the bank. The line will be assessed an interest rate equal to One-Month LIBOR + 0.0090% (1.138% as of August 15, 2012), with an annual unused committment fee of 0.0035% ($24,500 if no borrowing occurs). The Line of Credit would be subordinate to the 2008 COP's and the Revenue Refunding Bonds, Series 2012A. PRIOR RELEVANT BOARD ACTION(S): The full Board reviewed this opportunity at the April 11 Board Workshop and supported moving forward with a Line of Credit. ATTACHMENTS: Name:Description:Type: Resolution_No._12-18_Authorizing_Line_of_Credit.DOC Resolution No. 12-18 Backup Material Yorba_Linda_Note_8-13-12.doc Line of Credit Note Backup Material Yorba_Linda_Credit_Agreement_8-14-12.doc Credit Agreement Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 RK/GM 4-0-1 Roll Call (RC was absent.) Resolution No. 12-18 Authorizing Line of Credit 1 RESOLUTION NO. 12-18 RESOLUTION OF THE BOARD OF DIRECTORS OF THE YORBA LINDA WATER DISTRICT AUTHORIZING A LINE OF CREDIT IN AN AMOUNT UP TO $7,000,000 AND MAKING CERTAIN OTHER FINDINGS IN CONNECTION THEREWITH, AND APPROVING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION THEREWITH; AND AUTHORIZING THE GENERAL MANAGER TO CARRY OUT SUCH AGREEMENT WHEREAS, the Yorba Linda Water District (the “District”), a county water district duly organized and existing under and pursuant to Division 12 of the California Water Code (Section 30000 et seq.) (the “Act”), desires to finance the cost of constructing certain capital facilities shown on the District’s existing Capital Improvement Plan (as it may be amended from time to time by the Board of Directors of the District) eligible to be financed with Revenues, as defined below (the “2012 Project”); and WHEREAS, the Act, including but not limited to Section 31304 thereof, authorizes the District to issue promissory notes having a maturity of less than five years and in an amount less than 1% of the assessed valuation of property in the District to finance the 2012 Project; and WHEREAS, the District desires to establish a line of credit and to borrow monies from Wells Fargo Bank, National Association (the “Bank”) pursuant to the Act in an initial principal amount of up to seven million dollars ($7,000,000) pursuant to a line of credit agreement (the “Credit Agreement”) between the District and the Bank substantially in the form on file with the Secretary of the Board of Directors of the District (the “Board”); and WHEREAS, the Credit Agreement establishes the basic terms and conditions under which the Bank will make loans to the District from time to time, which loans will be secured by certain Revenues of the Water System of the District on a basis subordinate to certain existing obligations of the District, and other available moneys (but only to the extent set forth in the Credit Agreement); and WHEREAS, the Credit Agreement is in the best interest of the District, and the health, safety and welfare of its residents, and is of benefit to the District and complies with all requirements of the Act and California law related thereto, including with respect to the principal amount, term and interest rate thereof; Resolution No. 12-18 Authorizing Line of Credit 2 NOW THEREFORE, the Board of Directors of the Yorba Linda Water District hereby finds, determines, declares and resolves as follows: Section 1. The District hereby finds and determines that the recitals hereof are true and correct. The District hereby authorizes and directs the General Manager (including for this purpose any duly designated Interim General Manager or acting General Manager) and his authorized designees (together, the “General Manager”), acting individually, to execute and deliver a Credit Agreement substantially in the form on file with the Secretary of the Board, provided that (a) the principal amount available for drawing does not exceed $7,000,000, (b) the interest rate for said borrowing shall be variable or fixed and in no event to exceed the maximum rate permitted by law, and (c) the proceeds of drawings may be expended for any authorized portion of the 2012 Project. Section 2. The General Manager, acting individually, is hereby authorized to execute, and the District Secretary, or any authorized deputies, is hereby authorized to attest the Credit Agreement, including any related attachments and the associated Line of Credit Note, on behalf of the District, his/her execution and attestation thereof to constitute conclusive evidence of the District’s approval of the terms thereof in accordance with this Resolution. Copies of the Credit Agreement, when duly executed and attested, shall be placed on file in the office of the Secretary. Further, the General Manager is hereby authorized to implement the Credit Agreement and take all further actions and execute all documents and/or certifications referenced therein and/or necessary and appropriate to carry out the transactions represented by the Credit Agreement, as provided for therein. The General Manager is hereby authorized, to the extent necessary during the implementation of the Credit Agreement, to make technical or minor changes and interpretations thereto after execution, as necessary, to properly implement and carry out the Credit Agreement, provided any and all such changes shall not materially affect the rights and obligations of District or the maximum funding provided under the Credit Agreement. Section 3. In addition to the authorization of Sections 1 and 2 above, the General Manager is hereby authorized, on behalf of the District, to sign all other documents necessary or appropriate to carry out and implement the Credit Agreement and any implementing agreements or documents, and to administer the District’s obligations, responsibilities and duties to be performed under the Credit Agreement. Without limiting the foregoing, the District General Manager or Finance Manager may make periodic draws of available funds under the Credit Agreement at such time or times, in whole or in part, as in his judgment are reasonably necessary or appropriate to provide funds to pay on a timely basis enforceable obligations or programs of the District. Resolution No. 12-18 Authorizing Line of Credit 3 Section 4. The General Manager, the Finance Manager, the President, Vice President or Secretary of the Board or any other proper officer of the District, acting singly, be 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 transactions contemplated by the Credit Agreement and this Resolution. In the event that the President and Vice President of the Board are unavailable to sign any of the agreements described herein, any other member of the Board may sign such agreement. Section 5. Unless otherwise defined herein, all terms used herein and not otherwise defined shall have the meanings given such terms in the Credit Agreement unless the context otherwise clearly requires. Section 6. This Resolution shall take effect immediately. PASSED AND ADOPTED this 23rd day of August, 2012 by the following called vote: AYES: NOES: ABSENT: ABSTAIN: Phil Hawkins, President Yorba Linda Water District ATTEST: Yorba Linda Water District Reviewed as to form by General Counsel: Arthur G. Kidman, Esq. Kidman Law, LLP C-110B_CA.DOC: Revolving Line; Daily One Month LIBOR Rate/LIBOR (Rev. 06/06) -1- LINE OF CREDIT NOTE $7,000,000 Yorba Linda, California August __, 2012 FOR VALUE RECEIVED, the undersigned the YORBA LINDA WATER DISTRICT ("District") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at 707 Wilshire Blvd., 11th Floor, MAC E2818-114, Los Angeles, California 90017, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Seven Million Dollars ($7,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: Capitalized terms not otherwise defined herein shall have the meanings set forth in the Credit Agreement. As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close. (b) “Credit Agreement” means the Credit Agreement dated as of August __, 2012 between District and Bank, as amended from time to time. (c) "Daily One Month LIBOR" means, for any day, the rate of interest equal to LIBOR then in effect for delivery for a one (1) month period. (d) “Fiscal Year” has the meaning assigned to such term in the Credit Agreement. (e) "Fixed Rate Term" means a period commencing on a Business Day and continuing for one, three or six months, as designated by District, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than One Hundred Thousand Dollars ($100,000); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. (f) "LIBOR" means the rate per annum and determined pursuant to the following formula: LIBOR = Base LIBOR 100% - LIBOR Reserve Percentage C-110B_CA.DOC: Revolving Line; Daily One Month LIBOR Rate/LIBOR (Rev. 06/06) -2- (i) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. District understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (g) “LIBOR Interest Rate Margin” means .90% per annum. (h) “Maximum Rate” means the maximum interest rate permitted by the applicable laws of the State of California, which is currently 12%. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to 70.00% of the Daily One Month LIBOR Rate in effect from time to time plus the LIBOR Interest Rate Margin, or (ii) at a fixed rate per annum determined by Bank to be 70.00% of LIBOR in effect on the first day of the applicable Fixed Rate Term plus the LIBOR Interest Rate Margin; provided, that the interest payable by the District hereunder shall not exceed the Maximum Rate, as provided in Section 1.5 of the Credit Agreement. When interest is determined in relation to the Daily One Month LIBOR Rate, each change in the rate of interest hereunder shall become effective on the date each Daily One Month LIBOR Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by District at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Daily One Month LIBOR Rate or to LIBOR for a new Fixed Rate Term designated by District. At any time any portion of this Note bears interest determined in relation to the Daily One Month LIBOR Rate, District may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by District. At such time as C-110B_CA.DOC: Revolving Line; Daily One Month LIBOR Rate/LIBOR (Rev. 06/06) -3- District requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, District shall give Bank notice specifying: (i) the interest rate option selected by District; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, District provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at its sole option but without obligation to do so, accepts District's notice and quotes a fixed rate to District. If District does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from District shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, District shall be deemed to have made a Daily One Month LIBOR Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied. (c) Taxes and Regulatory Costs. District shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to District hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon District. (d) Payment of Interest. Interest accrued on this Note shall be payable quarterly on January 2, April 1, July 1 and October 1 of each year commencing July 1, 2012. (e) Default Interest. Upon the occurrence of any Event of Default hereunder or under the Credit Agreement, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. District may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Credit Agreement; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for District, which balance may be endorsed hereon from time to C-110B_CA.DOC: Revolving Line; Daily One Month LIBOR Rate/LIBOR (Rev. 06/06) -4- time by the holder. The outstanding principal balance of this Note shall be due and payable in full on August __, 2015; or such later date as may be approved by Bank in accordance with Section ___ of the Credit Agreement. (b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the written request of (i) _____________________ or ________________________, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of District, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of District regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by District. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Daily One Month LIBOR Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (a) Daily One Month LIBOR Rate. District may prepay principal on any portion of this Note which bears interest determined in relation to the Daily One Month LIBOR Rate on the last day of the Fixed Rate Period to which the amount to be prepaid relates, without penalty or at any time, in any amount, upon payment of the prepayment fee described in subsection (b) below. (b) LIBOR. District may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of One Hundred Thousand Dollars ($100,000); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to District, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, District shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining C-110B_CA.DOC: Revolving Line; Daily One Month LIBOR Rate/LIBOR (Rev. 06/06) -5- term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. (c) Mandatory Prepayment. District shall prepay the outstanding balance of this Note in full upon the issuance of any Contract or Bond (as such terms are defined in the Series 2008 Installment Purchase Agreement) secured by the Ad Valorem Tax Revenues or Net Revenues. Such prepayment shall be due on the last day of the Fixed Rate Term then in effect. (d) Prepayment Fee. District acknowledges that prepayment of such amount at any time other than the last day of the applicable Fixed Rate Term may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. District, therefore, agrees to pay the above-described prepayment fee, if any, and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If District fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at the Default Rate. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of the Credit Agreement. Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by District, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. District shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to District or any other person or entity. C-110B_CA.DOC: Revolving Line; Daily One Month LIBOR Rate/LIBOR (Rev. 06/06) -6- (b) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. YORBA LINDA WATER DISTRICT By: ___________________________ Title: __________________________ C-202_CA.DOC (Rev. 08/07) -1- CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement") is entered into as of August __, 2012 by and between the Yorba Linda WATER DISTRICT, a county water district organized and existing under the laws of the State of California ("District"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS District has requested that Bank extend or continue credit to District as described below, and Bank has agreed to provide such credit to District on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and District hereby agree as follows: ARTICLE I CREDIT TERMS SECTION 1.1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to District from time to time up to and including August __, 2015, not to exceed at any time the aggregate principal amount of Seven Million Dollars ($7,000,000) ("Line of Credit"), the proceeds of which shall be used for the District’s capital improvement plan. District's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note dated as of August __, 2012 ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) Limitation on Borrowings. Outstanding borrowings under the Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed an aggregate of Seven Million Dollars ($7,000,000). (c) Revolving Line of Credit. This is a revolving line of credit. District may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. (d) Maturity; Extension of Maturity. (i) The principal amount of the Line of Credit, together with accrued but unpaid interest and any other amount owing to Bank under this Agreement or the Note shall be due and payable on August __, 2015 as provided in the Note; provided that the maturity date of the Line C-202_CA.DOC (Rev. 08/07) -2- of Credit (as such maturity date may be extended from time to time (the “Maturity Date”) may be extended as provided in subsection (ii) below. (ii) At least 120 days but not more than 180 days prior to the Maturity Date then in effect, the District may request the Bank in writing to extend the Maturity Date for an additional period of one year or such other period as the parties may agree by execution and delivery of a Request for Extension to the Bank in the form attached hereto as Exhibit “A”. Upon delivery of such Request for Extension, the District shall be deemed to have represented and warranted on such date that the representations and warranties of the District contained in Article II of this Agreement are true and correct on and as of such date as though made on and as of such date, and that no default or Event of Default has occurred and is continuing or could result from such requested extension. If the District shall deliver such Request for Extension, the Bank shall within 60 days after receipt of such request, together with any other documents and information required by the Bank, notify the District in writing whether or not the Bank consents to such Request for Extension and, if the Bank does so consent, the conditions of such consent (including conditions relating to legal documentation and pricing). If the Bank shall not so notify the District as described above, the Bank shall be deemed not to have consented to such request. The covenants and obligations of the District contained in this Agreement shall continue in full force and effect upon any extension, renewal or amendment of this Agreement as provided in this Section 1.1(d), except insofar as the Bank and the District may agree. If as a result of the proposed extension of the Maturity Date, the term of the Line of Credit would extend beyond five years from the date hereof, as a condition to such extension (among any other conditions imposed by the Bank), the District shall deliver an authorizing resolution from its governing board approving the extension and an opinion of counsel to the District, and the Line of Credit, as extended, shall be deemed to be a new loan with a commencement date beginning on the date the Line of Credit is extended. (d) Prepayment. (i) Optional Prepayment. District may prepay the Line of Credit at any time; provided, that such prepayment occurs on the last day of a Fixed Rate Term (as defined in the Line of Credit Note). If prepayment is made on any day other than the last day of a Fixed Rate Term, or if the Line of Credit Note shall become due and payable at any time prior to the last day of any Fixed Rate Term by acceleration or otherwise, District shall pay to Bank the prepayment fee set described in the Line of Credit Note. (ii) Mandatory Prepayment. District shall prepay the Line of Credit in full upon the issuance of any Contract or Bond (as such terms are defined in the Series 2008 Installment Purchase Agreement) secured by the Ad Valorem Tax Revenues or Net Revenues. Such prepayment shall be due on the last day of the Fixed Rate Term then in effect. (iii) Prepayment Fee. District acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. District, therefore, agrees to pay the prepayment fee described in the Note and agrees that said amount represents a C-202_CA.DOC (Rev. 08/07) -3- reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If District fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at the Default Rate. SECTION 1.2. INTEREST/FEES. (a) Interest. The outstanding principal balance of the Line of Credit shall bear interest from the date such drawing is paid to the date such amount is fully repaid by District, at the rate of interest set forth in the Line of Credit Note. (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required hereby. (c) Unused Commitment Fee. District shall pay to Bank a fee equal to thirty-five hundredths of one percent (.35%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by District in arrears on the first day of each calendar quarter commencing on July 1, 2012. SECTION 1.3. METHOD OF PAYMENT. The District agrees to pay, in lawful currency of the United States and in immediately available funds all amounts due the Bank under this Agreement directly to the Bank by wire transfer as provided below until such time as the District is notified in writing by the Bank of a different account or address where payment should be made. Payment by wire shall be made to the following account: Bank: ABA #: Address: Account: SECTION 1.4. COLLATERAL. As security for all indebtedness and other obligations of District to Bank subject hereto and under the Line of Credit Note, District hereby pledges and grants a lien to Bank on all of the District’s Ad Valorem Tax Revenues and Net Revenues of the Water System, subordinate only to the District’s pledge of such revenues to secure its 2008 Installment Payments and principal and interest with respect to the 2012 Bonds and all amounts in the Revenue Fund, subject and subordinate solely to the pledge to secure the 2008 Installment Payments and the principal and interest with respect to the 2012 Bonds. The Ad Valorem Tax Revenues and Net Revenues of the Water System and all amounts in the Revenue Fund shall be subject to the lien of such pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the District. For purposes of this Agreement, the following terms shall have the following meanings: C-202_CA.DOC (Rev. 08/07) -4- “Ad Valorem Tax Revenues” means all amounts received on the District’s share of the 1% ad valorem property taxes levied on property within the District pursuant to the provisions of Article XIIIA of the California Constitution. “Bonds” means all revenue bonds or notes of the District authorized, executed, issued and delivered by the District, the payments of which are on a parity with the 2008 Installment Payments and which are secured by a pledge of and lien on the Revenues, including without limitation the 2012 Bonds. “Contracts” means the Series 2008 Installment Purchase Agreement and any other contract meeting the definition of “Contract” under the Series 2008 Installment Purchase Agreement. “Corporation” means the Yorba Linda Water District Public Financing Corporation, a California nonprofit public benefit corporation. “Fiscal Year” means the period beginning on July 1 of each year and ending on the last day of June of the following year, or any other twelve-month period selected and designated as the official Fiscal Year of the District. “Net Revenues” means, for any Fiscal Year, the Revenues for such Fiscal Year less the Operating and Maintenance Costs and less Non-Operating and Maintenance Costs for such Fiscal Year. “Non-Operating and Maintenance Costs” means certain other expenses of the District, including but not limited to the 1993 OCWD Obligation, not directly related to the operation and maintenance of the Water System. “Operating and Maintenance Costs” means (1) costs spent or incurred by District for maintenance and operation of the Water System, calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and including administrative costs of District that are charged directly or apportioned to the Water System, including but not limited to salaries and wages of employees, payments to the Public Employees Retirement System, overhead, insurance, taxes (if any), fee of auditors, accountants, attorneys or engineers, and insurance premiums, and including all other reasonable and necessary costs of District or charges (other than debt service payments) required to be paid by it to comply with the terms hereof or of any other obligation secured by the Net Revenues and (2) costs spent or incurred in the purchase of water for the Water System; but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature and all capital charges. C-202_CA.DOC (Rev. 08/07) -5- “Revenue Fund” means the fund by that name established under the Series 2008 Installment Purchase Agreement. “Revenues” means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including without limiting the generality of the foregoing: (1) the Ad Valorem Tax Revenues; (2) all income, rents, rates, fees, charges or other moneys derived by the District from the sale, furnishing and supplying of the water or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System, and certain administrative and maintenance costs related thereto, (3) the proceeds of any stand-by or water availability charges, development fees and connection charges collected by the District, (4) the earnings on and income derived from the investment of amounts described in clauses (1), (2) and (3) above and from District reserves, but excluding, (x) customers’ deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District, and (y) any proceeds of taxes or assessments restricted by law to be used by the District to pay bonds or other obligations. “2008 Installment Payments” means the installment payments of principal and interest scheduled to be paid by the District under and pursuant to the Series 2008 Installment Purchase Agreement. “Series 2008 Installment Purchase Agreement” means the Series 2008 Installment Purchase Agreement dated as of February 1, 2008 between District and the Corporation. “2012 Bonds” means the District’s Revenue Refunding Bonds, Series 2012A. June “Water System” means the whole and each and every part of the water system of the District, including all real property and buildings, including the portion thereof existing on the date hereof, and including all additions, betterments, extensions and improvements to such water system or any part thereof acquired or constructed, and excluding any water system acquired C-202_CA.DOC (Rev. 08/07) -6- through merger, consolidation or similar action, to the extent the exclusion of such acquired water system is required pursuant to the terms of such merger, consolidation or similar action. All of the foregoing shall be evidenced by and subject to the terms of such documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. District shall pay to Bank immediately upon demand the full amount of all charges, costs and expenses (to include fees paid to third parties and all allocated costs of Bank personnel), expended or incurred by Bank in connection with any of the foregoing security, including without limitation, filing fees and costs of searches. The Ad Valorem Tax Revenues shall not be used for any purpose other than payment of the 2008 Installment Payments, the principal and interest with respect to the 2012 Bonds and the payments required hereunder (which shall be subject and subordinate to the 2008 Installment Payments and principal and interest with respect to the 2012 Bonds), except as provided herein. In the event that the Ad Valorem Tax Revenues are not sufficient to pay the 2008 Installment Payments, the principal and interest with respect to the 2012 Bonds and the payments required hereunder when due, such amounts shall be paid from other Net Revenues. SECTION 1.5 PAYMENTS/MAXIMUM RATE. If any amount payable hereunder or under the Line of Credit Note shall fall due on a day that is not a Business Day, then such due date shall be extended to the next succeeding Business Day, and interest at the rates provided herein shall continue to accrue during such extension. Nothing contained in this Agreement shall be deemed to establish or require the payment of a rate of interest in excess of the maximum rate permitted by applicable law (the “Maximum Rate”); provided, that if the rate of interest on the amounts owed to the Bank hereunder (the “Effective Rate”) exceeds the maximum rate permitted by law, the difference in the amount of interest which could be collected by Bank by applying the Effective Rate (the “Accumulated Interest Amount”) shall be calculated and applied to a special account (the “Accumulated Interest Account”) to be kept in the records of the Bank. Whenever, in the future, the interest rate on the obligations hereunder is less than the Maximum Rate, the rate to be borne on the hereunder shall nevertheless be the Maximum Rate until Bank shall have earned, as the difference between the Maximum Rate and the Effective Rate, the amount credited to the Accumulated Interest Account; provided, that the amount in the Accumulated Interest Account shall become immediately due and payable in whole upon the termination of this Agreement. The calculations described in this subsection shall be performed by the Bank and given in writing to the District. SECTION 1.6 INCREASED COSTS DUE TO CHANGES TO LAWS. The District agrees that if because of any new law or regulation, Risk-Based Capital Guidelines, policy, guideline, interpretation, or directive, or because of any change in any existing law, regulation, Risk-Based Capital Guidelines, policy, guideline, interpretation, or directive or in the interpretation thereof by any official authority, if having the force of law or in any other respect obligatory upon the Bank), including specifically but without limitation all requests, rules, guidelines or directives in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act and all rules, guidelines or directives promulgated by the Bank of International Settlements, or the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority), regardless of the date enacted, adopted, issued, promulgated or implemented, which C-202_CA.DOC (Rev. 08/07) -7- comes into effect after the date of this Agreement, (a) the Bank should, with respect to this Agreement or any transactions hereunder or thereunder, be subject to any tax, charge, fee, deduction or withholding of any kind whatsoever, or (b) increased insurance premiums, reserve requirements, or changes in levels of reserves, deposits, insurance or capital (including any allocation of capital requirements or conditions), should be imposed on the Bank with respect to this Agreement or any transactions hereunder or thereunder, and if any of the above-mentioned measures, should result in (i) any increase in the cost to the Bank of any transaction under this Reimbursement Agreement, or (ii) any reduction in the amount of principal, interest or any fee receivable by the Bank in respect of this Reimbursement Agreement or of any transaction under this Reimbursement Agreement or (iii) any reduction in the yield or rate of return of the Bank with respect to the Line of Credit, to a level below that which the Bank could have achieved but for the adoption or modification of any such requirements, then the District agrees to pay to the Bank upon demand such increased cost or reduction in yield or rate of return. In determining any such amounts, the Bank will act reasonably and in good faith, using averaging and attribution methods which are reasonable, and will notify the District within a reasonable period after it becomes aware of any such change. “Risk-Based Capital Guidelines” means (i) the risk- based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. SECTION 1.7 COSTS, EXPENSES AND TAXES. The District agrees to pay on demand by Bank all costs, expenses and fees incurred or assessed by the Bank in connection with the preparation, execution and delivery of this Agreement and the Line of Credit Note (including, without limitation, any extensions thereof) and any other documents which may be delivered in connection with this Agreement and the Line of Credit, the granting of any extension of the Line of Credit, any waiver or amendment or the giving of any consent under, this Agreement, the Loan Documents and such instruments, including, without limitation, the reasonable fees and out-of- pocket expenses of counsel for the Bank (to include outside counsel fees and all allocated costs of the Bank's in-house counsel) with respect thereto and with respect to advising the Bank as to its rights and responsibilities under this Agreement, all reasonable costs and expenses, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank (to include outside counsel fees and all allocated costs of the Bank's in-house counsel), if any, in connection with the enforcement of this Agreement and such other documents which may be delivered in connection with this Agreement. In addition, the District shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, the Line of Credit (including any extensions thereof), the Related Documents and such other documents, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay by the District in paying or omission to pay such taxes and fees. The Bank agrees promptly to notify the District of any such taxes and fees which are incurred by the Bank. ARTICLE II REPRESENTATIONS AND WARRANTIES District makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and C-202_CA.DOC (Rev. 08/07) -8- effect until the full and final payment, and satisfaction and discharge, of all obligations of District to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. District is a county water district, duly organized and existing and in good standing under the laws of the State of California. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of District or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by District of each of the Loan Documents do not violate any provision of any law or regulation or result in any breach of or default under any contract, obligation, indenture or other instrument to which District is a party or by which District may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of District's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of District other than those disclosed by District to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The annual financial statement of District dated as of June 30, 20__, and all interim financial statements delivered to Bank since said date, true copies of which have been delivered by District to Bank prior to the date hereof, (a) are complete and correct and present fairly the financial condition of District, (b) disclose all liabilities of District that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance with generally accepted accounting principles consistently applied. Since the dates of such financial statements there has been no material adverse change in the financial condition of District, nor has District mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. NO SUBORDINATION. Except for the Series 2008 Installment Purchase Agreement and the 2012 Bonds, there is no agreement, indenture, contract or instrument to which District is a party or by which District may be bound that requires the subordination in right of payment of any of District's obligations subject to this Agreement to any other obligation of District. SECTION 2.7. PERMITS, FRANCHISES. District possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to own and operate the Water System. C-202_CA.DOC (Rev. 08/07) -9- SECTION 2.8. OTHER OBLIGATIONS. District is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation, including without limitation the Series 2008 Installment Purchase Agreement or the 2012 Bonds. SECTION 2.9. ENVIRONMENTAL MATTERS. Except as disclosed by District to Bank in writing prior to the date hereof, District is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of District's operations and/or properties relating to the Water System, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of District is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. District has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment relating to the Water System. SECTION 2.10. IMMUNITY FROM JURISDICTION. The District is not immune from jurisdiction in any federal court or court within the State of California or from legal process under the laws or in the courts of the United States of America or the State of California with respect to this Agreement or any of the Related Documents. SECTION 2.11 EXISTING OBLIGATIONS. As of the date hereof, the only other obligations of District secured by the Ad Valorem Tax Revenues and Net Revenues are the 2008 Installment Payments and the 2012 Bonds. ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and each promissory note or other instrument or document required hereby. C-202_CA.DOC (Rev. 08/07) -10- (ii) Tax Certificate. (iii) Opinion of Bond Counsel as to the tax-exempt status of the Line of Credit Note, and such other matters as Bank may require. (iv) Opinion of Counsel to the District as to the authorization, execution and delivery of this Agreement and the Line of Credit Note, and the enforceability of the same and such other matters as Bank may require. (v) Copies of resolutions adopted by District authorizing the execution and delivery of this Agreement and the Line of Credit Note. (vi) Closing Certificate of the District as to such matters as Bank may require. (vii) Copies of all documents relating to the 2008 Installment Payments and the 2012 Bonds. (viii) Such other documents as Bank may require under any other Section of this Agreement. (c) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of District, nor any material decline, as determined by Bank, in the Net Revenues. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by District hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Draws. Draws may be made by delivery of a request for such draw to be submitted to Bank at least five Business Days prior to the draw date. Each draw shall be in an amount not less than $100,000. (b) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (c) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS District covenants that so long as Bank remains committed to extend credit to District pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of District to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of District subject hereto, District shall, unless Bank otherwise consents in writing: C-202_CA.DOC (Rev. 08/07) -11- SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of District. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 240 days after and as of the end of each Fiscal Year, audited financial statements of District, prepared (with an unqualified opinion) by a firm of independent certified public accountants acceptable to the Bank; (b) not later than 60 days after and as of the end of each fiscal quarter, unaudited financial statements or such other financial reports as are ordinarily prepared by the District in the ordinary course of its operations, in each case in the form presented to the District's governing body usual and customary reports of District, prepared by District; (c) not later than 45 calendar days after the commencement of each Fiscal Year, commencing with the Fiscal Year commencing July 1, 2012, a copy of the adopted budget of the District, as approved by the District Council, for such Fiscal Year; (d) contemporaneously with each annual financial statement of District required hereby, a certificate of the Finance Manager of District that said financial statements are accurate and, with each annual and quarterly financial statement of District required hereby, a certificate of the Finance Manager that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default; (e) Simultaneously with the delivery of the annual financial statements, the District will deliver to the Bank a Certificate of the District stating the following: (1) Calculation of the coverage ratios described in Section 4.9(a) and a certification that adopted rates and charges comply with the requirements of that section; and (2) Notification of any Contract or subordinate debt incurred since the last reporting date and certification that there has been no default or noncompliance under any obligation secured by Revenues. (f) from time to time such other information as Bank may reasonably request. C-202_CA.DOC (Rev. 08/07) -12- SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which District is organized and/or which govern District's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to District and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force, for each business in which District is engaged, insurance of the types and in amounts customarily carried in similar lines of business, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to District's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as District may in good faith contest or as to which a bona fide dispute may arise, and (b) for which District has made provision, to Bank's satisfaction, for eventual payment thereof in the event District is obligated to make such payment. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against District with a claim in excess of $500,000. SECTION 4.9. RATE COVENANT (a) The District shall fix, prescribe and collect rates and charges for the Water Service which will be at least sufficient to yield during each Fiscal Year Net Revenues equal to one hundred ten percent (110%) of the Debt Service for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this section. For purposes of this Agreement, the following terms shall have the following meanings: C-202_CA.DOC (Rev. 08/07) -13- “Debt Service” means, for any period of calculation, the sum of: (1) the interest accruing during such period on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are prepaid or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized), (2) those portions of the principal amount of all outstanding serial Bonds maturing in such period, (3) those portions of the principal amount of all outstanding term Bonds required to be prepaid or paid in such period, and (4) those portions of the Installment Payments required to be made during such period, (except to the extent the interest evidenced and represented thereby is capitalized); but less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds established for Bonds or Contracts; provided that, as to any such Bonds or Installment Payments bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service shall, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Bonds or Contract plus 1%, and (ii) the highest variable rate borne over the preceding 3 months by outstanding variable rate debt issued by the District or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; provided further that if any series or issue of such Bonds or Installment Payments have twenty- five percent (25%) or more of the aggregate principal amount of such series or issue due in any one year, Debt Service shall be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Installment Payments were being paid from C-202_CA.DOC (Rev. 08/07) -14- the date of incurrence thereof in substantially equal annual amounts over a period of twenty-five (25) years from the date of calculation; and provided further that, as to any such Bonds or Installment Payments or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Installment Payments or portions thereof, such accreted discount shall be treated as interest in the calculation of Debt Service; and provided further that if the Bonds or Contracts constitute paired obligations, the interest rate on such Bonds or Contracts shall be the resulting linked rate or the effective fixed interest rate to be paid by the District with respect to such paired obligations; and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service shall be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted. “Installment Payments” means the Installment Payments of interest and principal scheduled to be paid by the District under and pursuant to the Contracts. “Senior Debt” means the 2008 Installment Payments, the 2012 Bonds any additional loan, bond, note, advance, installment sale agreement or other indebtedness or capital least of District payable from and secured by a lien on Net Revenues which is senior to the payments with respect to the Line of Credit and meets the requirements for issuance of additional Contracts or bonds as provided in the Series 2008 Installment Purchase Agreement. (b) The District will have in effect at all times by-laws, rules and regulations requiring each customer to pay the rates and charged applicable to the Water System to such land and providing for the billing thereof and for a due date and a delinquency date for each bill. In each case where such bill remains unpaid in whole or in part after it becomes delinquent, the District may discontinue such service for the Water System, and such service shall not thereafter be recommenced except in accordance with District by-laws, or rules, regulations and State Law governing such situations of delinquency. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of District; or (c) any termination or cancellation of any insurance policy which District is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting District's property in excess of an aggregate of $500,000. SECTION 4.11. BANKING RELATIONSHIP. Bank shall continue to be used as District’s primary provider for treasury management, including deposits and disbursement services.. C-202_CA.DOC (Rev. 08/07) -15- SECTION 4.12. OPERATION OF WATER SYSTEM. District will, during the term of this Agreement and so long as any portion of the Line of Credit is unpaid, maintain and operate the Water System in good condition, repair and working order, and will operate the Water System in an efficient and economical manner, and will pay all Operating and Maintenance Costs s they become due and payable. The District shall ensure that all activities undertaken by the District with respect to the operation of the Water System are undertaken and accomplished in conformity with all applicable requirements of law. ARTICLE V NEGATIVE COVENANTS District further covenants that so long as Bank remains committed to extend credit to District pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of District to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of District subject hereto, District will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, secured or payable from Net Revenues, except (a) the liabilities of District to Bank, (b) the existing Senior Debt and obligations meeting the requirements for issuance of additional Contracts or Bonds under the Series 2008 Installment Purchase Agreement; provided, that the proceeds of such additional obligations are used to prepay the Line of Credit in full. SECTION 5.3. TRANSFER OF ASSETS. Make any substantial change in the nature of District's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of District's Water System assets except in the ordinary course of its business. Nothing herein shall restrict the ability of the District to sell any portion of the Water System if such portion is immediately repurchased by the District and if such arrangement cannot by its terms result in the purchaser of such portion of the Water System exercising any remedy which would deprive the District of or otherwise interfere with its right to own and operate such portion of the Water System. SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or C-202_CA.DOC (Rev. 08/07) -16- hypothecate any assets of District as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of District's Ad Valorem Tax Revenues or other Revenues now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof or to secure additional indebtedness as provided in Section 5.2 above. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) District shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by District or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of ten (10) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which District has incurred any debt or other liability to any person or entity, including Bank. (e) The filing of a notice of judgment lien against District; or the recording of any abstract of judgment against District in any county in which District has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of District; or the entry of a judgment against District. (f) District shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; District shall file a voluntary petition in bankruptcy, or seeking C-202_CA.DOC (Rev. 08/07) -17- reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against District, or District shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or District shall be adjudicated a bankrupt, or an order for relief shall be entered against District by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) District fails to meet the requirements of Section 4.9(a) and within 180 days District after such failure has not either (i) paid down debt sufficient to meet such requirements or (ii) provided additional collateral acceptable to Bank or (iii) provided sufficient evidence to Bank that a rate increase has been approved and implemented, which will produce revenues sufficient to meet the requirements of Section 4.9(a). (h) Subject to the provisions of Section 5.3, the sale, transfer, hypothecation, assignment or encumbrance, whether voluntary, involuntary or by operation of law, without Bank's prior written consent, of all or any part of or interest in the Water System or any other collateral required hereby. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of District under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by District; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. C-202_CA.DOC (Rev. 08/07) -18- SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: DISTRICT: Yorba Linda Water District P.O. Box 309 Yorba Linda, California 92885-0309 Attn: __________________ BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION Government & Institutional Banking 707 Wilshire Blvd., 11th Floor MAC E2818-114 Los Angeles, California 90017 Attn: Lynn Love, Vice President or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. District shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to District or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that District may not assign or transfer its interests or rights hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, District or its business, or any collateral required hereunder. C-202_CA.DOC (Rev. 08/07) -19- SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between District and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. SECTION 7.11. ARBITRATION. (a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents, and their negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. (b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional C-202_CA.DOC (Rev. 08/07) -20- procedures for large, complex commercial disputes to be referred to herein, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law. (c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph. (d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (e) Discovery. In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is C-202_CA.DOC (Rev. 08/07) -21- essential for the party's presentation and that no alternative means for obtaining information is available. (f) Class Proceedings and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity. (g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding. (h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. (j) Small Claims Court. Notwithstanding anything herein to the contrary, each party retains the right to pursue in Small Claims Court any dispute within that court’s jurisdiction. Further, this arbitration provision shall apply only to disputes in which either party seeks to recover an amount of money (excluding attorneys’ fees and costs) that exceeds the jurisdictional limit of the Small Claims Court. C-202_CA.DOC (Rev. 08/07) -22- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. YORBA LINDA WATER DISTRICT WELLS FARGO BANK, NATIONAL ASSOCIATION By: _________________________ By: _______________________ Title: ________________________ Title: ______________________ C-202_CA.DOC (Rev. 08/07) -23- EXHIBIT “A” FORM OF REQUEST FOR EXTENSION Re: Credit Agreement dated as of August __, 2012 between the Yorba Linda Water District and Wells Fargo Bank, N.A. The undersigned, as _________________ of the Yorba Linda Water District (the "District"), is authorized under the Credit Agreement dated as of August __, 2012 (the "Credit Agreement," to which reference is made for the definition of capitalized terms not otherwise defined herein) between the District and Wells Fargo Bank, National Association (the “Bank”) hereby certifies as follows: (1) Pursuant to Section 1.1(d) of the Credit Agreement, the District hereby requests an extension of the Maturity Date to ______________. (2) The representations and warranties of the District contained in Article II of the Credit Agreement are true and correct on and as of the date hereof as though made on and as of the date hereof. (3) No default or Event of Default has occurred and is continuing or could result from the requested extension of the Maturity Date. 1N WITNESS WHEREOF, the undersigned has executed and delivered this Request for Extension the__ day of ___________, 20__. YORBA LINDA WATER DISTRICT By: _________________________ Name: _______________________ Title: ________________________ ITEM NO. 7.4 AGENDA REPORT Meeting Date: August 23, 2012 To:Board of Directors From:Steve Conklin, Acting General Manager Presented By:Stephen Parker, Finance Manager Dept:Finance Reviewed by Legal:Yes Prepared By:Stephen Parker, Finance Manager Subject:Revenue Refunding Bonds, Series 2012A SUMMARY: In 2003, the District sold $10,645,000 in Certificates of Participation (“2003 Certificates”) to finance the capital improvements to the Water System of the District. These capital improvements specifically consisted of the construction of the now-completed Administration Building and the new Highland Reservoir. Based on preliminary financial assessments in April 2012, the 2003 Certificates present a potential refunding opportunity. On April 12, 2012, the Board of Directors approved moving forward with advance refunding the 2003 Certificates. STAFF RECOMMENDATION: That the Board of Directors adopt Resolution No. 12-19 Authorizing the Issuance of Not to Exceed $10,000,000 Refunding Revenue Bonds, Series 2012A, and Approving the Execution and Delivery of Certain Documents in Connection Therewith and Certain Other Matters. DISCUSSION: The current interest rate environment has improved since April 12, 2012 when the Board of Directors approved moving forward with the advance refunding of the 2003 Bonds. Furthermore, the District applied for credit ratings from Standard & Poor's and Fitch Ratings for the Bonds and these credit ratings are expected to be released prior to the August 23, 2012 Board Meeting. The 2012 Bonds will be refunding revenue bonds issued by the District and the 2012 Bonds will be issued as fixed rate bonds with the same final maturity of October 1, 2033. The 2012 Bonds will be payable from and secured by Net Revenues of the Water System (Gross Revenues of the Water System less Operating Expenses and Non-Operating Expenses of the Water System). The 2012 Bonds will be sold through a negotiated sale with Citigroup Global Markets, Inc. (“Underwriter”). Fieldman, Rolapp & Associates, the District's financial advisor, will evaluate market conditions and terms of the sale to ensure competitive pricing is attained. There is a resolution to be adopted authorizing the issuance of the 2012 Bonds and approving the execution and delivery of certain documents and certain other matters: 1.Approve Indenture of Trust between the District and U.S. Bank National Association, as trustee. 2.Approve Escrow Agreement between the District and U.S. Bank National Association, as escrow bank. 3.Approve Purchase Contract between the District and the Underwriter and authorizing the President of the Board and Acting General Manager to execute and deliver the Purchase Contract. 4.Approve Continuing Disclosure Certificate. 5.Approve preparation and distribution of Preliminary Official Statement 6.Authorize Acting General Manager, Finance Manager, President, Vice President or Secretary of the Board to take action with any matter with respect to the refunding of the 2003 Certificates. There are numerous documents associated with a bond refunding and the following is a summary explaining each document: 1.Indenture of Trust – An agreement between the District and the Trustee disclosing the rules and the responsibilities of the District and the Trustee to which each party must adhere. 2.Escrow Agreement – In a refunding, the proceeds from the 2012 Bonds are used to purchase government securities for deposit in an escrow account. The escrow account is held by a trustee bank which will serve as the escrow bank. Under the terms of the Escrow Agreement, the government securities are irrevocably pledged to the payment of the outstanding 2003 Certificates to be refunded. The government securities are in principal amount such that the principal and interest are sufficient to retire the principal of and interest on the outstanding 2003 Certificates as they come due. The first redemption date is October 1, 2013. 3.Purchase Contract – A contract between the District and the Underwriter in a negotiated sale that sets the terms of the sale, sale price and interest rates on the 2012 Bonds. 4.Continuing Disclosure Certificate – A certification of the District which the District agrees to provide bondholders annually the District's financial statements and certain updated information from the Official Statement and upon the occurrence of a significant event, provide notice regarding such event. 5.Preliminary Official Statement – A document that discloses material information on the bond issue, the District and the District's finances. A final Official Statement will be prepared after pricing of the 2012 Bonds. PRIOR RELEVANT BOARD ACTION(S): On April 12, 2012, the Board of Directors approved moving forward with advance refunding the 2003 Certificates. ATTACHMENTS: Name:Description:Type: Resolution_No._12-19_Authorizing_Issuance_of_Revenue_Refunding_Bonds_2012A_ (2003_Refunding).doc Resolution No. 12-19 Backup Material DOCSOC_1557331v4_-_Indenture_Yorba_Linda_WD_2012A_(2003_Refunding).DOC Indenture of Trust Backup Material DOCSOC_1557557v3_-_Escrow_Agreement_(2003)_Yorba_Linda_WD_2012A.DOC Escrow Agreement Backup Material Purchase_Contract_Yorba_Linda_Water_District_Refunding_Revenue_Bonds_2012A_DMWEST_9190531 (1).DOC Purchase Contract Backup Material DOCSOC_1557602v2_-_Continuing_Disclosure_Certificate_Yorba_Linda_WD_2012A.DOC Continuing Disclosure Certificate Backup Material DOCSOC_1557047v5_-_Official_Statement_Yorba_Linda_WD_2012_Refunding.DOC Preliminary Official Statement Backup Material Approved by the Board of Directors of the Yorba Linda Water District 8/23/2012 MB/RK 4-0-1 Roll Call (RC was absent.) Resolution No. 12-19 Authorizing the Issuance of Revenue Refunding Bonds 1 RESOLUTION NO. 12-19 RESOLUTION OF THE BOARD OF DIRECTORS OF THE YORBA LINDA WATER DISTRICT AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $10,000,000 REFUNDING REVENUE BONDS, SERIES 2012A, AND APPROVING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION THEREWITH AND CERTAIN OTHER MATTERS WHEREAS, the Yorba Linda Water District (the “District”), a county water district duly organized and existing under and pursuant to Division 12 of the California Water Code (Section 30000 et seq.), desires to refinance the cost of constructing certain facilities within the District (the “2003 Project”); and WHEREAS, Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, including but not limited to Section 53583, authorizes the District to issue refunding revenue bonds to refinance the 2003 Project; and WHEREAS, to facilitate the issuance of its Refunding Revenue Bonds, Series 2012A (the “Bonds”), the District and U.S. Bank National Association, as trustee, will enter into an Indenture of Trust (the “Indenture”) substantially in the form on file with the Secretary of the Board of Directors of the District (the “Board”); WHEREAS, to effect the refinancing of the 2003 Project, the District and U.S. Bank National Association, as escrow agent, will enter into an Escrow Agreement (Series 2003) (the “Escrow Agreement”) substantially in the form on file with the Secretary of the Board; and WHEREAS, to effect the sale of the Bonds, the District and Citigroup Global Markets Inc. (the “Underwriter”) will enter into a bond purchase contract (the “Purchase Contract”) substantially in the form on file with the Secretary of the Board; and WHEREAS, the District will enter into a Continuing Disclosure Certificate substantially in the form on file with the Secretary of the Board; and WHEREAS, to facilitate the marketing of the Bonds, the District will authorize the Underwriter to disseminate a Preliminary Official Statement for the Bonds (the “Preliminary Official Statement”) substantially in the form on file with the Secretary of the Board; Resolution No. 12-19 Authorizing the Issuance of Revenue Refunding Bonds 2 NOW, THEREFORE, the Board of Directors of the Yorba Linda Water District hereby finds, determines, declares and resolves as follows: Section 1. The Indenture is hereby approved substantially in the form on file with the Secretary of the Board. The President of the Board or the General Manager or the designee thereof each is hereby authorized and directed to execute and deliver such Indenture with such changes, insertions and omissions as may be approved by the officer executing the same, said execution being conclusive evidence of such approval. Section 2. The Escrow Agreement is hereby approved substantially in the form on file with the Secretary of the Board. The President of the Board or the General Manager or the designee thereof each is hereby authorized and directed to execute and deliver such Escrow Agreement with such changes, insertions and omissions as may be approved by the officer executing the same, said execution being conclusive evidence of such approval. Section 3. The Purchase Contract is hereby approved substantially in the form on file with the Secretary of the Board. The President of the Board, the General Manager, the Finance Manager or the designee thereof each is hereby authorized and directed to execute and deliver such Purchase Contract with such changes, insertions and omissions as may be recommended by General Counsel or the law firm of Stradling Yocca Carlson & Rauth, a Professional Corporation (“Bond Counsel”) and approved by the officer executing the same, said execution being conclusive evidence of such approval; provided, however, that in no event shall the aggregate principal amount of the Bonds exceed $10,000,000, nor shall the underwriting discount exceed 0.50% of the aggregate principal amount of the Bonds, nor shall the all-in true interest cost of the Bonds exceed 4.75% per annum. Section 4. The Continuing Disclosure Certificate is hereby approved substantially in the form on file with the Secretary of the Board. The President of the Board or the General Manager or the designee thereof each is hereby authorized and directed to execute and deliver such Continuing Disclosure Certificate with such changes, insertions and omissions as may be approved by the officer executing the same, said execution being conclusive evidence of such approval. Section 5. The preparation and distribution of the Preliminary Official Statement in substantially the form on file with the Secretary of the Board is hereby approved. The President of the Board, the General Manager, the Finance Manager or the designee thereof each is hereby authorized to sign a certificate pursuant to Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 relating to the Preliminary Official Statement, and the President of the Board or the General Manager or the designee Resolution No. 12-19 Authorizing the Issuance of Revenue Refunding Bonds 3 thereof each is hereby authorized and directed to execute, approve and deliver the final Official Statement substantially in the form of the Preliminary Official Statement with such changes, insertions and omissions as the officer or officers executing said document may require or approve, subject to advice from General Counsel or Bond Counsel, such approval to be conclusively evidenced by the execution and delivery thereof. The Underwriter is directed to deliver copies of the final Official Statement to all actual initial purchasers of the Bonds. Section 6. The proceeds of the Bonds shall be deposited as provided in the Indenture and the Escrow Agreement to refinance the 2003 Project. Section 7. U.S. Bank National Association is hereby appointed to act as trustee under the Indenture. Section 8. The Board hereby authorizes the General Manager or his designee: (i) to solicit bids on a municipal bond insurance policy and/or surety for reserve; (ii) to negotiate the terms of such policy or policies; (iii) to finalize, if appropriate, the form of such policy or policies with a municipal bond insurer; and (iv) if it is determined that the policy or policies will result in net savings for the District, to pay the insurance premium of such policy or policies from the proceeds of the issuance and sale of the Bonds. Section 9. The General Manager, the Finance Manager, the President, Vice President or Secretary of the Board or any other proper officer of the District, acting singly, be 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 transactions contemplated by the Indenture, the Escrow Agreement, the Purchase Contract, the Continuing Disclosure Certificate, bond insurance and reserve surety bonds authorized hereunder and this resolution, including any reimbursement agreement or other agreement relative to selected bond insurance or reserve surety bonds. In the event that the President and Vice President of the Board are unavailable to sign any of the agreements described herein, any other member of the Board may sign such agreement. Section 10. Unless otherwise defined herein, all terms used herein and not otherwise defined shall have the meanings given such terms in the Indenture unless the context otherwise clearly requires. Resolution No. 12-19 Authorizing the Issuance of Revenue Refunding Bonds 4 Section 11. This resolution shall take effect immediately. PASSED AND ADOPTED this 23rd day of August, 2012 by the following called vote: AYES: NOES: ABSENT: ABSTAIN: Phil Hawkins, President Yorba Linda Water District ATTEST: Yorba Linda Water District Reviewed as to form by General Counsel: Arthur G. Kidman, Esq. Kidman Law, LLP Stradling Yocca Carlson & Rauth Draft of 8/15/12 DOCSOC/1557331v4/022608-0009 INDENTURE OF TRUST Dated as of August 1, 2012 By and between U.S. BANK NATIONAL ASSOCIATION, as Trustee and the YORBA LINDA WATER DISTRICT Relating to $_________ YORBA LINDA WATER DISTRICT REFUNDING REVENUE BONDS, SERIES 2012A TABLE OF CONTENTS Page i DOCSOC/1557331v4/022608-0009 ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions .............................................................................................................. 3 Section 1.02. Content of Certificates and Opinions.................................................................... 13 Section 1.03. Interpretation......................................................................................................... 14 ARTICLE II THE 2012A BONDS Section 2.01. Authorization of 2012A Bonds ............................................................................. 14 Section 2.02. Terms of the 2012A Bonds ................................................................................... 15 Section 2.03. Transfer of 2012A Bonds ..................................................................................... 16 Section 2.04. Exchange of 2012A Bonds ................................................................................... 16 Section 2.05. Registration Books ................................................................................................ 16 Section 2.06. Form and Execution of 2012A Bonds .................................................................. 16 Section 2.07. 2012A Bonds Mutilated, Lost, Destroyed or Stolen ............................................. 17 Section 2.08. Book Entry System. .............................................................................................. 17 ARTICLE III ISSUANCE OF 2012A BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the 2012A Bonds ............................................................................... 20 Section 3.02. Application of Proceeds of the 2012A Bonds and Certain Other Moneys ........... 20 Section 3.03. Establishment and Application of Costs of Issuance Fund ................................... 20 Section 3.04. Validity of 2012A Bonds ...................................................................................... 21 ARTICLE IV REDEMPTION OF 2012A BONDS Section 4.01. Terms of Redemption. .......................................................................................... 21 Section 4.02. Selection of 2012A Bonds for Redemption .......................................................... 21 Section 4.03. Notice of Redemption ........................................................................................... 22 Section 4.04. Partial Redemption of 2012A Bonds .................................................................... 22 Section 4.05. Effect of Redemption ............................................................................................ 22 ARTICLE V REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; Revenue Fund. .............................................................. 23 Section 5.02. Allocation of Revenues ......................................................................................... 24 Section 5.03. Application of Interest Account ............................................................................ 25 Section 5.04. Application of Principal Account ......................................................................... 25 TABLE OF CONTENTS (continued) Page ii DOCSOC/1557331v4/022608-0009 Section 5.05. Application of Redemption Fund ......................................................................... 25 Section 5.06. Investments ........................................................................................................... 25 Section 5.07. Rebate Fund. ......................................................................................................... 26 Section 5.08. Application of Funds and Accounts When No 2012A Bonds are Outstanding .... 28 ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment ................................................................................................. 28 Section 6.02. Extension of Payment of 2012A Bonds ................................................................ 28 Section 6.03. Against Encumbrances ......................................................................................... 28 Section 6.04. Power to Issue 2012A Bonds and Make Pledge and Assignment ........................ 28 Section 6.05. Accounting Records and Financial Statements. ................................................... 29 Section 6.06. Tax Covenants ...................................................................................................... 29 Section 6.07. Waiver of Laws ..................................................................................................... 30 Section 6.08. Further Assurances ............................................................................................... 30 Section 6.09. Budgets ................................................................................................................. 30 Section 6.10. Observance of Laws and Regulations ................................................................... 30 Section 6.11. Compliance with Contracts ................................................................................... 31 Section 6.12. Prosecution and Defense of Suits ......................................................................... 31 Section 6.13. Continuing Disclosure .......................................................................................... 31 Section 6.14. Additional Contracts and Bonds ........................................................................... 31 Section 6.15. Against Sale or Other Disposition of Property ..................................................... 32 Section 6.16. Against Competitive Facilities ............................................................................. 33 Section 6.17. Maintenance and Operation of the Water System ................................................ 33 Section 6.18. Payment of Claims ................................................................................................ 33 Section 6.19. Insurance. .............................................................................................................. 33 Section 6.20. Payment of Taxes and Compliance with Governmental Regulations .................. 34 Section 6.21. Amount of Rates and Charges .............................................................................. 34 Section 6.22. Collection of Rates and Charges ........................................................................... 34 Section 6.23. Eminent Domain Proceeds ................................................................................... 34 Section 6.24. Enforcement of Contracts ..................................................................................... 35 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF 2012A BOND OWNERS Section 7.01. Events of Default .................................................................................................. 35 Section 7.02. Remedies Upon Event of Default ......................................................................... 36 Section 7.03. Application of Revenues and Other Funds After Default ..................................... 37 Section 7.04. Trustee to Represent 2012A Bond Owners .......................................................... 37 Section 7.05. 2012A Bond Owners’ Direction of Proceedings .................................................. 38 Section 7.06. Suit by Owners ..................................................................................................... 38 Section 7.07. Absolute Obligation of the District ....................................................................... 39 Section 7.08. Remedies Not Exclusive ....................................................................................... 39 Section 7.09. No Waiver of Default ........................................................................................... 39 TABLE OF CONTENTS (continued) Page iii DOCSOC/1557331v4/022608-0009 ARTICLE VIII THE TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Trustee. ..................................................... 39 Section 8.02. Merger or Consolidation ....................................................................................... 41 Section 8.03. Liability of Trustee. .............................................................................................. 41 Section 8.04. Right to Rely on Documents ................................................................................. 43 Section 8.05. Preservation and Inspection of Documents .......................................................... 43 Section 8.06. Compensation and Indemnification ...................................................................... 43 ARTICLE IX MODIFICATION OR AMENDMENT OF THE INDENTURE Section 9.01. Amendments Permitted. ....................................................................................... 44 Section 9.02. Effect of Supplemental Indenture ......................................................................... 45 Section 9.03. Endorsement of 2012A Bonds; Preparation of New 2012A Bonds ..................... 45 Section 9.04. Amendment of Particular 2012A Bonds ............................................................... 46 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture ......................................................................................... 46 Section 10.02. Discharge of Liability on 2012A Bonds ............................................................... 46 Section 10.03. Deposit of Money or Securities with Trustee ....................................................... 47 Section 10.04. Payment of 2012A Bonds After Discharge of Indenture ...................................... 47 ARTICLE XI MISCELLANEOUS Section 11.01. Liability of District Limited to Revenues ............................................................. 48 Section 11.02. Successor Is Deemed Included in All References to Predecessor ........................ 48 Section 11.03. Limitation of Rights to Parties and 2012A Bond Owners .................................... 48 Section 11.04. Waiver of Notice; Requirement of Mailed Notice ................................................ 48 Section 11.05. Destruction of 2012A Bonds ................................................................................ 48 Section 11.06. Severability of Invalid Provisions ........................................................................ 48 Section 11.07. Notices .................................................................................................................. 49 Section 11.08. Evidence of Rights of 2012A Bond Owners ........................................................ 49 Section 11.09. Disqualified 2012A Bonds ................................................................................... 49 Section 11.10. Money Held for Particular 2012A Bonds ............................................................. 50 Section 11.11. Funds and Accounts .............................................................................................. 50 Section 11.12. Waiver of Personal Liability ................................................................................. 50 Section 11.13. Execution in Several Counterparts ....................................................................... 50 Section 11.14. CUSIP Numbers ................................................................................................... 50 Section 11.15. Choice of Law....................................................................................................... 50 TABLE OF CONTENTS (continued) Page iv DOCSOC/1557331v4/022608-0009 Signatures ............................................................................................................................ S-1 Exhibit A Form of 2012A Bond .......................................................................................... A-1 1 DOCSOC/1557331v4/022608-0009 INDENTURE OF TRUST THIS INDENTURE OF TRUST, made and entered into and dated as of August 1, 2012 (the “Indenture”), by and between YORBA LINDA WATER DISTRICT, a county water district duly organized and existing under and by virtue of the laws of the State of California (the “District”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America, as trustee hereunder (the “Trustee”); W I T N E S S E T H: WHEREAS, the District has determined that it is in the best interest of the public to refund the outstanding Yorba Linda Water District Revenue Certificates of Participation (Highland Reservoir Renovation and Richfield Plant – Phase 3 Renovation Project) Series 2003 (the “2003 Certificates”); and WHEREAS, the District is authorized by Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, including but not limited to Section 53583, to issue bonds for the purpose of refunding any evidences of indebtedness of the District; and WHEREAS, in order to provide for the authentication and delivery of refunding revenue bonds (the “2012A Bonds”), to establish and declare the terms and conditions upon which such 2012A Bonds are to be issued and secured and to secure the payment of the principal thereof and interest and premium, if any, thereon, the District has authorized the execution and delivery of the Indenture; and WHEREAS, the District has determined that all acts and proceedings required by law necessary to make the 2012A Bonds, when executed by the District, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the District, and to constitute the Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture have been in all respects duly authorized; NOW, THEREFORE, THE INDENTURE WITNESSETH: GRANTING CLAUSES The District, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the mutual covenants herein contained and of the purchase and acceptance of the 2012A Bonds by the owners thereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, in order to secure the payment of the principal of and the interest and premium (if any) on all 2012A Bonds at any time issued and Outstanding under the Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, does hereby assign and pledge unto, and grant a security interest in, the following (the “Trust Estate”) to the Trustee, and its successors in trust and assigns forever, for the securing of the performance of the obligations of the District to the 2012A Bond Owners hereinafter set forth: 2 DOCSOC/1557331v4/022608-0009 GRANTING CLAUSE FIRST All right, title and interest of the District in and to the Revenues (as defined herein), including, but without limiting the generality of the foregoing, the present and continuing right to make claim for, collect, receive and receipt for any Revenues payable to or receivable by the District under the Constitution of the State, the Government Code of the State of California and the Indenture and any other applicable laws of the State or otherwise, to bring actions and proceedings thereunder for the enforcement thereof, and to do any and all things which the District is or may become entitled to do thereunder, subject to the terms hereof. GRANTING CLAUSE SECOND All moneys and securities held in funds and accounts of the Indenture, except amounts held in the Rebate Fund, and all other rights of every name and nature from time to time herein or hereafter by delivery or by writing of any kind pledged, assigned or transferred as and for additional security hereunder to the Trustee by the District or by anyone on its behalf, or with its written consent, and to hold and apply the same, subject to the terms hereof. TO HAVE AND TO HOLD all and singular the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in trust and assigns forever for the benefit of the Owners and such pledge shall constitute a lien on and security interest in such Trust Estate; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future owners of the 2012A Bonds issued under and secured by the Indenture without privilege, priority or distinction as to the lien or otherwise of any of the 2012A Bonds over any of the other 2012A Bonds; PROVIDED, HOWEVER, that if the District, its successors or assigns shall well and truly pay, or cause to be paid, the principal of and interest and any redemption premium on the 2012A Bonds due or to become due thereon, at the times and in the manner provided in the 2012A Bonds according to the true intent and meaning thereof, and shall well and truly keep, perform and observe all the covenants and conditions pursuant to the terms of the Indenture to be kept, performed and observed by it, and shall pay or cause to be paid to Trustee all sums of money due or to become due in accordance with the terms and provisions hereof, then upon such final payments or deposits as herein provided, the Indenture and the rights hereby granted shall cease, terminate and be void; otherwise the Indenture shall remain in full force and effect. THE INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all 2012A Bonds issued and secured hereunder are to be issued, authenticated and delivered, and all sold property, rights and interests, including, without limitation, the Revenues, hereby assigned and pledged, are to be dealt with and disposed of, under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes hereinafter expressed, and the District has agreed and covenanted and does hereby covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the 2012A Bonds, as follows: 3 DOCSOC/1557331v4/022608-0009 ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.01 shall, for all purposes of the Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. Accountant’s Report. The term “Accountant’s Report” means a report signed by an Independent Certified Public Accountant. Ad Valorem Tax Revenues. The term “Ad Valorem Tax Revenues” means all amounts received on the District’s share of the 1% ad valorem property tax levied on property within the District pursuant to the provisions of Article XIIIA of the State Constitution. Authorized Representative. The term “Authorized Representative” means, with respect to the District, its President, Vice President, Secretary, General Manager, Finance Manager or any other person designated as an Authorized Representative of the District by a Certificate of the District signed by its President, Vice President, Secretary, General Manager or Finance Manager and filed with the Trustee. Bond Counsel. The term “Bond Counsel” means Stradling Yocca Carlson & Rauth, a Professional Corporation, or another firm of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code. Bonds. The term “Bonds” means all revenue bonds or notes of the District authorized, executed, issued and delivered by the District, the payments of which are payable from Net Revenues on a parity with the 2012A Bonds and which are secured by a pledge of and lien on Revenues as described in Section 5.01 hereof. Bond Year. The term “Bond Year” has the meaning given to such term in the Tax Certificate. Business Day. The term “Business Day” means: (i) a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed; or (ii) a day on which the New York Stock Exchange is not closed. Certificate; Direction; Request; Requisition. The terms “Certificate,” “Direction,” “Request” and “Requisition” of the District mean a written certificate, direction, request or requisition signed in the name of the District by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, 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. If and to the extent required by Section 1.02, each such instrument shall include the statements provided for in Section 1.02. Closing Date. The term “Closing Date” means the date on which the 2012A Bonds are delivered to the original purchaser thereof. 4 DOCSOC/1557331v4/022608-0009 Code. The term “Code” means the Internal Revenue Code of 1986, as amended. Continuing Disclosure Certificate. The term “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated the Closing Date, by the District, as originally executed or as it may be from time to time amended or supplemented in accordance with its terms. Contracts. The term “Contracts” means all contracts of the District previously or hereafter authorized and executed by the District, the payments under which are payable from Net Revenues on a parity with the 2012A Bonds and which are secured by a pledge and lien on Revenues as described in Section 5.01 hereof, including the Series 2008 Installment Purchase Agreement; and excluding contracts entered into for operation and maintenance of the Water System. Corporation. The term “Corporation” means the Yorba Linda Water District Public Financing Corporation, a nonprofit public benefit corporation duly organized and existing under and by virtue of the laws of the State of California. Costs of Issuance. The term “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the District and related to the authorization, issuance, sale and delivery of the 2012A Bonds, including but not limited to costs of preparation and reproduction of documents, printing expenses, filing and recording fees, initial fees and charges of the Trustee and counsel to the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, title insurance premiums, letter of credit fees and bond insurance premiums (if any), fees and charges for preparation, execution and safekeeping of the 2012A Bonds and any other cost, charge or fee in connection with the original issuance of the 2012A Bonds. Costs of Issuance Fund. The term “Costs of Issuance Fund” means the fund by that name established pursuant to Section 3.03. Date of Operation. The term “Date of Operation” means, with respect to any uncompleted component of a Parity Project, the estimated date by which such uncompleted component of a Parity Project will have been completed and, in the opinion of an engineer, will be ready for operation by or on behalf of the District. Debt Service. The term “Debt Service” means, for any period of calculation, the sum of: (1) the interest accruing during such period on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are redeemed or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized or is reasonably anticipated to be reimbursed to the District by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); (2) those portions of the principal amount of all outstanding serial Bonds maturing in such period; (3) those portions of the principal amount of all outstanding term Bonds required to be prepaid or paid in such period; and 5 DOCSOC/1557331v4/022608-0009 (4) those portions of the Installment Payments required to be made during such period, (except to the extent that the interest evidenced and represented thereby is capitalized or is reasonably anticipated to be reimbursed to the District by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); but less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds established for Bonds or Contracts; provided that, as to any such Bonds or Installment Payments bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service shall, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Bonds or Contract plus 1%; and (ii) the highest variable rate borne over the preceding 3 months by outstanding variable rate debt issued by the District or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; provided further that if any series or issue of such Bonds or Installment Payments have twenty-five percent (25%) or more of the aggregate principal amount of such series or issue due in any one year, Debt Service shall be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Installment Payments were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of twenty-five (25) years from the date of calculation; and provided further that, as to any such Bonds or Installment Payments or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Installment Payments or portions thereof, such accreted discount shall be treated as interest in the calculation of Debt Service; and provided further that if the Bonds or Contracts constitute paired obligations, the interest rate on such Bonds or Contracts shall be the resulting linked rate or the effective fixed interest rate to be paid by the District with respect to such paired obligations; and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service shall be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted. Depository; DTC. The term “Depository” or “DTC” means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the 2012A Bonds. District. The term “District” means Yorba Linda Water District, a county water district duly organized and existing under and by virtue of the laws of the State. 6 DOCSOC/1557331v4/022608-0009 Escrow Agent. The term “Escrow Agent” means U.S. Bank National Association, as escrow agent pursuant to the terms of the Escrow Agreement (2003), or its successor thereunder. Escrow Agreement (2003). The term “Escrow Agreement (2003)” means the Escrow Agreement (Series 2003), dated as of August 1, 2012, by and between the District and the Escrow Agent, as originally executed or as it may from time to time be amended or supplemented in accordance with its terms. Event of Default. The term “Event of Default” means any of the events specified in Section 7.01. Federal Securities. The term “Federal Securities” means any direct, noncallable general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), or noncallable obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. Fiscal Year. The term “Fiscal Year” means the twelve month period beginning on July 1 of each year and ending on the next succeeding June 30, both dates inclusive, or any other twelve month period hereafter selected and designated as the official fiscal year period of the District. Fitch. The term “Fitch” means Fitch Ratings, Inc., or any successor thereto. Indenture. The term “Indenture” means the Indenture of Trust, dated as of August 1, 2012, by and between the District and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture. Independent Certified Public Accountant. The term “Independent Certified Public Accountant” means any firm of certified public accountants appointed by the District, each of whom is independent of the District pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants. Independent Financial Consultant. The term “Independent Financial Consultant” means a financial consultant or firm of such consultants appointed by the District, which may be an interest rate swap adviser, and who, or each of whom: (1) is in fact independent and not under domination of the District; (2) does not have any substantial interest, direct or indirect, with the District; and (3) is not connected with the District as an officer or employee thereof, but who may be regularly retained to make reports thereto. Information Services. The term “Information Services” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the District may specify in a certificate to the Trustee and as the Trustee may select. Interest Account. The term “Interest Account” means the account by that name in the Payment Fund established pursuant to Section 5.02. Interest Payment Date. The term “Interest Payment Date” means April 1 and October 1 of each year, commencing April 1, 2013. 7 DOCSOC/1557331v4/022608-0009 Investment Agreement. The term “Investment Agreement” means an investment agreement by a provider, supported by appropriate opinions of counsel, provided that, without limiting the foregoing, any such Investment Agreement shall: (i) be from a provider rated by S&P or Moody’s at “A-” or “A3”, respectively, or above; (ii) require the District to terminate such agreement and immediately reinvest the proceeds thereof in other Permitted Investments if the rating assigned to the provider by S&P or Moody’s falls to “BBB+” or “Baa1”, respectively, or below; and (iii) expressly permit the withdrawal, without penalty, of any amounts necessary at any time to fund any deficiencies on account of debt service requirements with respect to the 2012A Bonds, together with such amendments as may be approved by the District and the Trustee from time to time. Letter of Representations. The term “Letter of Representations” means the letter of the District and the Trustee delivered to and accepted by the Depository on or prior to delivery of the 2012A Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, as originally executed or as it may be supplemented or revised or replaced by a letter from the District and the Trustee delivered to and accepted by the Depository. Moody’s. The term “Moody’s” means Moody’s Investors Service, Inc., or any successor thereto. Net Proceeds. The term “Net Proceeds” means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys fees) incurred in the collection of such proceeds. Net Revenues. The term “Net Revenues” means, for any Fiscal Year, the Revenues for such Fiscal Year less the Operating and Maintenance Costs and Non-Operating and Maintenance Costs for such Fiscal Year. When held by the Trustee in any funds or accounts established hereunder, Net Revenues shall include all interest or gain derived from the investment of amounts in any of such funds or accounts. Nominee. The term “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.08 hereof. Non-Operating and Maintenance Costs. The term “Non-Operating and Maintenance Costs” means certain other expenses of the District not directly related to the operation and maintenance of the Water System, including but not limited to certain projects that were budgeted as capital improvements but accounted for as expenses. Office. The term “Office” means with respect to the Trustee, the principal corporate trust office of the Trustee in Los Angeles, California, or such other or additional offices as may be specified in writing by the Trustee to the District, except that with respect to presentation of 2012A Bonds for payment or for registration of transfer and exchange such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted. Operating and Maintenance Costs. The term “Operating and Maintenance Costs” means: (1) costs spent or incurred for maintenance and operation of the Water System calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Water System in good repair and working order, and including administrative costs of the District that are 8 DOCSOC/1557331v4/022608-0009 charged directly or apportioned to the Water System, including but not limited to salaries and wages of employees, payments to the Public Employees Retirement System, overhead, insurance, taxes (if any), fees of auditors, accountants, attorneys or engineers and insurance premiums, and including all other reasonable and necessary costs of the District or charges (other than debt service payments) required to be paid by it to comply with the terms of the 2012A Bonds or of the Indenture or any Contract or of any resolution or indenture authorizing the issuance of any Bonds or of such Bonds; and (2) costs spent or incurred in the purchase of water for the Water System; but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature and all capital charges. Opinion of Counsel. The term “Opinion of Counsel” means a written opinion of counsel (including but not limited to counsel to the District) selected by the District. If and to the extent required by the provisions of Section 1.02, each Opinion of Counsel shall include the statements provided for in Section 1.02. Outstanding. The term “Outstanding,” when used as of any particular time with reference to 2012A Bonds, means (subject to the provisions of Section 11.09) all 2012A Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (i) 2012A Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2012A Bonds with respect to which all liability of the District shall have been discharged in accordance with Section 10.02, including 2012A Bonds (or portions thereof) described in Section 11.09; and (iii) 2012A Bonds for the transfer or exchange of or in lieu of or in substitution for which other 2012A Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture. Owner; 2012A Bond Owner. The term “Owner” or “2012A Bond Owner,” whenever used herein with respect to a 2012A Bond, means the person in whose name the ownership of such 2012A Bond is registered on the Registration Books. Parity Project. The term “Parity Project” means any additions, betterments, extensions or improvements to the District’s Water System designated by the Board of Directors of the District as a Parity Project, the acquisition and construction of which is to be paid for with the proceeds of any Contracts or Bonds. Participants. The term “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. Payment Fund. The term “Payment Fund” means the fund by that name established pursuant to Section 5.02. Permitted Investments. The term “Permitted Investments” means any of the following which at the time are legal investments under the laws of the State for moneys held hereunder and then proposed to be invested therein: (A) for all purposes, including defeasance investments in refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in clause (2) below); (2) direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America; (3) U.S. Treasury Certificates, Notes and Bonds (including State and Local Government 9 DOCSOC/1557331v4/022608-0009 Series); (4) Resolution Funding Corp. strips (only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable); (5) Pre-refunded municipal bonds rated “Aaa” by Moody’s and “AAA” by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody’s rating), then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to satisfy this condition; and (6) Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Export-Import Bank (Eximbank): Direct obligations or fully guaranteed certificates of beneficial ownership; b. Farmers Home Administration Certificates of beneficial ownership; c. Federal Financing Bank; d. General Services Administration: Participation Certificates; e. U.S. Maritime Administration: Guaranteed Title XI financing; and f. U.S. Department of Housing and Urban Development: Project Notes, Local Authority Bonds, New Communities Debentures - U.S. government guaranteed debentures, U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds; and (B) for all purposes other than defeasance investments in refunding escrow accounts: (1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations of the principal of and interest on which are unconditionally guaranteed by the United States of America; (2) obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America: the Export-Import Bank; Farmers Home Administration; General Services Administration; United States Maritime Administration; Government National Mortgage Association; United States Department of Housing & Urban Development; Federal Financing Bank; and Federal Housing Administration Debentures; (3) obligations of any of the following federal agencies which obligations do not represent the full faith and credit of the United States of America, including the Federal Home Loan Bank System; Federal Home Loan Mortgage Corporation (FHLMC); Federal National Mortgage Association (FNMA); Student Loan Marketing Association; Resolution Funding Corp.; and Farm Credit System; (4) commercial paper which is rated at the time of purchase in the single highest classification, “A-1” by S&P and “P-1” by Moody’s; (5) investments in a money market fund rated “AAAm”, “AAAm-G” or “AA-m” or better by S&P, or “Aaa”, “Aa1” or “Aa2” or better by Moody’s, including any fund for which the Trustee or an affiliate acts as investment advisor or provides other services; (6) Certificates of deposit secured at all times by collateral described in (A) and/or (B)(1) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks, including the Trustee and its affiliates. The collateral must be held by a third party and the Trustee must have a perfected first security interest in the collateral; (7) Certificates of deposit (including those of the Trustee, its parent and its affiliates), savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF; 10 DOCSOC/1557331v4/022608-0009 (8) Investment Agreements, including GIC’s, Forward Purchase Agreements and Reserve Fund Put Agreements; (9) Federal Funds or bankers acceptances with a maximum term of one year of any bank, including the Trustee and its affiliates, which has an unsecured, uninsured and unguaranteed obligation rating of “Prime-1” or “A3” or better by Moody’s and “A-1” or “A” or better by S&P; (10) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee or the District, as applicable, and the transfer of cash from the Trustee or the District, as applicable, to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee or the District, as applicable, in exchange for the securities at a specified date; 1. Repurchase Agreements must be between the municipal entity and a dealer bank or securities firm. a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor’s Corporation and Moody’s Investor Services; or b. Banks rated “A” or above by Standard & Poor’s Corporation and Moody’s Investor Services. 2. The written contract must include the following: a. Securities which are acceptable for transfer are: (1) Direct U.S. Governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC); b. The term of the Repurchase Agreement may be up to 30 days; c. The collateral must be delivered to the Trustee or the District, as applicable, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificates securities). d. Valuation of Collateral. (1) The securities must be valued weekly, marked-to-market at current market price plus accrued interest. The value of collateral must be equal to 104% of the amount of cash transferred by the Trustee or the District, as applicable, to the dealer bank or security firm under the repo plus accrued interest. If the value of the securities held as collateral slips below the 104% of the value of the cash transferred by the Trustee or the District, as applicable, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the Trustee and the District: the Repurchase Agreement meets guidelines under state law for legal investment of public funds; 11 DOCSOC/1557331v4/022608-0009 (11) The Local Agency Investment Fund of the State of California created pursuant to Section 16429.1 of the California Government Code; and (12) Unsecured certificates of deposit, time deposits, money market deposits, demand deposits and bankers’ acceptances of any bank (including those of Trustee, its parent and its affiliates) the short term obligations of which are rated on the date of purchase “A-1” or better by S&P, “P-1” or better by Moody’s or “F1” or better by Fitch. Principal Account. The term “Principal Account” means the account by that name in the Payment Fund established pursuant to Section 5.02. Rating. The term “Rating” means any currently effective rating on the 2012A Bonds issued by a Rating Agency. Rating Agencies. The term “Rating Agencies” means S&P and Fitch. Rebate Fund. The term “Rebate Fund” means the fund by that name established pursuant to Section 5.07. Record Date. The term “Record Date” means, with respect to any Interest Payment Date, the fifteenth (15th) day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day. Redemption Date. The term “Redemption Date” means the date fixed for an optional redemption prior to maturity of the 2012A Bonds. Redemption Fund. The term “Redemption Fund” means the fund by that name established pursuant to Section 5.05. Redemption Price. The term “Redemption Price” means, with respect to any 2012A Bond (or portion thereof), the principal amount of such 2012A Bond (or portion) plus the interest accrued to the applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such 2012A Bond and the Indenture. Registration Books. The term “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2012A Bonds pursuant to Section 2.05. Responsible Officer of the Trustee. The term “Responsible Officer of the Trustee” means any officer within the corporate trust division (or any successor group or department of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, with responsibility for the administration of the Indenture. Revenue Fund. The term “Revenue Fund” means the fund by that name continued pursuant to Section 5.01(b). 12 DOCSOC/1557331v4/022608-0009 Revenues. The term “Revenues” means all income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the Water System, including, without limiting the generality of the foregoing: (1) the Ad Valorem Tax Revenues; (2) all income, rents, rates, fees, charges or other moneys derived by the District from the sale, furnishing and supplying of the water or other services, facilities, and commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the business of the Water System, and certain administrative and maintenance costs related thereto; (3) the proceeds of any stand-by or water availability charges, development fees and connection charges collected by the District; and (4) the earnings on and income derived from the investment of amounts described in clauses (1), (2) and (3) above and from District reserves; but excluding: (x) customers’ deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District; and (y) any proceeds of taxes or assessments restricted by law to be used by the District to pay bonds or other obligations heretofore or hereafter issued. S&P. The term “S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or any successor thereto. Securities Depositories. The term “Securities Depositories” means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the District may designate in a Written Request of the District deliver to the Trustee. Series 2008 Installment Payments. The term “Series 2008 Installment Payments” means the installment payments of principal and interest scheduled to be paid by the District under and pursuant to the Series 2008 Installment Purchase Agreement. Series 2008 Installment Purchase Agreement. The term “Series 2008 Installment Purchase Agreement” means the Installment Purchase Agreement, dated as of February 1, 2008, 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 therewith. State. The term “State” means the State of California. Supplemental Indenture. The term “Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the District and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. 13 DOCSOC/1557331v4/022608-0009 Tax Certificate. The term “Tax Certificate” means the Tax Certificate dated the Closing Date, concerning certain matters pertaining to the use and investment of proceeds of the 2012A Bonds issued by the District on the date of issuance of the 2012A Bonds, including any and all exhibits attached thereto. Trustee. The term “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 its successor as Trustee hereunder as provided in Section 8.01. 2003 Certificates. The term “2003 Certificates” means the Yorba Linda Water District Revenue Certificates of Participation (Highland Reservoir Renovation and Richfield Plant – Phase 3 Renovation Project) Series 2003. 2003 Installment Purchase Agreement. The term “2003 Installment Purchase Agreement” means the Installment Purchase Agreement, dated as of August 1, 2003, 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 therewith. 2012A Bonds. The term “2012A Bonds” means the Yorba Linda Water District Refunding Revenue Bonds, Series 2012A authorized pursuant to the Indenture. Water Service. The term “Water Service” means the water distribution service made available or provided by the Water System. Water System. The term “Water System” means the whole and each and every part of the water system of the District, including all real property and buildings, including the portion thereof existing on the date hereof, and including all additions, betterments, extensions and improvements to such water system or any part thereof hereafter acquired or constructed, and excluding any water system acquired through merger, consolidation or similar action, to the extent the exclusion of such acquired water system is required pursuant to the term of such merger, consolidation or similar action. Written Consent of the District; Written Order of the District; Written Request of the District; Written Requisition of the District. The terms “Written Consent of the District,” “Written Order of the District,” “Written Request of the District,” and “Written Requisition of the District” mean, respectively, a written consent, order, request or requisition signed by or on behalf of the District by the President or General Manager or its Finance Manager or by the Secretary or by any two persons (whether or not members of the Board of Directors) who are specifically authorized by resolution of the District to sign or execute such a document on its behalf. Section 1.02. Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for in Section 11.05 hereof, with respect to compliance with any provision hereof shall include: (1) a statement that the person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such person he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is 14 DOCSOC/1557331v4/022608-0009 based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with. Any such certificate or opinion made or given by an officer of the District may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant or Independent Financial Consultant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an Independent Certified Public Accountant or Independent Financial Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the District) upon a certificate or opinion of or representation by an officer of the District, unless such counsel or Independent Certified Public Accountant or Independent Financial Consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person’s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the District, or the same counsel or Independent Certified Public Accountant or Independent Financial Consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants or Independent Financial Consultants may certify to different matters, respectively. Section 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of the Indenture; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to the Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II THE 2012A BONDS Section 2.01. Authorization of 2012A Bonds. The District hereby authorizes the issuance hereunder from time to time of the 2012A Bonds, which shall constitute special obligations of the District, for the purpose of refunding the 2003 Certificates. The 2012A Bonds are hereby designated the “Yorba Linda Water District Refunding Revenue Bonds, Series 2012A” in the aggregate principal amount of $________. The Indenture constitutes a continuing agreement with the Owners from time to time of the 2012A Bonds to secure the full payment of the principal of and interest and premium (if any) on all the 2012A Bonds, subject to the covenants, provisions and conditions herein 15 DOCSOC/1557331v4/022608-0009 contained. The 2012A Bonds are special, limited obligations of the District payable solely from the sources described herein. Section 2.02. Terms of the 2012A Bonds. The 2012A Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. (a) The 2012A Bonds shall mature on October 1 in each of the years and in the amounts set forth below and shall bear interest on each Interest Payment Date at the rates set forth below: Maturity Date (October 1) Principal Amount Interest Rate $ % Interest on the 2012A Bonds shall be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee sent by first class mail on the applicable Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books (except that in the case of an Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the Record Date. Principal of and premium (if any) on any 2012A Bond shall be paid by check of the Trustee upon presentation and surrender thereof at maturity or upon the prior redemption thereof, at the Office of the Trustee. Both the principal of and interest and premium (if any) on the 2012A Bonds shall be payable in lawful money of the United States of America. Each 2012A Bond shall be dated the date of initial delivery, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date; or (b) unless it is authenticated on or before September 15, 2012, in which event it shall bear interest from the date of initial delivery; provided, however, that if, as of the date of authentication of any 2012A Bond, interest thereon is in default, such 2012A Bond 16 DOCSOC/1557331v4/022608-0009 shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the 2012A Bonds shall be calculated on the basis of a 360 day year composed of twelve 30 day months. Section 2.03. Transfer of 2012A Bonds. Any 2012A Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2012A Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee shall not be required to register the transfer of any 2012A Bond during the period in which the Trustee is selecting 2012A Bonds for redemption and any 2012A Bond that has been selected for redemption. Whenever any 2012A Bond or 2012A Bonds shall be surrendered for transfer, the District shall execute and the Trustee shall authenticate and shall deliver a new 2012A Bond or 2012A Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee shall require the 2012A Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. Section 2.04. Exchange of 2012A Bonds. 2012A Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee shall not be required to exchange any 2012A Bond during the period in which the Trustee is selecting 2012A Bonds for redemption and any 2012A Bond that has been selected for redemption. The Trustee shall require the 2012A Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. Section 2.05. Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the 2012A Bonds, which shall upon reasonable notice and at reasonable times be open to inspection during regular business hours by the District and the Owners; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the 2012A Bonds as hereinbefore provided. The person in whose name any 2012A Bond shall be registered shall be deemed the Owner thereof for all purposes hereof, and payment of or on account of the interest on and principal and Redemption Price of by such 2012A Bonds shall be made only to or upon the order in writing of such registered Owner, which payments shall be valid and effectual to satisfy and discharge liability upon such 2012A Bond to the extent of the sum or sums so paid. Section 2.06. Form and Execution of 2012A Bonds. The 2012A Bonds shall be in substantially the form set forth in Exhibit A hereto. The 2012A Bonds shall be executed in the name and on behalf of the District with the manual or facsimile signature of its President. The 2012A Bonds may carry a seal, and such seal may be in the form of a facsimile of the District’s seal and may be reproduced, imprinted or impressed on the 2012A Bonds. The 2012A Bonds shall then be delivered to the Trustee for authentication by it. In case any of the officers who shall have signed or attested any of the 2012A Bonds shall cease to be such officer or officers of the District before the 17 DOCSOC/1557331v4/022608-0009 2012A Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the District, such 2012A Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the District as though those who signed and attested the same had continued to be such officers of the District, and also any 2012A Bonds may be signed and attested on behalf of the District by such persons as at the actual date of execution of such 2012A Bonds shall be the proper officers of the District although at the nominal date of such 2012A Bonds any such person shall not have been such officer of the District. Only such of the 2012A Bonds as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit A hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of the Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the 2012A Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of the Indenture. Section 2.07. 2012A Bonds Mutilated, Lost, Destroyed or Stolen. If any 2012A Bond shall become mutilated, the District, at the expense of the Owner of said 2012A Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2012A Bond of like tenor, series and authorized denomination in exchange and substitution for the 2012A Bonds so mutilated, but only upon surrender to the Trustee of the 2012A Bond so mutilated. Every mutilated 2012A Bond so surrendered to the Trustee shall be canceled by it. If any 2012A Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the District, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2012A Bond of like tenor, series and authorized denomination in lieu of and in substitution for the 2012A Bond so lost, destroyed or stolen (or if any such 2012A Bond shall have matured or shall be about to mature, instead of issuing a substitute 2012A Bond, the Trustee may pay the same without surrender thereof). The District may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2012A Bond issued under this Section and of the expenses which may be incurred by the District and the Trustee in the premises. Any 2012A Bond issued under the provisions of this Section in lieu of any 2012A Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the District whether or not the 2012A Bond so alleged to be lost, destroyed, or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of the Indenture with all other 2012A Bonds secured by the Indenture. Notwithstanding any other provision of this Section, in lieu of delivering a new 2012A Bond for a 2012A Bond which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for redemption, the Trustee may make payment of such 2012A Bond upon receipt of indemnity satisfactory to the Trustee. Section 2.08. Book Entry System. (a) Election of Book Entry System. Prior to the issuance of the 2012A Bonds, the District may provide that such 2012A Bonds shall be initially issued as book entry 2012A Bonds. If the District shall elect to deliver any 2012A Bonds in book entry form, then the District shall cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such 2012A Bonds in an authorized denomination corresponding to that total principal amount of the 2012A Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2012A Bond shall be registered in the 2012A Bond Registration Books in 18 DOCSOC/1557331v4/022608-0009 the name of the Nominee, as nominee of the Depository, and ownership of the 2012A Bonds, or any portion thereof may not thereafter be transferred except as provided in Section 2.08(e). With respect to book entry 2012A Bonds, the District 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 2012A Bonds. Without limiting the immediately preceding sentence, the District 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 2012A Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the 2012A Bond Registration Books, of any notice with respect to book entry 2012A Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book entry 2012A Bonds to be redeemed in the event the District redeems the 2012A Bonds in part; or (iv) the payment by the Depository or any Participant or any other person, of any amount of principal of, premium, if any, or interest on book entry 2012A Bonds. The District and the Trustee may treat and consider the person in whose name each book entry 2012A Bond is registered in the 2012A Bond Registration Books as the absolute Owner of such book entry 2012A Bond for the purpose of payment of principal of, premium and interest on such 2012A Bond, for the purpose of giving notices of redemption and other matters with respect to such 2012A Bond, for the purpose of registering transfers with respect to such 2012A Bond, and for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest on the 2012A Bonds only to or upon the order of the respective Owner, as shown in the 2012A Bond Registration Books, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the District’s obligations with respect to payment of principal of, premium, if any, and interest on the 2012A Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the 2012A Bond Registration Books, shall receive a 2012A Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the 2012A Bonds. Upon delivery by the Depository to the District and the Trustee, 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 the Indenture shall refer to such nominee of the Depository. (b) Delivery of Letter of Representations. In order to qualify the book entry 2012A Bonds for the Depository’s book entry system, the District and the Trustee 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 District or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2012A Bonds other than the Owners, as shown on the 2012A Bond Registration Books. By executing a Letter of Representations, the Trustee shall agree to take all action necessary at all times so that the Trustee will be in compliance with all representations of the Trustee in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the District and the Trustee shall take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2012A Bonds for the Depository’s book entry program. (c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2012A Bonds; or (ii) the District determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2012A Bonds or the District, then the District will 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 19 DOCSOC/1557331v4/022608-0009 registered 2012A Bond for each of the maturity dates of such book entry 2012A Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (e) hereof. If the District fails to identify another qualified securities depository to replace the Depository, then the 2012A Bonds shall no longer be restricted to being registered in such 2012A Bond Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such 2012A Bonds shall designate, in accordance with the provisions of Sections 2.03 and 2.04 hereof. (d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2012A Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such 2012A Bond and all notices with respect to such 2012A Bond shall be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions herein. (e) Transfer of 2012A Bonds to Substitute Depository. (i) The 2012A Bonds shall be initially issued as provided in Section 2.01 hereof. Registered ownership of such 2012A Bonds, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i) of this Section 2.08(e) (“Substitute Depository”); provided that any successor of DTC or Substitute Depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the District that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the District that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. (ii) In the case of any transfer pursuant to clause (A) or clause (B) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2012A Bonds by the Trustee, together with a Written Request of the District to the Trustee designating the Substitute Depository, a single new 2012A Bond, which the District shall prepare or cause to be prepared, shall be issued for each maturity of 2012A Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such Written Request of the District. In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2012A Bonds by the Trustee, together with a Written Request of the District to the Trustee, new 2012A Bonds, which the District shall prepare or cause to be prepared, shall be issued in such denominations and registered in the names of such persons as are requested in such Written Request of the District, subject to the limitations of Section 2.01 hereof, 20 DOCSOC/1557331v4/022608-0009 provided that the Trustee shall not be required to deliver such new 2012A Bonds within a period of less than sixty (60) days from the date of receipt of such Written Request from the District. (iii) In the case of a partial redemption or an advance refunding of any 2012A Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) shall make an appropriate notation on such 2012A Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such Depository’s failure to make such notations or errors in making such notations and the records of the Trustee as to the Outstanding principal amount of such 2012A Bonds shall be controlling. (iv) The District and the Trustee shall be entitled to treat the person in whose name any 2012A Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the District; and the District and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2012A Bonds. Neither the District nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any 2012A Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2012A Bonds. ARTICLE III ISSUANCE OF 2012A BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the 2012A Bonds. At any time after the execution of the Indenture, the District may execute and the Trustee shall authenticate and, upon Written Request of the District, deliver the 2012A Bonds in the aggregate principal amount of $_______. Section 3.02. Application of Proceeds of the 2012A Bonds and Certain Other Moneys. The proceeds received from the sale of the 2012A Bonds shall be deposited with the Trustee, who shall transfer to the Escrow Agent the amount of $______ for deposit in the escrow fund created under the Escrow Agreement (2003) and deposit the amount of $_______ in the Costs of Issuance Fund. The Trustee may establish temporary funds or accounts in its records to record and facilitate such deposit and transfer. Section 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the “Costs of Issuance Fund.” The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee to pay the Costs of Issuance upon submission of Requisitions 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, that such payment is proper charge against said fund and that payment for such charge has not previously been made. On the six month anniversary of the issuance of the 2012A Bonds, or upon the earlier Written Request of the District, all amounts remaining in the Costs of Issuance Fund shall be transferred by the Trustee to the Interest Account and the Costs of Issuance Fund shall be closed. Investment earnings on amounts on deposit in the Costs of Issuance Fund shall be applied in accordance with Section 5.06 hereof. 21 DOCSOC/1557331v4/022608-0009 Section 3.04. Validity of 2012A Bonds. The validity of the authorization and issuance of the 2012A Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the District or the Trustee with respect to any other agreement. The recital contained in the 2012A Bonds that the same are issued pursuant to the Constitution and laws of the State shall be conclusive evidence of the validity and of compliance with the provisions of law in their issuance. ARTICLE IV REDEMPTION OF 2012A BONDS Section 4.01. Terms of Redemption. (a) The 2012A Bonds shall be subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the District in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, Sections 6.19 and 6.23, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. (b) The 2012A Bonds maturing on or after October 1, 20__ shall be subject to redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the District in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000, on or after October 1, 20__, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. (c) The 2012A Bonds with stated maturities on October 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on each October 1 on and after October 1, 20__, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: Prepayment Date (October 1) Principal Amount 20__ $ 20__* * Final Maturity. Section 4.02. Selection of 2012A Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2012A Bonds, the Trustee shall select the 2012A Bonds for redemption as a whole or in part on any date as directed by the District and by lot within each maturity in integral multiples of $5,000 in accordance with Section 4.01 hereof. The Trustee will promptly notify the District in writing of the numbers of the 2012A Bonds or portions thereof so selected for redemption. 22 DOCSOC/1557331v4/022608-0009 Section 4.03. Notice of Redemption. Notice of redemption shall be mailed by first class mail at least twenty (20) days but not more than sixty (60) days before any Redemption Date, to the respective Owners of any 2012A Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and the Information Services. Each notice of redemption shall state the date of notice, the Redemption Date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, if less than all 2012A Bonds of any such maturity are to be redeemed, the serial numbers of the 2012A Bonds of such maturity to be redeemed by giving the individual number of each 2012A Bond or by stating that all 2012A Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2012A Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the Redemption Date there will become due and payable on each of said 2012A Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2012A Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon shall cease to accrue, and shall require that such 2012A Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2012A Bond. Notice of redemption of 2012A Bonds shall be given by the Trustee, at the expense of the District, for and on behalf of the District. With respect to any notice of optional redemption of 2012A Bonds, such notice shall state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2012A Bonds to be redeemed and that, if such moneys shall not have been so received, said notice shall be of no force and effect and the Trustee shall not be required to redeem such 2012A Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made, and the Trustee shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received. Section 4.04. Partial Redemption of 2012A Bonds. Upon surrender of any 2012A Bond redeemed in part only, the District shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the District, a new 2012A Bond or 2012A Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 2012A Bonds surrendered and of the same series, interest rate and maturity. Section 4.05. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the date fixed for redemption on, the 2012A Bonds (or portions thereof) so called for redemption being held by the Trustee, on the Redemption Date designated in such notice, the 2012A Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the 2012A Bonds so called for redemption shall cease to accrue, said 2012A Bonds (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2012A Bonds shall have no rights in respect thereof except to receive payment of the Redemption Price thereof. The Trustee shall, upon surrender for payment of any of the 2012A Bonds to be redeemed on their Redemption Dates, pay such 2012A Bonds at the Redemption Price. 23 DOCSOC/1557331v4/022608-0009 All 2012A Bonds redeemed pursuant to the provisions of this Article shall be canceled upon surrender thereof. ARTICLE V REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; Revenue Fund. (a) Pursuant to the Series 2008 Installment Purchase Agreement, all of the Revenues, all amounts held in the Revenue Fund described in subsection (b) below and any other amounts (including proceeds of the sale of the 2012A Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund) are hereby irrevocably pledged to secure the payment of the Series 2008 Installment Payments and the principal of and interest, and the premium, if any, on the 2012A Bonds in accordance with their terms and the provisions of the Indenture, and, except for the payment of the Operating and Maintenance Costs and Non-Operating and Maintenance Costs, the Revenues shall not be used for any other purpose while the 2012A Bonds remain Outstanding; provided that out of the Revenues there may be apportioned such sums for such purposes as are expressly permitted herein. Said pledge, together with the pledge created by all other Contracts and Bonds, shall constitute a first lien on and security interest on Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted herein, the Revenue Fund and other funds and accounts created hereunder for the payment of the principal of and interest, and the premium, if any, on the 2012A Bonds, the Series 2008 Installment Payments and all other Contracts and Debt Service on Bonds in accordance with the terms hereof, and shall attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and shall be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the District, irrespective of whether such parties have notice hereof. The 2012A Bonds constitute Bonds for purposes of the Series 2008 Installment Purchase Agreement and the District so finds, and represents that the conditions of Section 5.03 of the Series 2003 Installment Purchase Agreement have been met in full. The Ad Valorem Tax Revenues are irrevocably pledged as the first source of repayment of the 2012A Bonds and the Series 2008 Installment Payments. The Ad Valorem Tax Revenues shall not be used for any other purposes while any of the 2012A Bonds remain unpaid, except as provided for herein and in the Series 2008 Installment Purchase Agreement. In the event that the Ad Valorem Tax Revenues are not sufficient in amount to pay the payments of principal of and interest, and the premium, if any, on the 2012A Bonds, and the Series 2008 Installment Payments when due, such amounts shall be paid from other Net Revenues. (b) In order to carry out and effectuate the pledge and lien contained herein, the District agrees and covenants that: (i) all Revenues shall be received by the District in trust hereunder and shall be deposited when and as received in a special fund designated as the “Revenue Fund,” which fund is hereby continued and which fund the District agrees and covenants to maintain and to hold separate and apart from other funds so long as the 2012A Bonds and any Contracts or Debt Service on Bonds remain unpaid; and (ii) all Ad Valorem Tax Revenues shall be deposited when and as received in an account within the Revenue Fund called the “Ad Valorem Taxes Account of the Revenue Fund,” which account is hereby continued and which account the District agrees and covenants to maintain and to hold separate and apart from other accounts so long as the 2012A 24 DOCSOC/1557331v4/022608-0009 Bonds and any Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fund shall be used and applied by the District as provided herein. All moneys in the Revenue Fund shall be held in trust and shall be applied, used and withdrawn for the purposes set forth in this Section and the 2008 Installment Purchase Agreement. The District shall, from the moneys in the Revenue Fund, pay all Operating and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operating and Maintenance Costs, the payment of which is not then immediately required) and all Non-Operating and Maintenance Costs as such Operating and Maintenance Costs and Non-Operating and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund shall be set aside by the District at the following times for the transfer to the following respective special funds in the following order of priority: (i) Interest and Principal Payments. Not later than the fifth Business Day prior to each Interest Payment Date, the District shall, first from moneys in the Ad Valorem Taxes Account and second from other remaining moneys in the Revenue Fund, transfer to the Trustee for deposit in the Payment Fund the payments of interest and principal on the 2012A Bonds due and payable on such Interest Payment Date. The District shall also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract. (ii) Reserve Funds. On or before each Interest Payment Date, the District shall, first from moneys in the Ad Valorem Taxes Account and second from other remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the applicable trustees for reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the reserve requirement with respect thereto. (iii) Surplus. Moneys on deposit in the Revenue Fund on any date when the District reasonably expects such moneys will not be needed for the payment of Operating and Maintenance Costs or Non-Operating and Maintenance Costs or any of the purposes described in clauses (b)(i) or (b)(ii) may be expended by the District at any time for any purpose permitted by law. (iv) Investments. All moneys held by the District in the Revenue Fund shall be invested in Permitted Investments and the investment earnings thereon shall remain on deposit in such fund, except as otherwise provided herein. Section 5.02. Allocation of Revenues. There is hereby established with the Trustee the Payment Fund, which the Trustee covenants to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2012A Bonds remain unpaid. Except as directed herein, all payments of interest and principal on the 2012A Bonds received by the Trustee pursuant to Section 5.01(b) shall be promptly deposited by the Trustee upon receipt thereof into the Payment Fund; except that all moneys received by the Trustee and required hereunder to be deposited in the Redemption Fund shall be promptly deposited therein. All payments of interest and principal on the 2012A Bonds deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee shall also establish and hold an Interest Account and a Principal Account within the Payment Fund. 25 DOCSOC/1557331v4/022608-0009 The Trustee shall transfer from the Payment Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) Not later than the Business Day preceding each Interest Payment Date, the Trustee shall deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2012A Bonds then Outstanding. No deposit need be made into the Interest Account so long as there shall be in such fund moneys sufficient to pay the interest becoming due and payable on such date on all 2012A Bonds then Outstanding. (b) Not later than the Business Day preceding each date on which the principal of the 2012A Bonds shall become due and payable hereunder, the Trustee shall deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2012A Bonds coming due and payable on such date or subject to mandatory sinking fund redemption on such date. No deposit need be made into the Principal Account so long as there shall be in such fund moneys sufficient to pay the principal becoming due and payable on such date on all 2012A Bonds then Outstanding. Section 5.03. Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2012A Bonds as it shall become due and payable (including accrued interest on any 2012A Bonds purchased or accelerated prior to maturity pursuant to the Indenture). Section 5.04. Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the 2012A Bonds at maturity, mandatory sinking fund redemption, purchase or acceleration; provided, however, that at any time prior to selection for redemption of any such 2012A Bonds, upon written direction of the District, the Trustee shall apply such amounts to the purchase of 2012A Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a Written Request of the District, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2012A Bonds. Section 5.05. Application of Redemption Fund. There is hereby established with the Trustee a special fund designated as the “Redemption Fund.” All amounts in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the Redemption Price of the 2012A Bonds to be redeemed on any Redemption Date pursuant to Section 4.01; provided, however, that at any time prior to selection for redemption of any such 2012A Bonds, upon written direction of the District, the Trustee shall apply such amounts to the purchase of 2012A Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a Written Request of the District, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2012A Bonds. Section 5.06. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments. 26 DOCSOC/1557331v4/022608-0009 Such investments shall be directed by the District pursuant to a Written Request of the District filed with the Trustee at least two (2) Business Days in advance of the making of such investments. In the absence of any such directions from the District, the Trustee shall invest any such moneys in Permitted Investments described in clause (B)(5) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a written direction from the District specifying a specific money market fund and, if no such written direction from the District is so received, the Trustee shall hold such moneys uninvested. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Interest Account unless otherwise provided in the Indenture. For purposes of acquiring any investments hereunder, the Trustee may commingle funds (other than the Rebate Fund) held by it hereunder upon the Written Request of the District. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made pursuant to this Section. The District acknowledges that to the extent that regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur, the District specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the District periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. The District shall invest, or cause to be invested, all moneys in any fund or accounts established with the Trustee as provided in the Tax Certificate. For investment purposes, the Trustee may commingle the funds and accounts established hereunder, but shall account for each separately. In making any valuations of investments hereunder, the Trustee may utilize and rely on computerized securities pricing services that may be available to the Trustee, including those available through the Trustee’s accounting system. Section 5.07. Rebate Fund. (a) Establishment. The Trustee shall establish a fund for the 2012A Bonds designated the “Rebate Fund.” Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2012A Bonds will not be adversely affected, the District shall cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the 2012A Bonds shall be governed by this Section and the Tax Certificate, unless and to the extent that the District delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2012A Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained herein or in the Tax Certificate, the Trustee: 27 DOCSOC/1557331v4/022608-0009 (i) shall be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the District; and (ii) shall have no liability or responsibility to enforce compliance by the District with the terms of the Tax Certificate; and (iii) may rely conclusively on the District’s calculations and determinations and certifications relating to rebate matters; and (iv) shall have no responsibility to independently make any calculations or determinations or to review the District’s calculations or determinations thereunder. (i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the District shall calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the “1½% Penalty”) has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the “Rebatable Arbitrage”). The District shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. (ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the Written Request of the District, an amount shall be deposited to the Rebate Fund by the Trustee from any Net Revenues legally available for such purpose (as specified by the District in the aforesaid Written Request), if and to the extent required so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the District, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Payment Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed by Written Request of the District, to the United States Treasury, out of amounts in the Rebate Account: (A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all the 2012A Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations. In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the District shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T (prepared by the District), or shall be made in such other manner as provided under the Code. 28 DOCSOC/1557331v4/022608-0009 (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2012A Bonds and the payments described in subsection (a) above being made may be withdrawn by the District and utilized in any manner by the District. (c) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or payment in full of the 2012A Bonds. Section 5.08. Application of Funds and Accounts When No 2012A Bonds are Outstanding. On the date on which all 2012A Bonds shall be retired hereunder or provision made therefor pursuant to Article X and after payment of all amounts due the Trustee hereunder, all moneys then on deposit in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to the Indenture shall be withdrawn by the Trustee and paid to the District for use by the District at any time for any purpose permitted by law. ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment. The District shall punctually pay or cause to be paid the principal and interest to become due in respect of all of the 2012A Bonds, in strict conformity with the terms of the 2012A Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Net Revenues and other assets pledged for such payment as provided in the Indenture. Section 6.02. Extension of Payment of 2012A Bonds. The District shall not directly or indirectly extend or assent to the extension of the maturity of any of the 2012A Bonds or the time of payment of any claims for interest by the purchase of such 2012A Bonds or by any other arrangement, and in case the maturity of any of the 2012A Bonds or the time of payment of any such claims for interest shall be extended, such 2012A Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Indenture, except subject to the prior payment in full for the principal of all of the 2012A Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the District to issue Bonds for the purpose of refunding any Outstanding 2012A Bonds, and such issuance shall not be deemed to constitute an extension of maturity of 2012A Bonds. Section 6.03. Against Encumbrances. The District will not make any pledge of or place any lien on Revenues or the moneys in the Revenue Fund except as provided herein and in the Series 2008 Installment Purchase Agreement. The District may at any time, or from time to time, execute Contracts or issue Bonds as permitted herein. The District may also at any time, or from time to time, incur evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of lien on Revenues on any moneys in the Revenue Fund as may from time to time be deposited therein, provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided herein. Section 6.04. Power to Issue 2012A Bonds and Make Pledge and Assignment. The District is duly authorized pursuant to law to issue the 2012A Bonds and to enter into the Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2012A Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the 29 DOCSOC/1557331v4/022608-0009 District in accordance with their terms, and the District and the Trustee shall at all times, subject to the provisions of Article VIII and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the 2012A Bond Owners under the Indenture against all claims and demands of all persons whomsoever. Section 6.05. Accounting Records and Financial Statements. (a) The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of 2012A Bonds and all funds and accounts established by it pursuant to the Indenture. Such books of record and account shall be available for inspection by the District upon reasonable prior notice during business hours and under reasonable circumstances. (b) The District will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Water System, which records shall be available for inspection by the Trustee (which shall have no duty to inspect such records) at reasonable hours and under reasonable conditions. (c) The District will prepare and file with the Trustee annually within two hundred seventy (270) days of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2012) financial statements of the District for the preceding Fiscal Year prepared in accordance with generally accepted accounting principles, together with an Accountant’s Report thereon. The Trustee shall have no duty to review such financial statements. Section 6.06. Tax Covenants. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2012A Bonds will not be adversely affected for federal income tax purposes, the District covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2012A Bonds and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. The District will take no action or refrain from taking any action or make any use of the proceeds of the 2012A Bonds or of any other moneys or property which would cause the 2012A Bonds to be “private activity bonds” within the meaning of Section 141 of the Code; (b) Arbitrage. The District will make no use of the proceeds of the 2012A Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2012A Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code; (c) Federal Guarantee. The District will make no use of the proceeds of the 2012A Bonds or take or omit to take any action that would cause the 2012A Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code; (d) Information Reporting. The District will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the 30 DOCSOC/1557331v4/022608-0009 Code necessary to preserve the exclusion of interest on the 2012A Bonds pursuant to Section 103(a) of the Code; (e) Hedge Bonds. The District will make no use of the proceeds of the 2012A Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the 2012A Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the District takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2012A Bonds for federal income tax purposes; and (f) Miscellaneous. The District will take no action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the District in connection with the issuance of the 2012A Bonds and will comply with the covenants and requirements stated therein and incorporated by reference herein. This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the District from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the 2012A Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation. Section 6.07. Waiver of Laws. The District shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in the Indenture or in the 2012A Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the District to the extent permitted by law. Section 6.08. Further Assurances. The District will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the 2012A Bonds of the rights and benefits provided in the Indenture. Section 6.09. Budgets. On or prior to the thirtieth day of each Fiscal Year, the District shall certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the 2012A Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of the principal of and interest on the 2012A Bonds due under the Indenture, the District will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the District in the then ensuing Fiscal Year for the payment of the principal of and interest on the 2012A Bonds due under the Indenture and will notify the Trustee of the proceedings then taken or proposed to be taken by the District. Section 6.10. Observance of Laws and Regulations. To the extent necessary to assure its performance hereunder, the District will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on the District 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 any and every right, privilege or franchise now owned or hereafter acquired by the District, respectively, including its right to exist and carry on its business, to the end that such contracts, rights and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. 31 DOCSOC/1557331v4/022608-0009 Section 6.11. Compliance with Contracts. The District will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the District to pay principal of or interest on the 2012A Bonds; and the District will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Water System, to the extent that the District is a party thereto. Section 6.12. Prosecution and Defense of Suits. The District shall promptly, upon request of the Trustee or any 2012A Bond Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Water System or any part thereof, whether now existing or hereafter developing, shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee (including all of its employees, officers and directors), and every 2012A Bond Owner harmless from all loss, cost, damage and expense, including attorneys’ fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. The District shall defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or any 2012A Bond Owner upon any claim arising out of the receipt, application or disbursement of any of the payments of principal of or interest on the 2012A Bonds or involving the rights of the Trustee or any 2012A Bond Owner under the Indenture; provided that the Trustee or any 2012A Bond Owner at such party’s election may appear in and defend any such suit, action or proceeding. The District shall indemnify and hold harmless the Trustee and the 2012A Bond Owners from and against any and all liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and shall indemnify and hold harmless the 2012A Bond Owners against any attorneys’ fees or other expenses which any of them may incur in connection with any litigation (including pre-litigation activities) to which any of them may become a party by reason of ownership of 2012A Bonds. The District shall promptly reimburse the Trustee and any 2012A Bond Owner in the full amount of any attorneys’ fees or other expenses which such party may incur in litigation or otherwise in order to enforce such party’s rights under the Indenture or the 2012A Bonds, provided that such litigation shall be concluded favorably to such party’s contentions therein. Section 6.13. Continuing Disclosure. The District hereby covenants and agrees that it will comply with and carry out all of its obligations under the Continuing Disclosure Certificate to be executed and delivered by the District in connection with the issuance of the 2012A Bonds. Notwithstanding any other provision of the Indenture, failure of the District to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Section. For purposes of this Section, “Beneficial Owner” means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2012A Bonds (including persons holding 2012A Bonds through nominees, depositories or other intermediaries). Section 6.14. Additional Contracts and Bonds. The District may at any time execute any Contract or issue any Bonds, as the case may be, in accordance herewith; provided: (a) The Net Revenues for any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of adoption by the Board of Directors of the 32 DOCSOC/1557331v4/022608-0009 District of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by a special report prepared by an Independent Certified Public Accountant or Independent Financial Consultant on file with the District, shall have produced a sum equal to at least one hundred ten percent (110%) of the Debt Service for such twelve month period; and (b) The Net Revenues for any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of the execution of such Contract or the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such twelve month period to increases or decreases in rates and charges for the Water Service approved and in effect as of the date of calculation, as evidenced by a special report prepared by an Independent Certified Public Accountant or Independent Financial Consultant on file with the District, shall have produced a sum equal to at least one hundred ten percent (110%) of the Debt Service for such twelve month period plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such twelve month period assuming such Contracts had been executed or Bonds had been issued at the beginning of such twelve month period; and (c) The estimated Net Revenues for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Project to be financed from proceeds of such Contracts or Bonds, as evidenced by a certificate of the General Manager of the District on file with the District, including (after giving effect to the completion of all such uncompleted Projects) an allowance for estimated Net Revenues for each of such Fiscal Years arising from any increase in the income, rents, fees, rates and charges estimated to be fixed, prescribed or received for Water Service and which are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by a certificate of the Manager on file with the District, shall produce a sum equal to at least one hundred ten percent (110%) of the estimated Debt Service for each of such Fiscal Years, after giving effect to the execution of all Contracts and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Projects within such Fiscal Years, assuming that all such Contracts and Bonds have maturities, interest rates and proportionate principal repayment provisions similar to the Contract last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Projects. Notwithstanding the foregoing, Bonds issued or Contracts executed to refund Bonds or prepay Contracts may be delivered without satisfying the conditions set forth above if Debt Service in each Fiscal Year after the Fiscal Year in which such Bonds are issued or Contracts executed is not greater than Debt Service would have been in each such Fiscal Year prior to the issuance of such Bonds or execution of such Contracts. Section 6.15. Against Sale or Other Disposition of Property. The District will not enter into any agreement or lease which impairs the operation of the Water System or any part thereof necessary to secure adequate Revenues for the payment of the principal of and interest on the 2012A Bonds, or which would otherwise impair the operation of the Water System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Water System, or any material or equipment which has become worn out, may be 33 DOCSOC/1557331v4/022608-0009 sold if such sale will not impair the ability of the District to pay the principal of and interest on the 2012A Bonds and if the proceeds of such sale are deposited in the Revenue Fund. Nothing herein shall restrict the ability of the District to sell any portion of the Water System if such portion is immediately repurchased by the District and if such arrangement cannot by its terms result in the purchaser of such portion of the Water System exercising any remedy which would deprive the District of or otherwise interfere with its right to own and operate such portion of the Water System. Section 6.16. Against Competitive Facilities. To the extent that it can so legally obligate itself, the District covenants that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the District any water system competitive with the Water System. Section 6.17. Maintenance and Operation of the Water System. The District will maintain and preserve the Water System in good repair and working order at all times and will operate the Water System in an efficient and economical manner and will pay all Operating and Maintenance Costs as they become due and payable. Section 6.18. Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the funds or accounts created hereunder or on any funds in the hands of the District pledged to pay the principal of or interest on the 2012A Bonds or to the Owners prior or superior to the lien under the Indenture. Section 6.19. Insurance. (a) The District will procure and maintain or cause to be procured and maintained insurance on the Water System with responsible insurers in such amounts and against such risks (including damage to or destruction of the Water System) as are usually covered in connection with facilities similar to the Water System so long as such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Water System. The District shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Water System shall be free and clear of all claims and liens. If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of the Water System, and/or the cost of the construction of additions, betterments, extensions or improvements to the Water System, then the excess Net Proceeds shall be applied in part to the redemption of 2012A Bonds as provided in Section 4.01(a) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2012A Bonds then bears to the aggregate unpaid 34 DOCSOC/1557331v4/022608-0009 principal amount of such Bonds and Contracts. If such Net Proceeds are sufficient to enable the District to retire the entire obligation evidenced hereby prior to the final due date of the 2012A Bonds as well as the entire obligations evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the District may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Water System, and/or not to construct other additions, betterments, extensions or improvements to the Water System; and thereupon such Net Proceeds shall be applied to the redemption of 2012A Bonds as provided in Section 4.01(a) and to the retirement of such Bonds and Contracts. (b) The District will procure and maintain such other insurance as it shall deem advisable or necessary to protect its interests and the interests of the 2012A Bond Owners, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with municipal water systems similar to the Water System. (c) Any insurance required to be maintained by paragraph (a) above and, if the District determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance, may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with water systems similar to the Water System and is, in the opinion of an accredited actuary, actuarially sound. Section 6.20. Payment of Taxes and Compliance with Governmental Regulations. The District will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Water System, or any part thereof or upon the Revenues when the same shall become due. The District will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the Water System, or any part thereof, but the District shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. Section 6.21. Amount of Rates and Charges. The District shall fix, prescribe and collect rates and charges for the Water Service which will be at least sufficient to yield during each Fiscal Year Net Revenues equal to one hundred ten percent (110%) of the Debt Service for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of this Section. Section 6.22. Collection of Rates and Charges. The District will have in effect at all times by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Water Service and providing for the billing thereof and for a due date and a delinquency date for each bill. In each case where such bill remains unpaid in whole or in part after it becomes delinquent, the District may discontinue such service from the Water System, and such service shall not thereafter be recommenced except in accordance with District by-laws or rules, regulations and State law governing such situations of delinquency Section 6.23. Eminent Domain Proceeds. If all or any part of the Water System shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied as follows: (a) If: (1) the District files with the Trustee a certificate showing: (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the District by reason of 35 DOCSOC/1557331v4/022608-0009 such eminent domain proceedings; (ii) a general description of the additions, betterments, extensions or improvements to the Water System proposed to be acquired and constructed by the District from such Net Proceeds; and (iii) an estimate of the additional annual Net Revenues to be derived from such additions, betterments, extensions or improvements; and (2) the District, on the basis of such certificate filed with the Trustee, determines that the estimated additional annual Net Revenues will sufficiently offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so that the ability of the District to meet its obligations hereunder will not be substantially impaired (which determination shall be final and conclusive), then the District shall promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds shall be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the District for such purpose shall be deposited in the Revenue Fund. (b) If the foregoing conditions are not met, then such Net Proceeds shall be applied by the District in part to the redemption of 2012A Bonds as provided in Section 4.01(a) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2012A Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts. Section 6.24. Enforcement of Contracts. So long as any of the 2012A Bonds are outstanding, the District will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or hereafter entered into which contracts provide for water to be supplied to the District which consent, revision, amendment or other action will reduce the supply of water thereunder (except as provided therein), unless the Board of Directors of the District determines by resolution that such rescission or amendment would not materially adversely affect the ability of the District to pay principal of and interest on the 2012A Bonds. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF 2012A BOND OWNERS Section 7.01. Events of Default. The following events shall be Events of Default hereunder: (a) Default by the District in the due and punctual payment of the principal of any 2012A Bonds, the principal of any Bonds or the principal with respect to any Contract, when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Default by the District in the due and punctual payment of any installment of interest on any 2012A Bonds, any installment of interest on any Bond or any installment of interest with respect to any Contract, when and as the same shall become due and payable. (c) Default by the District in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2012A Bonds, or required by any Bond or indenture relating thereto or by any Contract, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the District by the Trustee or by the Owners of not 36 DOCSOC/1557331v4/022608-0009 less than a majority in aggregate principal amount of 2012A Bonds Outstanding, a majority in principal amount of such Bond outstanding, or a majority in principal amount outstanding with respect to such Contract, as applicable; provided, however, that if in the reasonable opinion of the District the default stated in the notice can be corrected, but not within such sixty (60) day period and corrective action is instituted by the District within such sixty (60) day period and diligently pursued in good faith until the default is corrected such default shall not be an Event of Default hereunder. (d) The District shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property. (e) Payment of the principal of any Bond or with respect to any Contract is accelerated in accordance with its terms. Section 7.02. Remedies Upon Event of Default. If any Event of Default specified in Section 7.01(d) or (e) shall occur and be continuing, the Trustee shall, and for any other Event of Default, the Trustee may, and, at the written direction of the Owners of not less than a majority in aggregate principal amount of the 2012A Bonds at the time Outstanding, shall, in each case, upon notice in writing to the District, declare the principal of all of the 2012A Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the 2012A Bonds contained to the contrary notwithstanding. Nothing contained herein shall permit or require the Trustee to accelerate payments due under the Indenture if the District is not in default of its obligation hereunder. Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the District shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the 2012A Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2012A Bonds to the extent permitted by law, and the reasonable charges and expenses of the Trustee, or shall deposit with the applicable trustee with respect to any Contract a sum sufficient to pay all the principal and installments of interest with respect to such Contract payment of which is overdue, with interest on such overdue principal at the rate borne by such Contract to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Contract, or shall deposit with the applicable trustee with respect to any Bond a sum sufficient to pay all the principal of and installment of interest on such Bond payment of which is overdue, with interest on such overdue principal at the rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Bonds, and any and all other Events of Default known to the Trustee or the applicable trustee with respect to such Contract or Bonds (other than in the payment of principal of and interest on the 2012A Bonds, payment of principal and interest with respect to such Contract or payment of principal and interest on such Bond, as applicable, due and payable solely by reason of 37 DOCSOC/1557331v4/022608-0009 such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case the Trustee shall on behalf of the Owners of all of the 2012A Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. Section 7.03. Application of Revenues and Other Funds After Default. If an Event of Default shall occur and be continuing, all Revenues held or thereafter received by the Trustee and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund) shall be applied in the following order: (i) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the 2012A Bonds, Contract or Bonds and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; (ii) To the payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs; (iii) To the payment of the principal of and interest then due on the 2012A Bonds (upon presentation of the 2012A Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid), in accordance with the provisions of the Indenture, the payment of the principal and interest then due with respect to such Contract in accordance with the provisions thereof and the payment of the principal of and interest then due on such Bonds in accordance with the provisions thereof and of any indenture related thereto, in the following order of priority: First: To the payment to the persons entitled thereto of all installments of interest then due on the 2012A Bonds, with respect to such Contract or on such Bonds, as applicable, in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any 2012A Bonds, principal with respect to such Contract or principal of any Bonds, as applicable, which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate of eight percent (8%) per annum, and, if the amount available shall not be sufficient to pay in full all the 2012A Bonds, all amounts due under such Contract or all the Bonds, as applicable, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and Third: If there shall exist any remainder after the foregoing payments, such remainder shall be paid to the District. Section 7.04. Trustee to Represent 2012A Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the 2012A Bonds, by taking and holding the 38 DOCSOC/1557331v4/022608-0009 same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney in fact of the Owners of the 2012A Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the 2012A Bonds or the Indenture and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2012A Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the 2012A Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the 2012A Bonds or the Indenture or any law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the 2012A Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2012A Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Owners of such 2012A Bonds, subject to the provisions of the Indenture. Section 7.05. 2012A Bond Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the 2012A Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction to direct the method of conduct in all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to 2012A Bond Owners not parties to such direction. Section 7.06. Suit by Owners. No Owner of any 2012A Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture with respect to such 2012A Bonds, unless: (a) such Owners shall have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than fifty percent (50%) in aggregate principal amount of the 2012A Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have failed to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) no direction inconsistent with such written request shall have been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the 2012A Bonds then Outstanding. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of 2012A Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of 2012A Bonds shall have any right in any manner whatever by his or their action to affect, disturb or 39 DOCSOC/1557331v4/022608-0009 prejudice the security of the Indenture or the rights of any other Owners of 2012A Bonds, or to enforce any right under the 2012A Bonds, the Indenture, or applicable law with respect to the 2012A Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding 2012A Bonds, subject to the provisions of the Indenture. Section 7.07. Absolute Obligation of the District. Nothing in this Section 7.07 or in any other provision of the Indenture or in the 2012A Bonds shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the principal of and interest on the 2012A Bonds to the respective Owners of the 2012A Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Revenues and other assets herein pledged therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the 2012A Bonds. Section 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners of the 2012A Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.09. No Waiver of Default. No delay or omission of the Trustee or of any Owner of the 2012A Bonds to exercise any right or power arising upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein. ARTICLE VIII THE TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture and no implied covenants or duties shall be read into the Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) The District may remove the Trustee at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2012A Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, 40 DOCSOC/1557331v4/022608-0009 conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon shall promptly appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the District and by giving the 2012A Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the District shall promptly appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any 2012A Bond Owner (on behalf of himself and all other 2012A Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the District 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 the request 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 the Indenture 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. Upon request of the successor Trustee, the District shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the District shall mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which is then rating the 2012A Bonds and to the 2012A Bond Owners at the addresses shown on the Registration Books. If the District fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the District. (e) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least Seventy Five Million Dollars ($75,000,000), and subject to supervision or examination for federal or state authority. If such bank, banking association 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 purpose of this subsection the combined capital and surplus of such trust company, banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. 41 DOCSOC/1557331v4/022608-0009 Section 8.02. Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, banking association or bank shall be eligible under subsection (e) of Section 8.01, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 8.03. Liability of Trustee. (a) The recitals of facts herein and in the 2012A Bonds shall be taken as statements of the District, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or the 2012A Bonds, nor shall the Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the 2012A Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the 2012A Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2012A Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of 2012A Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the 2012A Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for herein) in aggregate principal amount of the 2012A Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. (d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. (e) The Trustee shall not be deemed to have knowledge of any Default or Event of Default hereunder or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until a Responsible Officer of the Trustee shall have actual knowledge of such event or the Trustee shall have been notified in writing, in accordance with Section 11.07, of such event by the District or the Owners of not less than fifty percent (50%) of the 2012A Bonds then Outstanding. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the District of any of the terms, conditions, covenants or agreements herein of any of the documents executed in connection with the 2012A Bonds, or as to the existence of an Event of Default 42 DOCSOC/1557331v4/022608-0009 thereunder or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default thereunder. The Trustee shall not be responsible for the validity, effectiveness or priority of any collateral given to or held by it. (f) No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its rights or powers. (g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of Owners pursuant to the Indenture, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy. (h) Whether or not herein expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article VIII. (i) The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2012A Bonds. (j) The immunities extended to the Trustee also extend to its directors, officers, employees and agents. (k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and shall not be answerable for the conduct of the same if appointed by it with reasonable care. (l) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Water System, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (m) The Trustee agrees to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the District elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the 43 DOCSOC/1557331v4/022608-0009 Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The District agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. (n) The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof. Section 8.04. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may treat the Owners of the 2012A Bonds appearing in the Trustee’s Registration Books as the absolute owners of the 2012A Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary. Whenever in the administration of the trusts imposed upon it by the Indenture 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 Certificate, Request or Requisition of the District, and such Certificate, Request or Requisition shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 8.05. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture shall be retained in their respective possession and shall be subject at all reasonable times to the inspection of the District and any 2012A Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. Section 8.06. Compensation and Indemnification. The District shall pay to the Trustee from time to time all reasonable compensation for all services rendered under the Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture. The District shall indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or bad faith on its part, arising 44 DOCSOC/1557331v4/022608-0009 out of or in connection with the execution of the Indenture, acceptance or administration of this trust, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder. The rights of the Trustee and the obligations of the District under this Section 8.06 shall survive removal or resignation of the Trustee hereunder or the discharge of the 2012A Bonds and the Indenture. ARTICLE IX MODIFICATION OR AMENDMENT OF THE INDENTURE Section 9.01. Amendments Permitted. (a) The Indenture and the rights and obligations of the District and of the Owners of the 2012A Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the District and the Trustee may enter into when the written consent of the Owners of a majority in aggregate principal amount of all 2012A Bonds then Outstanding, exclusive of 2012A Bonds disqualified as provided in Section 11.09 hereof, shall have been filed with the Trustee. No such modification or amendment shall: (1) extend the fixed maturity of any 2012A Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each 2012A Bond so affected; or (2) reduce the aforesaid percentage of 2012A Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted herein, or deprive the Owners of the 2012A Bonds of the lien created by the Indenture on such Revenues and other assets except as permitted herein, without the consent of the Owners of all of the 2012A Bonds then Outstanding. It shall not be necessary for the consent of the 2012A Bond Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the District and the Trustee of any Supplemental Indenture pursuant to this subsection (a), the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency and the Owners of the 2012A Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. (b) The Indenture and the rights and obligations of the District, the Trustee and the Owners of the 2012A Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the District and the Trustee may enter into without the consent of any 2012A Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Outstanding 2012A Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the District contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2012A Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the District; 45 DOCSOC/1557331v4/022608-0009 (2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the District may deem necessary or desirable; (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereunder in effect, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and (4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2012A Bonds to remain excludable from gross income under the Code. (c) The Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Indenture authorized by subsections (a) or (b) of this Section which materially adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise. (d) Prior to the Trustee entering into any Supplemental Indenture hereunder, there shall be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the 2012A Bonds from federal income taxation and from state income taxation. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, the Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the District, the Trustee and all Owners of 2012A Bonds Outstanding shall thereafter be determined, exercised and enforced thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes. Section 9.03. Endorsement of 2012A Bonds; Preparation of New 2012A Bonds. 2012A Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the District and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2012A Bonds Outstanding at the time of such execution and presentation of his or her 2012A Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such 2012A Bonds. If the Supplemental Indenture shall so provide, new 2012A Bonds so modified as to conform, in the opinion of the District and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the District and authenticated by the Trustee, and upon demand on the Owners of any 2012A Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any 2012A Bond Owner, for 2012A Bonds then Outstanding, upon surrender for cancellation of such 2012A Bonds, in equal aggregate principal amount of the same maturity. 46 DOCSOC/1557331v4/022608-0009 Section 9.04. Amendment of Particular 2012A Bonds. The provisions of this Article shall not prevent any 2012A Bond Owner from accepting any amendment as to the particular 2012A Bonds held by him. ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. The 2012A Bonds may be paid by the District in any of the following ways, provided that the District also pays or causes to be paid any other sums payable hereunder by the District: (a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 2012A Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem all 2012A Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the 2012A Bonds then Outstanding. If the District shall also pay or cause to be paid all other sums payable hereunder by the District, then and in that case, at the election of the District (as evidenced by a Certificate of the District, filed with the Trustee, signifying the intention of the District to discharge all such indebtedness and the Indenture), and notwithstanding that any 2012A Bonds shall not have been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the District under the Indenture shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the District, the Trustee shall execute and deliver to the District all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment or redemption of 2012A Bonds not theretofore surrendered for such payment or redemption to the District. Section 10.02. Discharge of Liability on 2012A Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any Outstanding 2012A Bonds (whether upon or prior to the maturity or the Redemption Date of such 2012A Bonds), provided that, if such Outstanding 2012A Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provisions satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the District in respect of such 2012A Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject however, to the provisions of Section 10.04. The District may at any time surrender to the Trustee for cancellation by it any 2012A Bonds previously issued and delivered, which the District may have acquired in any manner whatsoever, and such 2012A Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. 47 DOCSOC/1557331v4/022608-0009 Section 10.03. Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any 2012A Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and shall be: (a) lawful money of the United States of America in an amount equal to the principal amount of such 2012A Bonds and all unpaid interest thereon to maturity, except that, in the case of 2012A Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provisions satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such 2012A Bonds and all unpaid interest and premium, if any, thereon to the Redemption Date; or (b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant or Independent Financial Consultant filed with the District and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the Redemption Date (with premium, if any), as the case may be, on the 2012A Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 2012A Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that: (i) the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the District) to apply such money to the payment of such principal, interest and premium, if any, with respect to such 2012A Bonds; and (ii) the District shall have delivered to the Trustee an opinion of Bond Counsel addressed to the District and the Trustee to the effect that such 2012A Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant’s or Independent Financial Consultant’s opinion referred to above). Section 10.04. Payment of 2012A Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2012A Bonds and remaining unclaimed for two (2) years after the principal of all of the 2012A Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two (2) years after the date of deposit of such moneys if deposited after said date when all of the 2012A Bonds became due and payable, shall be repaid to the District free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the District and the Trustee indemnifying the Trustee with respect to claims of Owners of 2012A Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the District as aforesaid, the Trustee shall at the written direction of the District (at the cost of the District) first mail to the Owners of 2012A Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2012A Bonds so payable and not presented and with respect to the provisions relating to the repayment to the District of the moneys held for the payment thereof. 48 DOCSOC/1557331v4/022608-0009 ARTICLE XI MISCELLANEOUS Section 11.01. Liability of District Limited to Revenues. Notwithstanding anything in the Indenture or the 2012A Bonds, but subject to the priority of payment with respect to Operating and Maintenance Costs and Non-Operating and Maintenance Costs, the District shall not be required to advance any moneys derived from any source other than the Revenues, the Revenue Fund and other moneys pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal of or interest on the 2012A Bonds or for any other purpose of the Indenture. Nevertheless, the District may, but shall not be required to, advance for any of the purposes hereof any funds of the District which may be made available to it for such purposes. The obligation of the District to make pay interest and principal on the 2012A Bonds is a special obligation of the District payable solely from the Net Revenues as provided herein, and does not constitute a debt of the District or of the State of California or of any political subdivision thereof (other than the District) in contravention of any constitutional or statutory debt limitation or restriction. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the District or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in the Indenture contained by or on behalf of the District or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.03. Limitation of Rights to Parties and 2012A Bond Owners. Nothing in the Indenture or in the 2012A Bonds expressed or implied is intended or shall be construed to give to any person other than the District, the Trustee and the Owners of the 2012A Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture 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 Trustee and the Owners of the 2012A Bonds. Section 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Section 11.05. Destruction of 2012A Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the District of any 2012A Bonds, the Trustee shall destroy such 2012A Bonds as may be allowed by law, and deliver a certificate of such destruction to the District. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2012A Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability 49 DOCSOC/1557331v4/022608-0009 shall not affect any other provision of the Indenture, and the Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The District hereby declares that it would have entered into the Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the 2012A Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable. Section 11.07. Notices. Any notice to or demand upon the District or the Trustee shall be deemed to have been sufficiently given or served for all purposes by being sent by facsimile or email or by being deposited, first class mail, postage prepaid, in a post office letter box, addressed, as the case may be, to the District at Yorba Linda Water District, P.O. Box 309, Yorba Linda, California 92885-0309, Attention: General Manager (or such other address as may have been filed in writing by the District with the Trustee), or to the Trustee at U.S. Bank National Association, 633 West Fifth Street, 24th Floor, Los Angeles, California 90071, Attention: Corporate Trust Services, Reference: Yorba Linda Water District, Series 2012A. Notwithstanding the foregoing provisions of this Section 11.07, the Trustee shall not be deemed to have received, and shall not be liable for failing to act upon the contents of, any notice unless and until the Trustee actually receives such notice. Section 11.08. Evidence of Rights of 2012A Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2012A Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such 2012A Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of 2012A Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and the District if made in the manner provided in this Section. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument 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. The Ownership of 2012A Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any 2012A Bond shall bind every future Owner of the same 2012A Bond and the Owner of every 2012A Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the District in accordance therewith or reliance thereon. Section 11.09. Disqualified 2012A Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2012A Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2012A Bonds which are known by the Trustee to be owned or held by or for the account of the District, or by any other obligor on the 2012A Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the District or any other obligor on the 2012A Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. 2012A Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if 50 DOCSOC/1557331v4/022608-0009 the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such 2012A Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the District or any other obligor on the 2012A Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request, the District shall certify to the Trustee those 2012A Bonds that are disqualified pursuant to this Section 11.09 and the Trustee may conclusively rely on such certificate. Section 11.10. Money Held for Particular 2012A Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2012A Bonds (or portions of 2012A Bonds in the case of registered 2012A Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2012A Bonds entitled thereto, subject, however, to the provisions of Section 10.04 hereof but without any liability for interest thereon. Section 11.11. Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of Section 6.05(a) and for the protection of the security of the 2012A Bonds and the rights of every Owner thereof. Section 11.12. Waiver of Personal Liability. No member, officer, agent, employee, consultant or attorney of the District shall be individually or personally liable for the payment of the principal of or premium or interest on the 2012A Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture. Section 11.13. Execution in Several Counterparts. The Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the District and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. Section 11.14. CUSIP Numbers. Neither the Trustee nor the District shall be liable for any defect or inaccuracy in the CUSIP number that appears on any 2012A Bond or in any redemption notice. The Trustee may, in its discretion, include in any redemption notice a statement to the effect that the CUSIP numbers on the 2012A Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the 2012A Bondholders and that neither the District nor the Trustee shall be liable for any inaccuracies in such numbers. Section 11.15. Choice of Law. THE INDENTURE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. S-1 DOCSOC/1557331v4/022608-0009 IN WITNESS WHEREOF, the District has caused the Indenture to be signed in its name by its President, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused the Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. YORBA LINDA WATER DISTRICT By: Its: President U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Officer A-1 DOCSOC/1557331v4/022608-0009 EXHIBIT A FORM OF 2012A BOND UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE INDENTURE) TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), 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. No. ____ $__________ UNITED STATES OF AMERICA STATE OF CALIFORNIA YORBA LINDA WATER DISTRICT REFUNDING REVENUE BOND, SERIES 2012A INTEREST RATE MATURITY DATE ORIGINAL ISSUE DATE CUSIP ____% October 1, 20__ September __, 2012 _____ REGISTERED OWNER CEDE & CO. PRINCIPAL AMOUNT: _________________________________________ DOLLARS The YORBA LINDA WATER DISTRICT, a county water district duly organized and existing under and by virtue of the laws of the State of California (the “District”), for value received, hereby promises to pay to the Registered Owner specified above or registered assigns (the “Registered Owner”), on the Maturity Date specified above (subject to any right of prior redemption hereinafter provided for), the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the interest payment date next preceding the date of authentication of this Bond (unless: (i) this Bond is authenticated after the fifteenth day of the calendar month preceding an interest payment date, whether or not such day is a business day, and on or before the following interest payment date, in which event it shall bear interest from such interest payment date; or (ii) this Bond is authenticated on or before September 15, 2012, in which event it shall bear interest from the Original Issue Date identified above; provided, however, that if as of the date of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the interest payment date to which interest has previously been paid or made available for payment on this Bond), at the Interest Rate per annum specified above, payable on April 1 and October 1 of each year, commencing April 1, 2013, calculated on the basis of a 360 day year composed of twelve 30 day months. Principal hereof and premium, if any, upon early redemption hereof are payable by check of the Trustee upon presentation and surrender hereof at the Office (as defined in the hereinafter described Indenture) of U.S. Bank National Association, as A-2 DOCSOC/1557331v4/022608-0009 trustee (the “Trustee”). Interest hereon is payable by check of the Trustee sent by first class mail on the applicable interest payment date to the Registered Owner hereof at the Registered Owner’s address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each interest payment date (except that in the case of a Registered Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Registered Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Registered Owner prior to the fifteenth (15th) day of the month preceding such interest payment date). This Bond is not a debt of the State of California, or any of its political subdivisions (other than the District), and neither the State, nor any of its political subdivisions (other than the District), is liable hereon, nor in any event shall this Bond be payable out of any funds or properties of the District other than the Net Revenues (as such term is defined in the Indenture of Trust, dated as of August 1, 2012 (the “Indenture”), by and between the District and the Trustee) and other moneys pledged therefor under the Indenture. The obligation of the District to make payments in accordance with the Indenture is a limited obligation of the District as set forth in the Indenture and the District shall have no liability or obligation in connection herewith except with respect to such payments to be made pursuant to the Indenture. This Bond does not constitute an indebtedness of the District in contravention of any constitutional or statutory debt limitation or restriction. This Bond is one of a duly authorized issue of bonds of the District designated as the “Yorba Linda Water District Refunding Revenue Bonds, Series 2012A” (the “2012A Bonds”), of an aggregate principal amount of ____________ Dollars ($_______), all of like tenor and date (except for such variation, if any, as may be required to designate varying series, numbers or interest rates) and all issued pursuant to the provisions of Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, including but not limited to Section 53583, and pursuant to the Indenture and the resolution authorizing the issuance of the 2012A Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the District) and all supplements thereto for a description of the terms on which the 2012A Bonds are issued, the provisions with regard to the nature and extent of the Net Revenues, and the rights thereunder of the Owners of the 2012A Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the District hereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The 2012A Bonds have been issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The 2012A Bonds have been issued by the District to refund certain obligations of the District, as more fully described in the Indenture. This Bond and the interest, premium, if any, hereon and all other 2012A Bonds and the interest and premium, if any, thereon (to the extent set forth in the Indenture) are special obligations of the District, secured by a pledge and lien on the Revenues and any other amounts on deposit in certain funds and accounts created under the Indenture, and payable first from amounts on deposit in the Ad Valorem Taxes Account of the Revenue Fund in accordance with the Indenture and, in the event that such amounts are not sufficient for such purpose, next from other from Net Revenues (as such terms are defined in the Indenture). As and to the extent set forth in the Indenture, all of the Revenues are exclusively and irrevocably pledged in accordance with the terms hereof and the provisions of the Indenture, to the payment of the principal of and interest and premium (if any) on this Bond. A-3 DOCSOC/1557331v4/022608-0009 The Indenture and the rights and obligations of the District and the Owners of the 2012A Bonds and the Trustee may be modified or amended from time to time and at any time with the written consent of the Owners of a majority in aggregate principal amount of all 2012A Bonds then Outstanding, exclusive of Bonds disqualified as set forth in the Indenture, in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall: (i) extend the fixed maturity of any 2012A Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the owner of each 2012A Bond so affected; or (ii) reduce the aforesaid percentage of 2012A Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the 2012A Bonds of the lien created by the Indenture on such Revenues and other assets, except as expressly provided in the Indenture, without the consent of the Owners of all of the 2012A Bonds then Outstanding. The Indenture and the rights and obligations of the District, of the Trustee and the Owners of the 2012A Bonds may also be modified or amended for certain purposes described more fully in the Indenture at any time in the manner, to the extent and upon the terms provided in the Indenture by a supplemental indenture, which the District and the Trustee may enter into without the consent of any 2012A Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the provisions of such supplemental indenture will not materially adversely affect the interests of the Owners of the Outstanding 2012A Bonds. The 2012A Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the District in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, the Indenture at a redemption price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. The 2012A Bonds maturing on or after October 1, 20__ are subject to redemption prior to their respective stated maturities, as a whole or in part on any date as in the order of maturity as directed by the District in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000, on or after October 1, 20__, at a redemption price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. The 2012A Bonds with stated maturities on October 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on each October 1 on and after October 1, 20__, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule: A-4 DOCSOC/1557331v4/022608-0009 Prepayment Date (October 1) Principal Amount 20__ $ 20__* * Final Maturity. As provided in the Indenture, notice of redemption shall be mailed by the Trustee by first class mail at least 20 days but not more than 60 days prior to the date fixed for redemption to the respective Owners of any 2012A Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, but neither the failure to receive such notice nor any defect in the notice or the mailing thereof shall affect the validity of the redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. If an Event of Default, as defined in the Indenture, shall occur, the principal of all of the 2012A Bonds and the interest accrued thereon may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture, but such declaration and its consequences may be rescinded and annulled as further provided in the Indenture. This Bond is transferable by the Registered Owner hereof, in person or by his or her duly authorized attorney in writing, at the office of the Trustee but only in the manner, subject to the limitations and upon payment of the taxes and charges provided in the Indenture and upon surrender and cancellation of this Bond. Upon registration of such transfer, a new 2012A Bond or 2012A Bonds of the same series, of authorized denomination or denominations, for the same aggregate principal amount of the same maturity will be issued to the transferee in exchange therefor. This Bond may be exchanged at said office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations of the same series and same maturity, but only in the manner, subject to the limitations and upon payment of the taxes and charges provided in the Indenture. The Trustee shall not be required to register the transfer or exchange of this Bond during the period in which the Trustee is selecting 2012A Bonds for redemption or if this Bond has been selected for redemption. The District and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the District and the Trustee shall not be affected by any notice to the contrary. It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Indenture and the laws of the State of California and that the amount of this Bond, together with all other indebtedness of the District, does not exceed any limit under any laws of the State of California, and is not in excess of the amount of 2012A Bonds permitted to be issued under the Indenture. A-5 DOCSOC/1557331v4/022608-0009 This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee. IN WITNESS WHEREOF, the District has caused this Bond to be executed in its name and on its behalf with the manual or facsimile signature of its President as of this ___th day of September, 2012. YORBA LINDA WATER DISTRICT By: Its: President A-6 DOCSOC/1557331v4/022608-0009 [FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION TO APPEAR ON BONDS] This is one of the Bonds described in the within-mentioned Indenture. Dated: September __, 2012 U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Signatory A-7 DOCSOC/1557331v4/022608-0009 [FORM OF ASSIGNMENT] For value received the undersigned hereby sells, assigns and transfers unto (Name, Address and Tax Identification or Social Security Number of Assignee) the within registered Bond and hereby irrevocably constitute(s) and appoint(s) __________________ _________________________ attorney, to transfer the same on the registration 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 Bond in every particular without alteration or enlargement or any change whatsoever. Signature Guaranteed: Note: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. Stradling Yocca Carlson & Rauth Draft of 8/6/12 DOCSOC/1557557v3/022608-0009 ESCROW AGREEMENT (SERIES 2003) THIS ESCROW AGREEMENT (SERIES 2003), dated as of August 1, 2012 (the “Agreement”), by and between the Yorba Linda Water District (the “District”) and U.S. Bank National Association, as escrow agent (the “Escrow Agent”) and as 2003 Trustee (as such term is defined herein), is entered into in accordance with Resolution No. _____ of the District adopted on August 23, 2012 and a Trust Agreement, dated as of August 1, 2003 (the “2003 Trust Agreement”), by and among the Yorba Linda Water District Public Financing Corporation (the “Corporation”), U.S. Bank National Association (the “2003 Trustee”), and the District to refund the outstanding Yorba Linda Water District Revenue Certificates of Participation (Highland Reservoir Renovation and Richfield Plant – Phase 3 Renovation Project) Series 2003 (the “2003 Certificates”). W I T N E S S E T H : WHEREAS, the District previously authorized the execution and delivery of the 2003 Certificates pursuant to the 2003 Trust Agreement; WHEREAS, the District has determined that a portion of the proceeds of the $_____ aggregate principal amount of the Yorba Linda Water District Refunding Revenue Bonds, Series 2012A (the “Bonds”) issued pursuant to an Indenture of Trust, dated as of August 1, 2012, by and between the District and U.S. Bank National Association, as trustee (the “Trustee”), will be used to provide a portion of the funds to pay on and prior to October 1, 2013, all regularly scheduled payments of principal and interest with respect to the 2003 Certificates, and to pay on October 1, 2013 the principal with respect to the 2003 Certificates maturing after October 1, 2013, plus interest with respect thereto accrued to such date, without premium (the “Prepayment Price”); and WHEREAS, by irrevocably depositing with the Escrow Agent moneys (as permitted by, in the manner prescribed by, and all in accordance with the 2003 Trust Agreement), which moneys will be used to purchase securities as described on Schedule A hereto (the “Federal Securities”), which Federal Securities satisfy the criteria set forth in Section 10.01 of the 2003 Trust Agreement, provided that the principal of and the interest on which when paid will provide money which, together with the moneys deposited with the Escrow Agent at the same time pursuant to this Agreement, will be fully sufficient to pay and discharge the 2003 Certificates; NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the District and the Escrow Agent agree as follows: SECTION 1. Deposit of Moneys. The District hereby instructs the Escrow Agent to deposit $______ received from the Trustee from the net proceeds of the Bonds in the Escrow Fund established hereunder. The District hereby further instructs the 2003 Trustee to transfer to the Escrow Agent $_____, constituting the amount on deposit in the reserve fund established under the 2003 Trust Agreement, which amount the District instructs the Escrow Agent to deposit in the Escrow Fund. The Escrow Agent shall hold all such amounts in irrevocable escrow separate and apart from other funds of the District and the Escrow Agent in a fund hereby created and established to be known as the “Escrow Fund” and to be applied solely as provided in this Agreement. The District 2 DOCSOC/1557557v3/022608-0009 represents that the moneys set forth above are at least equal to an amount sufficient to purchase the Federal Securities listed in Schedule A hereto, and to hold $____ uninvested as cash. SECTION 2. Investment of Moneys. The Escrow Agent acknowledges receipt of the moneys described in Section 1 and agrees immediately to invest such moneys in the Federal Securities listed on Schedule A hereto and to deposit such Federal Securities in the Escrow Fund. The Escrow Agent shall be entitled to rely upon the conclusion of Causey, Demgen & Moore Inc., Denver, Colorado (the “Verification Agent”), that the Federal Securities listed on Schedule A hereto mature and bear interest payable in such amounts and at such times as, together with cash on deposit in the Escrow Fund, will be sufficient to pay when due all regularly scheduled payments of principal and interest with respect to the 2003 Certificates on and prior to October 1, 2013, and to pay on October 1, 2013 the Prepayment Price (as such term is defined in the 2003 Trust Agreement) of the 2003 Certificates maturing after October 1, 2013. SECTION 3. Investment of Any Remaining Moneys. At the written direction of the District, the Escrow Agent shall reinvest any other amount of principal and interest, or any portion thereof, received from the Federal Securities prior to the date on which such payment is required for the purposes set forth herein, in noncallable Federal Securities maturing not later than the date on which such payment or portion thereof is required for the purposes set forth in Section 5, at the written direction of the District, as verified in a report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of obligations of political subdivisions to the effect that the reinvestment described in said report will not adversely affect the sufficiency of the amounts of securities, investments and money in the Escrow Fund to pay when due all regularly scheduled payments of principal and interest with respect to the 2003 Certificates on and prior to October 1, 2013, and to pay on October 1, 2013 the Prepayment Price of the 2003 Certificates maturing after October 1, 2013, and provided that the District has obtained and delivered to the Escrow Agent an unqualified opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, that such reinvestment will not adversely affect the exclusion from gross income for federal income tax purposes of the interest portion of the Installment Payments (as such term is defined in the 2003 Trust Agreement) or interest on the Bonds. Any interest income resulting from investment or reinvestment of moneys pursuant to this Section 3 which are not required for the purposes set forth in Section 5, as verified in the letter of the Verification Agent originally obtained by the District with respect to the refunding of the 2003 Certificates or in any other report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of tax-exempt obligations of political subdivisions, shall be paid to the District promptly upon the receipt of such interest income by the Escrow Agent. The determination of the District as to whether an accountant qualifies under this Escrow Agreement shall be conclusive. SECTION 4. Substitution of Securities. Upon the written request of the District, and subject to the conditions and limitations herein set forth and applicable governmental rules and regulations, the Escrow Agent shall sell, redeem or otherwise dispose of the Federal Securities, provided that there are substituted therefor from the proceeds of the Federal Securities other Federal Securities, but only after the District has obtained and delivered to the Escrow Agent: (i) an unqualified opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, to the effect that the substitution of securities is permitted under the legal documents in effect with respect to the 2003 Certificates and that such reinvestment will not adversely affect the exclusion from gross income for federal income tax purposes of the interest portion of the Installment Payments or interest with respect to the Bonds; and (ii) a report by a firm of independent certified public accountants to 3 DOCSOC/1557557v3/022608-0009 the effect that the reinvestment described in said report will not adversely affect the sufficiency of the amounts of securities, investments and money in the Escrow Fund to pay when due all regularly scheduled payments of principal and interest with respect to the 2003 Certificates on and prior to October 1, 2013, and to pay on October 1, 2013 the Prepayment Price of the 2003 Certificates maturing after October 1, 2013. The Escrow Agent shall not be liable or responsible for any loss resulting from any reinvestment made pursuant to this Agreement and in full compliance with the provisions hereof. SECTION 5. Payment of 2003 Certificates. (a) Payment. From the maturing principal of the Federal Securities and the investment income and other earnings thereon and other moneys on deposit in the Escrow Fund, the Escrow Agent shall on October 1, 2012 and each April 1 and October 1 thereafter through and including October 1, 2013, apply the amounts on deposit in the Escrow Fund to pay when due all regularly scheduled payments of principal and interest with respect to the 2003 Certificates on and prior to October 1, 2013, and to pay on October 1, 2013 the Prepayment Price of the 2003 Certificates maturing after October 1, 2013. (b) Irrevocable Instructions to Provide Notice. The forms of the notice required to be mailed pursuant to Sections 4.03 and 10.01 of the 2003 Trust Agreement are substantially in the forms attached hereto as Exhibits A and B. The District hereby irrevocably instructs the Escrow Agent to mail a notice of prepayment and a notice of defeasance of the 2003 Certificates in accordance with Sections 4.03 and 10.01, respectively, of the 2003 Trust Agreement, as required to provide for the prepayment of the 2003 Certificates in accordance with this Section 5. (c) Unclaimed Moneys. Any moneys which remain unclaimed for two years after October 1, 2013 shall be repaid by the Escrow Agent to the District. (d) Priority of Payments. The owners of the 2003 Certificates shall have a first and exclusive lien on all moneys and securities in the Escrow Fund until such moneys and such securities are used and applied as provided in this Agreement. (e) Termination of Obligation. As provided in the 2003 Trust Agreement, upon deposit of moneys with the Escrow Agent in the Escrow Fund as set forth in Section 1 hereof and the purchase of the various Federal Securities as provided in Section 2 hereof, all obligations of the District under the 2003 Trust Agreement with respect to the 2003 Certificates shall cease, terminate and become void except as set forth in the 2003 Trust Agreement. As provided in Section 9.01 of the Installment Purchase Agreement, dated as of August 1, 2003 (the “2003 Installment Purchase Agreement”), by and between the District and the Corporation, the obligations of the District under the 2003 Installment Purchase Agreement with respect to the portion of the Installment Payments relating to the 2003 Certificates shall cease, terminate, become void and be completely discharged and satisfied (except for the rights of the 2003 Trustee and the obligation of the District to have the Federal Securities and moneys on deposit in the Escrow Fund applied to Installment Payments). SECTION 6. Application of Certain Terms of the 2003 Trust Agreement. All of the terms of the 2003 Trust Agreement relating to the making of payments of principal and interest with respect to the 2003 Certificates and relating to the exchange or transfer of the 2003 Certificates are incorporated in this Agreement as if set forth in full herein. The procedures set forth in Sections 8.03 and 8.06 of the 2003 Trust Agreement relating to the resignation and removal and merger of the 2003 4 DOCSOC/1557557v3/022608-0009 Trustee under the 2003 Trust Agreement are also incorporated in this Agreement as if set forth in full herein and shall be the procedures to be followed with respect to any resignation or removal of the Escrow Agent hereunder. SECTION 7. Performance of Duties. The Escrow Agent agrees to perform only the duties set forth herein and shall have no responsibility to take any action or omit to take any action not set forth herein. SECTION 8. Escrow Agent’s Authority to Make Investments. Except as provided in Section 2 hereof, the Escrow Agent shall have no power or duty to invest any funds held under this Agreement or to sell, transfer or otherwise dispose of the moneys or Federal Securities held hereunder. SECTION 9. Indemnity. The District hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the District or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of this Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds and securities deposited therein, the retention of the proceeds thereof and any payment, transfer or other application of moneys or securities by the Escrow Agent in accordance with the provisions of this Agreement; provided, however, that the District shall not be required to indemnify the Escrow Agent against the Escrow Agent’s own negligence or willful misconduct or the negligence or willful misconduct of the Escrow Agent’s respective employees or the willful breach by the Escrow Agent of the terms of this Agreement. In no event shall the District or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section. The indemnities contained in this Section shall survive the termination of this Agreement. SECTION 10. Responsibilities of Escrow Agent. The Escrow Agent and its agents and servants shall not be held to any personal liability whatsoever, in tort, contract, or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or securities deposited therein, the retention of the Federal Securities or the proceeds thereof, the sufficiency of the Federal Securities to pay the 2003 Certificates or any payment, transfer or other application of moneys or obligations by the Escrow Agent in accordance with the provisions of this Agreement or by reason of any non-negligent act, non-negligent omission or non-negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact contained in the “Whereas” clauses herein shall be taken as the statements of the District, and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the proceeds to accomplish the refunding of the 2003 Certificates or to the validity of this Agreement as to the District and, except as otherwise provided herein, the Escrow Agent shall incur no liability in respect thereof. The Escrow Agent shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Agreement. The Escrow Agent may consult with counsel, who may or may not be counsel to the District, and in reliance upon the written opinion of 5 DOCSOC/1557557v3/022608-0009 such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter may be deemed to be conclusively established by a certificate signed by an officer of the District. 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 security transactions as they occur, the District specifically waives receipt of such confirmations to the extent permitted by law. The Escrow Agent will furnish the District periodic transaction statements which include detail for all investment transactions made by the Escrow Agent hereunder; provided that the Escrow Agent is not 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. SECTION 11. Amendments. This Agreement is made for the benefit of the District and the owners from time to time of the 2003 Certificates and it shall not be repealed, revoked, altered or amended without the written consent of all such owners, the Escrow Agent and the District; provided, however, that the District and the Escrow Agent may, without the consent of, or notice to, such owners, amend this Agreement or enter into such agreements supplemental to this Agreement as shall not adversely affect the rights of such owners and as shall not be inconsistent with the terms and provisions of this Agreement, Division 12 of the Water Code of the State of California, or the 2003 Trust Agreement, for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this Agreement; (ii) to grant to, or confer upon, the Escrow Agent for the benefit of the owners of the 2003 Certificates, any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such owners or the Escrow Agent; and (iii) to include under this Agreement additional funds. The Escrow Agent shall be entitled to rely conclusively upon an unqualified opinion of Stradling Yocca Carlson & Rauth, A Professional Corporation, with respect to compliance with this Section, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the owners of the various 2003 Certificates or that any instrument executed hereunder complies with the conditions and provisions of this Section. SECTION 12. Notice to Rating Agencies. In the event that this agreement or any provision thereof is severed, amended or revoked the Escrow Agent shall provide written notice of such severance, amendment or revocation to the rating agencies then rating the 2003 Certificates. SECTION 13. Term. This Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either: (i) the date upon which the 2003 Certificates have been paid in accordance with this Agreement; or (ii) the date upon which no unclaimed moneys remain on deposit with the Escrow Agent pursuant to Section 5(c) of this Agreement. SECTION 14. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as previously agreed to by the Escrow Agent and the District and any other reasonable fees and expenses of the Escrow Agent approved by the District; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien or assert any lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered or expenses incurred by the Escrow Agent under this Agreement. 6 DOCSOC/1557557v3/022608-0009 SECTION 15. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the District or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. SECTION 16. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as an original but all of which shall constitute and be but one and the same instrument. SECTION 17. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF CALIFORNIA. SECTION 18. Insufficient Funds. If at any time the Escrow Agent has actual knowledge that the moneys and investments in the Escrow Fund, including the anticipated proceeds of and earnings thereon, will not be sufficient to make all payments required by this Agreement, the Escrow Agent shall notify the District in writing, of the amount thereof and the reason therefor to the extent known to it. The Escrow Agent shall have no responsibility regarding any such deficiency. SECTION 19. Notice to District and Escrow Agent. Any notice to or demand upon the Escrow Agent may be served or presented, and such demand may be made, at the principal corporate trust office of the Escrow Agent at 633 West Fifth Street, 24th Floor, Los Angeles, California 90071, Attention: Corporate Trust Services, Reference: Yorba Linda Water District, Series 2003. Any notice to or demand upon the District shall be deemed to have been sufficiently given or served for all purposes by being mailed by registered or certified mail, and deposited, postage prepaid, in a post office letter box, addressed to the District at P.O. Box 309, Yorba Linda, California 92885-0309, Attention: General Manager (or such other address as may have been filed in writing by the District with the Escrow Agent). [Remainder of Page Intentionally Left Blank] S-1 DOCSOC/1557557v3/022608-0009 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first above written. YORBA LINDA WATER DISTRICT By: President U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent and as 2003 Trustee By: Authorized Officer Schedule A-1 DOCSOC/1557557v3/022608-0009 SCHEDULE A Federal Securities Security Maturity Principal Amount Interest Rate $ % Exhibit A-1 DOCSOC/1557557v3/022608-0009 EXHIBIT A NOTICE OF PREPAYMENT YORBA LINDA WATER DISTRICT REVENUE CERTIFICATES OF PARTICIPATION (HIGHLAND RESERVOIR RENOVATION AND RICHFIELD PLANT – PHASE 3 RENOVATION PROJECT) SERIES 2003 BASE CUSIP NO. 98618M NOTICE IS HEREBY GIVEN to the owners of the above-captioned Certificates (the “Certificates”) of the Yorba Linda Water District (the “District”) pursuant to the Trust Agreement, dated as of August 1, 2003 (the “2003 Trust Agreement”), by and among the District, the Yorba Linda Water District Public Financing Corporation and U.S. Bank National Association, as trustee (the “2003 Trustee”), that the Certificates in the amount of $______ have been called for prepayment on October 1, 2013 (the “Prepayment Date”). CUSIP Maturity (October 1) Rate Amount Price AL3 2014 4.20 % $ 265,000 100% AM1 2015 4.30 275,000 100 AN9 2016 4.40 285,000 100 AP4 2017 4.50 300,000 100 AQ2 2018 4.625 315,000 100 AR0 2019 4.70 325,000 100 AS8 2020 4.75 345,000 100 AT6 2021 5.00 360,000 100 AU3 2022 5.00 375,000 100 AV1 2023 5.00 395,000 100 AW9 2028 5.00 2,295,000 100 AX7 2033 5.00 2,930,000 100 The Certificates will be payable on the Prepayment Date at a prepayment price of 100% of the principal amount plus accrued interest to such date (the “Prepayment Price”). Subject to prior rescission as referenced below, the Prepayment Price of the Certificates will become due and payable on the Prepayment Date. Interest with respect to the Certificates to be prepaid will cease to accrue from and after the Prepayment Date, and such Certificates will be surrendered to the 2003 Trustee. All Certificates are required to be surrendered to the corporate trust office of the 2003 Trustee, on the Prepayment Date at the following location. If the Certificates are mailed, the use of registered, insured mail is recommended: If By Mail: If By Hand or Overnight Mail: U.S. Bank National Association Corporate Trust Services P.O. Box 64111 St. Paul, Minnesota 55164-0111 U.S. Bank National Association Corporate Trust Services 60 Livingston Avenue 1st Floor, Bond Drop Window St. Paul, Minnesota 55107 If the Owner of any Certificate subject to optional prepayment fails to deliver such Certificate to the 2003 Trustee on the Prepayment Date, such Certificate shall nevertheless be deemed prepaid on the Exhibit A-2 DOCSOC/1557557v3/022608-0009 Prepayment Date and the Owner of such Certificate shall have no rights in respect thereof except to receive payment of the Prepayment Price from funds held by the 2003 Trustee for such payment. A form W-9 must be submitted with the Certificates. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, 28% will be withheld if the tax identification number is not properly certified. U.S. BANK NATIONAL ASSOCIATION, as Trustee DATED this 1st day of September, 2013. Exhibit B-1 DOCSOC/1557557v3/022608-0009 EXHIBIT B NOTICE OF DEFEASANCE YORBA LINDA WATER DISTRICT REVENUE CERTIFICATES OF PARTICIPATION (HIGHLAND RESERVOIR RENOVATION AND RICHFIELD PLANT – PHASE 3 RENOVATION PROJECT) SERIES 2003 BASE CUSIP NO. 98618M NOTICE IS HEREBY GIVEN to the owners of the above-captioned certificates of participation (as further defined below, the “2003 Certificates”), of the Yorba Linda Water District (the “District”), that the District has deposited with U.S. Bank National Association, as trustee (the “2003 Trustee”) under the Trust Agreement, dated as of August 1, 2003 (the “2003 Trust Agreement”), by and among the District, the Yorba Linda Water District Public Financing Corporation (the “Corporation”) and the 2003 Trustee, cash and federal securities, the principal of and interest on which when paid will provide moneys sufficient to pay on and prior to October 1, 2013 the regularly scheduled payments of principal and interest with respect to the 2003 Certificates, and to pay on October 1, 2013, the principal with respect to the 2003 Certificates of the 2003 Certificates maturing after October 1, 2013. The 2003 Certificates to be defeased are as follows: CUSIP Maturity (October 1) Rate Amount Price AJ8 2012 4.00 % $ 245,000 100% AK5 2013 4.00 255,000 100 AL3 2014 4.20 265,000 100 AM1 2015 4.30 275,000 100 AN9 2016 4.40 285,000 100 AP4 2017 4.50 300,000 100 AQ2 2018 4.625 315,000 100 AR0 2019 4.70 325,000 100 AS8 2020 4.75 345,000 100 AT6 2021 5.00 360,000 100 AU3 2022 5.00 375,000 100 AV1 2023 5.00 395,000 100 AW9 2028 5.00 2,295,000 100 AX7 2033 5.00 2,930,000 100 In accordance with the 2003 Trust Agreement, the 2003 Certificates are deemed to have been paid in accordance with Section 10.01 thereof and the obligations of the District and the Corporation under the 2003 Trust Agreement and the Installment Purchase Agreement, dated as of August 1, 2003, by and between the District and the Corporation, with respect to the 2003 Certificates shall thereupon cease, terminate and become void and be discharged and satisfied. U.S. BANK NATIONAL ASSOCIATION, as Trustee Exhibit A-2 DOCSOC/1557557v3/022608-0009 DATED this __th day of September, 2012. Ballard Spahr draft 7/31/2012 DMWEST #9190531 v1 PURCHASE CONTRACT YORBA LINDA WATER DISTRICT $__________ Refunding Revenue Bonds, Series 2012A September ___, 2012 Yorba Linda Water District P.O. Box 309 Yorba Linda, CA 92885-0309 Ladies and Gentlemen: Citigroup Global Markets Inc., acting on behalf of itself and not as an agent or representative of you (the “Underwriter”), offers to enter into this purchase contract (the “Purchase Contract”) with the Yorba Linda Water District (the “District”), which will be binding upon the District and the Underwriter upon the acceptance hereof by the District. This offer is made subject to its acceptance by the District by execution of this Purchase Contract and its delivery to the Underwriter on or before 8:00 p.m., California time, on the date hereof. All terms used herein and not otherwise defined shall have the meanings given to such terms in the hereinafter defined Official Statement. 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements hereinafter set forth, the Underwriter hereby agrees to purchase, and the District hereby agrees to cause to be delivered to the Underwriter, all (but not less than all) of the District’s $__________ aggregate principal amount of Refunding Revenue Bonds, Series 2012A (the “Bonds”) at a purchase price of $__________ (representing the par amount of the Bonds, plus $__________ of original issue premium and less $__________ of Underwriter’s discount). 2. Description and Purpose of the Bonds. The Bonds will be dated the date of Closing (as hereinafter defined) and will be executed by the District and will be authenticated and delivered by U.S. Bank National Association, as trustee (the “Trustee”), pursuant to an Indenture of Trust dated as of August 1, 2012 (the “Indenture”) between the District and the Trustee. The Bonds shall mature on the dates and in the amounts and shall bear interest as set forth on Appendix A hereto and shall be as more particularly described in the Indenture and the Official Statement dated September ___, 2012 and relating to the Bonds (which, together with all exhibits and appendices included therein or attached thereto and such amendments or supplements thereto which shall be approved by the Underwriter, is hereinafter called the “Official Statement”). The Bonds are being executed and delivered to provide funds (i) to refinance the cost of constructing certain facilities within the District (the “2003 Project”) by refunding all of the outstanding Yorba Linda Water District (Highland Reservoir Renovation and DMWEST #9190531 v1 2 Richfield Plant – Phase 3 Renovation Project) Series 2003 (the “Refunded Certificates”) and (ii) to pay costs of issuance of the Bonds. In order to effect the refunding of the Refunded Certificates, the District will enter into the Escrow Agreement (Series 2003) dated as of August 1, 2012 (the “Escrow Agreement”) by and between the District and U.S. Bank National Association, as escrow agent (the “Escrow Agent”). 3. Public Offering. The Underwriter agrees to make an initial public offering of all the Bonds at the public offering prices (or yields) set forth in the Official Statement. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth on Appendix A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering price or prices set forth in the hereinafter referred to Official Statement. The Underwriter also reserves the right (i) to engage in transactions that stabilize, maintain or otherwise affect the market price of the Bonds at a level above that which might otherwise prevail in the open market and (ii) to discontinue such transactions, if commenced, at any time. 4. Delivery of Official Statement. Pursuant to the authorization of the District, the Underwriter has distributed copies of the Preliminary Official Statement dated August___, 2012, relating to the Bonds, which, together with the cover page and appendices thereto, is herein called the “Preliminary Official Statement.” By its acceptance of this proposal, the District hereby approves and ratifies the distribution and use by the Underwriter of the Preliminary Official Statement. The District agrees to execute and deliver a final Official Statement in substantially the same form as the Preliminary Official Statement with such changes as may be made thereto, with the consent of the District and the Underwriter, and to provide copies thereof to the Underwriter as set forth in Section 6(n) hereof. The District hereby authorizes the Underwriter to use and distribute, in connection with the offer and sale of the Bonds: the Preliminary Official Statement, the Official Statement, the Indenture, the Escrow Agreement, and the Continuing Disclosure Certificate (as hereinafter defined) and other documents or contracts to which the District is a party in connection with the transactions contemplated by this Purchase Contract, including this Purchase Contract and all information contained herein, and all other documents, certificates and statements furnished by the District to the Underwriter in connection with the transactions contemplated by this Purchase Contract. 5. The Closing. At 8:00 a.m., California time, on September [19], 2012 or at such other time or on such earlier or later business day as shall have been mutually agreed upon by the District and the Underwriter, the District will cause to be executed and delivered (i) the Bonds in book-entry form through the facilities of The Depository Trust Company, or its agent, on behalf of the Underwriter, and (ii) the closing documents hereinafter mentioned at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation (“Bond Counsel”) in Newport Beach, California or another place to be mutually agreed upon by the District and the Underwriter. The Underwriter will accept DMWEST #9190531 v1 3 such delivery of the Bonds and pay the purchase price of such Bonds as set forth in Section 1 hereof in immediately available funds to the order of the District. This payment for and delivery of the Bonds, together with the execution and delivery of the aforementioned documents, is herein called the “Closing.” 6. District Representations, Warranties and Covenants. The District represents, warrants and covenants to the Underwriter that: (a) Due Organization, Existence and Authority. The District is a county water district duly organized and existing under and pursuant to Division 12 of the California Water Code (Section 30000 et seq.), with full right, power and authority to execute, deliver and perform its obligations under this Purchase Contract, the Indenture, the Escrow Agreement, and the Continuing Disclosure Certificate (collectively, the “District Documents”) and to carry out and consummate the transactions contemplated by the District Documents and the Official Statement. (b) Due Authorization and Approval. By all necessary official action of the District, the District has duly authorized and approved the execution and delivery of, and the performance by the District of the obligations contained or described in, the Preliminary Official Statement, the Official Statement and the District Documents and as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered, and assuming the authorization, execution and delivery by the other parties thereto, each District Document will constitute the legally valid and binding obligation of the District enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws or equitable principles relating to or affecting creditors’ rights generally or by the exercise of judicial discretion in appropriate cases or by limitations on legal remedies against public agencies in the State. (c) Official Statement Accurate and Complete. The Preliminary Official Statement was as of its date, and the Official Statement is as of the date hereof, true and correct in all material respects, and the Preliminary Official Statement and the Official Statement contain no misstatement of any material fact and do not omit any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading (except no representation is made with respect to information relating to DTC or DTC’s book-entry system). (d) Underwriter’s Consent to Amendments and Supplements to Official Statement. The District will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The District will advise the Underwriter promptly of the institution of any proceedings known to it DMWEST #9190531 v1 4 by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (e) District Agreement to Amend or Supplement Official Statement. If after the date of this Purchase Contract and until 25 days after the end of the “underwriting period” (as defined in Section 240 15c2-12 in Chapter II of Title 17 of the Code of Federal Regulations (“Rule 15c2-12”)), any event occurs as a result of which the Official Statement as then amended or supplemented would include an untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, and, in the reasonable opinion of the Underwriter, an amended or supplemented Official Statement should be delivered in connection with the offers or sales of the Bonds to reflect such event, the District promptly will prepare at its expense an amendment or supplement which will correct such statement or omission and the District shall promptly furnish to the Underwriter a reasonable number of copies of such amendment or supplement. The Underwriter hereby agrees to deposit the Official Statement with a nationally recognized municipal securities information repository. The Underwriter acknowledges that the end of the “underwriting period” will be the date of Closing. (f) No Material Change in Finances. Except as otherwise described in the Official Statement, there shall not have been any material adverse changes in the financial condition of the District since June 30, 2011. (g) No Breach or Default. As of the time of acceptance hereof, (A) the District is not in default, nor has it been in default, as to principal or interest with respect to an obligation issued by the District, and (B) the District is not, in any manner which would materially adversely affect the transactions contemplated by the District Documents, in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the District is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute, in any manner which would materially adversely affect the transactions contemplated by the District Documents, a default or event of default under any such instrument; and, as of such time, the authorization, execution and delivery of the District Documents and compliance with the provisions of each of such agreements or instruments do not in any manner which would materially adversely affect the transactions contemplated by the District Documents, conflict with or constitute a breach of or default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, license, permit, trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the District (or any of its officers in their respective capacities as such) is DMWEST #9190531 v1 5 subject, or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may be provided by the District Documents. (h) No Litigation. As of the time of acceptance hereof, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, is pending or, to the best knowledge of the District after due investigation, threatened (A) in any way questioning the corporate existence of the District or the titles of the officers of the District to their respective offices; (B) affecting, contesting or seeking to prohibit, restrain or enjoin the execution or delivery of any of the Bonds, or in any way contesting or affecting the validity of the Bonds or the District Documents or the consummation of the transactions contemplated thereby, or contesting the exclusion of the interest on the Series 2012A Bonds from gross income for federal income tax purposes or contesting the powers of the District to enter into the District Documents; (C) which, except as described in the Official Statement, may result in any material adverse change to the financial condition of the District or to its ability to pay the debt service payments on the Bonds when due; or (D) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (A) through (D) of this sentence. (i) No Prior Liens on Revenues. Except for the Series 2008 Installment Payments, which are secured by a lien on the Revenues on a parity with the lien of the Bonds, the District does not and will not have outstanding any other indebtedness which indebtedness is secured by a lien on the Revenues superior to or on a parity with the lien of the Bonds on the Revenues. (j) Further Cooperation: Blue Sky. The District will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (A) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and (B) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the District shall not be required to execute a general or special consent to service of process or qualify to DMWEST #9190531 v1 6 do business in connection with any such qualification or determination in any jurisdiction. (k) Consents and Approvals. All authorizations, approvals, licenses, permits, consents and orders of or filings with any governmental authority, legislative body, board, agency or commission having jurisdiction in the matters which are required for the due authorization of, which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by the District of its obligations in connection with, the District Documents or the refunding of the Refunded Certificates have been duly obtained or made, except as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds. (l) No Other Obligations. Between the date of this Purchase Contract and the date of Closing and except as otherwise disclosed in the Official Statement, the District will not, without the prior written consent of the Underwriter, offer or issue any bonds, notes or other obligations for borrowed money, or incur any material liabilities, directly or contingently payable from the Revenues. (m) Certificates. Any certificate signed by any official of the District and delivered to the Underwriter shall be deemed to be a representation and warranty by the District to the Underwriter as to the statements made therein. (n) Compliance with Rule 15c2-12. The Preliminary Official Statement heretofore delivered to the Underwriter is hereby deemed final by the District as of its date and as of the date hereof, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(i) of Rule 15c2-12. The District hereby covenants and agrees that, within seven business days from the date hereof, the District shall cause a final printed form of the Official Statement to be delivered to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of Rule 15c2-12 and Rules of the Municipal Securities Rulemaking Board, with such additional copies as shall reasonably be requested by the Underwriter. (o) Continuing Disclosure. The District is currently in compliance with all continuing disclosure undertakings that it has entered into pursuant to Rule 15c2-12. The District will undertake, pursuant to a Continuing Disclosure Certificate (the “Continuing Disclosure Certificate”), to provide annual reports and notices of certain events in accordance with the requirements of Rule 15c2- 12. A form of the Continuing Disclosure Certificate is set forth as Appendix E to the Official Statement. 7. Closing Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties and covenants herein and the performance by the District of its obligations hereunder, both as of the date hereof and as DMWEST #9190531 v1 7 of the date of the Closing. The Underwriter’s obligations under this Purchase Contract are and shall be subject to the following additional conditions: (a) Bring-Down Representation. The representations, warranties and covenants of the District contained herein, shall be true, complete and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing. (i) Executed Agreements and Performance Thereunder. At the time of the Closing (i) the District Documents shall be in full force and effect, and shall not have been amended, modified or supplemented except with the written consent of the Underwriter, (ii) there shall be in full force and effect such resolutions (the “Resolutions”) as, in the opinion of Bond Counsel, shall be necessary in connection with the transactions contemplated by the Official Statement and the District Documents, (iii) the District shall perform or have performed its obligations required or specified in the District Documents to be performed at or prior to Closing, and (iv) the Official Statement shall not have been supplemented or amended, except pursuant to Paragraphs 6(d) and 6(e) hereof or as otherwise may have been agreed to in writing by the Underwriter. (ii) No Default. At the time of the Closing, no default, or any event that with the passage of time would be reasonably likely to result in default, shall have occurred or be existing under the Resolutions, the District Documents, or any other agreement or document pursuant to which any of the District’s financial obligations was issued and the District shall not be in default in the payment of principal or interest on any of its financial obligations which default would materially adversely impact the ability of the District to pay debt service on the Bonds. (b) Termination Events. The Underwriter shall have the right to terminate this Purchase Contract, without liability therefor, by written notification to the District if at any time at or prior to the Closing: (i) any event shall occur which causes any statement contained in the Official Statement to be materially misleading or results in a failure of the Official Statement to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading; or (ii) the marketability of the Bonds or the market price thereof, in the opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of this Purchase Contract in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or DMWEST #9190531 v1 8 otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or State court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority materially adversely affecting the federal or State tax status of the District, or the status of the interest on bonds or notes or obligations of the general character of the Series 2012A Bonds; or (iii) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State, or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or (iv) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall be issued or made to the effect that the execution, delivery, offering or sale of obligations of the general character of the Bonds, or the execution, delivery, offering or sale of the Bonds, including all underlying obligations, as contemplated hereby or by the Official Statement, is in violation or would be in violation of, or that obligations of the general character of the Bonds, or the Bonds, are not exempt from registration under, any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, or that the Indenture needs to be qualified under the Trust Indenture Act of 1939, as amended and as then in effect; or (v) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which restrictions materially adversely affect the Underwriter’s ability to trade the Bonds; or DMWEST #9190531 v1 9 (vi) a general banking moratorium shall have been established by federal or state authorities or any material disruption in commercial banking or securities settlement or clearance services shall have occurred, which moratorium or disruption materially adversely affects the ability of the Underwriter to market, sell or trade the Bonds; or (vii) the United States has become engaged in hostilities beyond currently existing hostilities which have resulted in a declaration of war or a national emergency or there has occurred any other outbreak or escalation of currently existing hostilities or a national or international calamity or crises, financial or otherwise, the effect of such outbreak, escalation, calamity or crisis on the financial markets of the United States, being such as, in the reasonable opinion of the Underwriter, would affect materially and adversely the ability of the Underwriter to market or deliver the Bonds; or (viii) any rating of the securities of the District reflecting the creditworthiness of the District shall have been downgraded, suspended or withdrawn by a national rating service, which, in the Underwriter’s reasonable opinion, materially adversely affects the marketability or market price of the Bonds; or (ix) the commencement of any action, suit or proceeding described in Paragraph 6(h) hereof which, in the reasonable judgment of the Underwriter, materially adversely affects the market price of the Bonds; or (x) there shall be in force a general suspension of trading on the New York Stock Exchange, which suspension materially adversely affects the ability of the Underwriter to market, sell or deliver the Bonds. (c) Closing Documents. At or prior to the Closing, the Underwriter shall receive with respect to the Bonds the following documents: (i) Approving Opinion. An approving opinion of Bond Counsel dated the date of the Closing and substantially in the form included as Appendix C to the Official Statement, together with a letter from such counsel, dated the date of the Closing and addressed to the Underwriter, to the effect that the foregoing opinion addressed to the District may be relied upon by the Underwriter to the same extent as if such opinion were addressed to it. (ii) Supplemental Opinion. A supplemental opinion or opinions of Bond Counsel addressed to the Underwriter, in form and substance acceptable to the Underwriter, and dated the date of the Closing substantially to the following effect: DMWEST #9190531 v1 10 (A) The Purchase Contract has been duly authorized, executed and delivered by the District and, assuming due authorization, execution and delivery by the other parties thereto, is a valid and binding agreement of the District enforceable in accordance with its terms, except that the rights and obligations under the Purchase Contract are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State; (B) The statements contained in the Official Statement on the cover page and under the captions “INTRODUCTION,” “THE 2012A BONDS,” “SECURITY FOR THE 2012A BONDS,” “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES,” and “TAX MATTERS,” and in Appendix B and Appendix C thereto, insofar as such statements purport to summarize certain provisions of the Bonds, the Indenture, State law and Bond Counsel’s opinions concerning certain federal tax matters relating to the Bonds, present a fair and accurate summary of such provisions. (iii) District Counsel Opinion. An opinion of Kidman Law LLP, general counsel to the District, dated the date of the Closing and addressed to the Underwriter, in form and substance acceptable to the Underwriter substantially to the following effect: (A) The District is a county water district duly organized and validly existing under the constitution and the laws of the State; (B) The District Documents have been duly authorized, executed and delivered by the District and, assuming the validity thereof against the other parties thereto, constitute the valid, legal and binding agreements of the District enforceable against the District in accordance with their respective terms, and the District has full right, power and authority to carry out and consummate all transactions contemplated by the District Documents as of the date of the Official Statement and as of the date of Closing; (C) Except for the Series 2008 Installment Payments, which are secured on a parity lien with the Bonds on the Revenues, the District does not and will not have outstanding any other indebtedness which indebtedness is secured by a lien on the Revenues superior to or on a parity with the lien of the Bonds on the Revenues; DMWEST #9190531 v1 11 (D) The resolution of the District approving and authorizing the execution and delivery of the District Documents, and approving the Official Statement, has been duly adopted at a meeting of the governing body of the District, which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and the resolution is in full force and effect and has not been modified, amended or rescinded; (E) The execution and delivery of the District Documents and compliance with the provisions thereof, under the circumstances contemplated thereby, do not and will not, in any respect which will have a material adverse impact on the transactions contemplated by the District Documents conflict with, or constitute, or with the giving of notice or the passage of time would constitute, on the part of the District a breach of or default under, any material agreement or other instrument to which the District is a party or by which it is bound or any existing law, administrative rule, regulation, order, decree, judgment, license or permit to which the District is subject (excluding, however, any opinion as to compliance with any applicable federal securities laws); or by which the District or any of its property is bound; (F) The Official Statement has been prepared by, or on behalf of, the District under the supervision of the District’s General Manager, and executed on its behalf by authorized officers of the District; (G) The information in the Official Statement under the captions “YORBA LINDA WATER DISTRICT” and “LITIGATION” is true and accurate to the best of such counsel’s knowledge at and as of the date of the Official Statement and at and as of the date of Closing; (H) No additional authorization, approval, consent, waiver or any other action by any person, board or body, public or private, not previously obtained is required as of the date of the Closing for the District to enter into the District Documents or to perform its obligations thereunder; (I) No litigation, proceeding, action, suit, or investigation (or any basis therefor) at law or in equity before or by any court, governmental agency or body, pending or, to such counsel’s best knowledge, threatened, against the District challenging the creation, organization or existence of the District, or the validity of the District Documents or seeking to restrain or enjoin the payment of debt service on the Bonds or in any way DMWEST #9190531 v1 12 contesting or affecting the validity of the District Documents or any of the transactions referred to therein or contemplated thereby or contesting the authority of the District to enter into or perform its obligations under any of the District Documents, or under which a determination adverse to the District would have a material adverse effect upon the financial condition or the revenues of the District, or which, in any manner, questions or affects the right or ability of the District to enter into the District Documents or affects in any manner the right or ability of the District to make payments of principal and interest on the Bonds from Net Revenues; and (J) Without having undertaken to determine independently or assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement, nothing has come to such counsel’s attention which would lead him to believe that the Official Statement as of its date and as of the date of Closing (excluding therefrom the financial and statistical data and forecasts and the information with respect to DTC and its book-entry system included therein, as to which no opinion is expressed) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iv) Trustee Counsel Opinion. The opinion of counsel to the Trustee, dated the date of the Closing, addressed to the District and the Underwriter, to the effect that: (A) The Trustee is a national banking association, duly organized and validly existing under the laws of the United States of America, having full corporate power to undertake the trust created under the Indenture; (B) The Indenture has been duly authorized, executed and delivered by the Trustee and, assuming due authorization, execution and delivery by the other party thereto, the Indenture constitutes the valid and binding obligation of the Trustee enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought; (C) The Trustee has duly authenticated and delivered the Bonds upon the order of the District; DMWEST #9190531 v1 13 (D) The Trustee’s actions in executing and delivering the Indenture are in full compliance with, and do not conflict with any applicable law or governmental regulation and, to the best of such counsel’s knowledge, after reasonable inquiry with respect thereto, do not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; and (E) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained, is, or will be required for the authentication and delivery of the Bonds or the consummation by the Trustee of its obligations under the Indenture. (v) Escrow Agent Counsel Opinion. The opinion of counsel to the Escrow Agent, dated the date of the Closing, addressed to the Underwriter, to the effect that: (A) The Escrow Agent is a national banking association, duly organized and validly existing under the laws of the United States of America, having full corporate power to enter into the Escrow Agreement; (B) The Escrow Agreement has been duly authorized, executed and delivered by the Escrow Agent and, assuming due authorization, execution and delivery by the other party thereto, the Escrow Agreement constitutes the valid and binding obligation of the Escrow Agent enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought; (C) The Escrow Agent’s actions in executing and delivering the Escrow Agreement are in full compliance with, and do not conflict with any applicable law or governmental regulation and, to the best of such counsel’s knowledge, after reasonable inquiry with respect thereto, do not conflict with or violate any contract to which the Escrow Agent is a party or any administrative or judicial decision by which the Escrow Agent is bound; and (D) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Escrow Agent that has not been obtained, is, or will be required for the execution and delivery DMWEST #9190531 v1 14 of the Escrow Agreement or the consummation by the Escrow Agent of its obligations under the Escrow Agreement. (vi) Underwriter’s Counsel Opinion. An opinion of Ballard Spahr LLP, Salt Lake City, Utah counsel to the Underwriter (“Underwriter’s Counsel”), dated the date of Closing and addressed to the Underwriter to the effect that: (A) Such counsel is of the opinion that the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; (B) While such counsel has not verified and is not passing upon and does not assume responsibility for, the accuracy, completeness or fairness of the statements contained in the Official Statement, such counsel has participated in conferences with representatives of and counsel for the District and Bond Counsel and representatives of the Underwriter at which the contents of the Official Statement were discussed and revised. Based on such counsel’s representation of the Underwriter in connection with the issuance of the Bonds, no facts came to the attention of the attorneys in such firm rendering legal services in connection with such representation which caused such counsel to believe that the Official Statement contained as of its date or as of the date of Closing contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect (except that no opinion or belief is expressed as to (i) the expressions of opinion, the assumptions, the projections, the financial statements, or other financial, numerical, economic, demographic or statistical data contained in the Official Statement, (ii) the information with respect to DTC and its book-entry system, and (iii) the information contained in Appendix A, Appendix C, or Appendix D to the Official Statement); and (C) The provisions of the Continuing Disclosure Certificate comply with the provisions of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. (vii) District Certificate. A certificate of the District, dated the date of the Closing, signed on behalf of the District by the General Manager or other duly authorized officer of the District to the effect that: (A) The representations, warranties and covenants of the District contained in the Purchase Contract are true and correct DMWEST #9190531 v1 15 in all material respects on and as of the date of the Closing as if made on the date of the Closing and the District has complied with all of the terms and conditions of the Purchase Contract required to be complied with by the District at or prior to the date of the Closing; (B) No event affecting the District has occurred since the date of the Official Statement which has not been disclosed therein or in any supplement or amendment thereto which event should be disclosed in the Official Statement in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except no representation is made with respect to information relating to DTC or DTC’s book-entry system); and (C) No event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute an event of default under the District Documents. (viii) Trustee’s Certificate. A certificate, dated the date of Closing, signed by a duly authorized official of the Trustee satisfactory in form and substance to the Underwriter, to the effect that: (A) The Trustee is duly organized and existing as a national banking association under the laws of the United States of America, having the full corporate power and authority to enter into and perform its duties under the Indenture; (B) The Trustee is duly authorized to enter into the Indenture and has duly executed and delivered the Indenture, and assuming due authorization and execution by the other party thereto, the Indenture is legal, valid and binding upon the Trustee, and enforceable against the Trustee in accordance with its terms; (C) The Trustee has duly authenticated the Bonds under the Indenture and delivered the Bonds to or upon the order of the Underwriter; and (D) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is or will be required for the authentication and delivery of the Bonds or the consummation by the Trustee of its obligations under the Indenture. (ix) Escrow Agent’s Certificate. A certificate, dated the date of Closing, signed by a duly authorized official of the Escrow Agent satisfactory in form and substance to the Underwriter, to the effect that: DMWEST #9190531 v1 16 (A) The Escrow Agent is duly organized and existing as a national banking association under the laws of the United States of America, having the full corporate power and authority to enter into and perform its duties under the Escrow Agreement; (B) The Escrow Agent is duly authorized to enter into the Escrow Agreement and has duly executed and delivered the Escrow Agreement, and assuming due authorization and execution by the other parties thereto, the Escrow Agreement is legal, valid and binding upon the Escrow Agent, and enforceable against the Escrow Agent in accordance with its terms; and (C) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Escrow Agent that has not been obtained is or will be required for the execution and delivery of the Bonds or the consummation by the Escrow Agent of its obligations under the Escrow Agreement. (x) Transcripts. Two transcripts of all proceedings relating to the authorization, execution and delivery of the Bonds. (xi) Official Statement. The Official Statement and each supplement or amendment, if any, thereto, executed on behalf of the District by duly authorized officers of the District. (xii) Documents. An original executed copy of each of the District Documents. (xiii) District Resolution. Two certified copies of the District Resolution, certified by the District Clerk. (xiv) Trustee Resolution. Two certified copies of the general resolution of the Trustee authorizing the execution and delivery of certain documents by certain officers and employees of the Trustee, which resolution authorizes the execution and delivery of the Indenture. (xv) 15c2-12 Certificate of the District. A certificate of the District “deeming final” the Preliminary Official Statement for purposes of Rule 15c2-12. (xvi) 8038-G. Evidence that the federal tax information form 8038-G relating to the Series 2012A Bonds has been prepared for filing. (xvii) Tax Certificate. A tax certificate relating to the Series 2012A Bonds in form satisfactory to Bond Counsel. DMWEST #9190531 v1 17 (xviii) CDAIC Statements. A copy of the Notices of Sale required to be delivered to the California Debt Advisory and Investment Commission pursuant to Sections 8855(g) and 53583 of the California Government Code. (xix) Ratings. Evidence from Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings, Inc. (“Fitch”) that the Bonds have been assigned ratings of “_____” and “_____,” respectively. (xx) Continuing Disclosure Certificate. An executed copy of the Continuing Disclosure Certificate. (xxi) Additional Documents. Such additional certificates, instruments and other documents as the Underwriter may reasonably deem necessary. If the District shall be unable to satisfy the conditions contained in this Purchase Contract, or if the obligations of the Underwriter shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and neither the Underwriter nor the District shall be under further obligation hereunder, except as further set forth in Section 8 hereof. 8. Expenses. The Underwriter shall be under no obligation to pay and the District shall pay or cause to be paid the expenses incident to the performance of the obligations of the District hereunder including but not limited to (a) the costs of the preparation and printing, or other reproduction (for distribution on or prior to the date hereof) of the District Documents and the cost of preparing, printing, issuing and delivering the Bonds; (b) the fees and disbursements of any counsel, financial advisors, accountants or other experts or consultants retained by the District; (c) the fees and disbursements of Bond Counsel and Counsel of the District; (d) the fees and disbursements of the rating agencies; (e) premiums relating to any insurance policy relating to the Bonds; (f) the cost of printing and distributing the Preliminary Official Statement and any supplements and amendments thereto and the cost of printing and distributing the Official Statement and any supplements and amendments thereto, including a reasonable number of copies thereof for distribution by the Underwriter; (g) expenses (included in the expense component of the Underwriter’s spread) incurred on behalf of the District’s officers or employees which are incidental to implementing this Purchase Contract, including, but not limited to, meals, transportation, lodging, and entertainment of those officers or employees; (h) CUSIP Service Bureau fees and charges; and (i) Trustee and Escrow Agent fees. The Underwriter shall pay and the District shall be under no obligation to pay all expenses incurred by it in connection with the public offering and distribution of the Bonds, including any advertising expenses, and the Underwriter shall pay any costs and expenses incurred in connection with the preparation and distribution of any blue sky surveys or any legal investment memoranda and the costs and fees of counsel to the Underwriter. DMWEST #9190531 v1 18 9. Notice. Any notice or other communication to be given to the District under this Purchase Contract may be given by delivering the same in writing to Yorba Linda Water District, P.O. Box 309, Yorba Linda, California 92885-0309, Attention: General Manager. Any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to Citigroup Global Markets Inc., 1850 Maple Glen Road, Sacramento, California 95864, Attention: David G. Houston, Managing Director. 10. Entire Agreement. This Purchase Contract, when accepted by the District, shall constitute the entire agreement between the District and the Underwriter with respect to the subject matter hereof and is made solely for the benefit of the District and the Underwriter (including the successors of the Underwriter). No other person shall acquire or have any right hereunder by virtue hereof, except as provided herein. All of the District’s representations, warranties and agreements in this Purchase Contract shall remain operative and in full force and effect except as otherwise provided herein, regardless of any investigations made by or on behalf of the Underwriter and shall survive the delivery of and payment for the Bonds. 11. No Advisory or Fiduciary Role. The District acknowledges and agrees that (i) the purchase and sale of the Bonds pursuant to this Purchase Contract is an arm’s- length commercial transaction between the District and the Underwriter, (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as a principal and is not acting as the agent, advisor or fiduciary of the District, (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the District with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the District on other matters) and the Underwriter has no obligation to the District with respect to the offering contemplated hereby except the obligations expressly set forth in this Purchase Contract, (iv) the Underwriter is not acting as municipal advisor (as defined in Section 15B of the Securities Exchange Act of 1934, as amended), and (v) the District has consulted its own legal, financial and other advisors to the extent they deemed appropriate in connection with the offering of the Bonds. 12. Counterparts. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 13. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. DMWEST #9190531 v1 19 14. STATE LAW GOVERNS. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS PURCHASE CONTRACT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. 15. No Assignment. The rights and obligations created by this Purchase Contract shall not be subject to assignment by the Underwriter or the District without the prior written consent of the other part 16. y hereto. DMWEST #9015341 S-1 [PURCHASE CONTRACT] CITIGROUP GLOBAL MARKETS INC. By: Managing Director Accepted as of the date first stated above: YORBA LINDA WATER DISTRICT By: _______________________________ General Manager DMWEST #9190531 v1 A-1 APPENDIX A $__________ Yorba Linda Water District Refunding Revenue Bonds, Series 2012A Maturity Date (October 1) Principal Amount Interest Rate Yield Price Stradling Yocca Carlson & Rauth Draft of 7/23/12 DOCSOC/1557602v2/022608-0009 CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Yorba Linda Water District (the “District”) in connection with the execution and delivery of $________ Refunding Revenue Bonds, Series 2012A (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of August 1, 2012 (the “Indenture of Trust”), by and between the District and U.S. Bank National Association, as trustee (the “Trustee”). The District covenants and agrees as follows: 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. 2. Definitions. In addition to the definitions set forth in the Indenture of Trust, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report. The term “Annual Report” means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner. The term “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. EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/. Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year. Holder. The term “Holder” means a registered owner of the Bonds. Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate. Official Statement. The term “Official Statement” means the Official Statement of the District dated September __, 2012 delivered in connection with the issuance of the Bonds. Participating Underwriter. The term “Participating Underwriter” means the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. 2 DOCSOC/1557602v2/022608-0009 3. Provision of Annual Reports. (a) The District shall provide not later than 270 days following the end of its Fiscal Year (commencing with Fiscal Year 2012) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which 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 4 of this Disclosure Certificate. (b) If the District is unable to provide to EMMA an Annual Report by the date required in subsection (a), the District shall send to EMMA a notice in substantially the manner prescribed by the Municipal Securities Rulemaking Board. 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) The audited financial statements of the District for the prior Fiscal Year, 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 Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Principal amount of the Bonds outstanding. (c) An update of the information in the following tables in the Official Statement: 1. Table 2 “PROPERTY TAX LEVIES AND COLLECTIONS;” 2. Table 3 “HISTORIC WATER SUPPLY IN ACRE FEET PER YEAR;” 3. Table 6 “HISTORIC WATER CONNECTIONS;” 4. Table 7 “HISTORIC WATER DELIVERIES IN ACRE FEET PER YEAR;” 5. Table 8 “HISTORIC WATER SALES REVENUES;” 6. Table 9 “TEN LARGEST WATER SYSTEM CUSTOMERS;” and 7. Table 15 “HISTORIC OPERATING RESULTS.” 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, which have been submitted to EMMA or the Securities and Exchange Commission; provided that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further that the District shall clearly identify each such 3 DOCSOC/1557602v2/022608-0009 document so included by reference. 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701-TEB); 6. tender offers; 7. defeasances; 8. ratings changes; and 9. bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds; 2. modifications to the rights of Bondholders; 4 DOCSOC/1557602v2/022608-0009 3. optional, unscheduled or contingent Bond calls; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and 7. appointment of a successor or additional trustee or the change of the name of a trustee. (c) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the District shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event. 6. Customarily Prepared and Public Information. Upon request, the District shall provide to any person financial information and operating data regarding the District which is customarily prepared by the District and is publicly available. 7. Termination of Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holders or Beneficial Owners of at least 50% aggregate principal amount of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of 5 DOCSOC/1557602v2/022608-0009 Default under the Indenture of Trust, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the District satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the District shall have refused to comply therewith within a reasonable time. 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: September __, 2012 YORBA LINDA WATER DISTRICT By: Its: President Stradling Yocca Carlson & Rauth Draft of 8/15/12 DOCSOC/1557047v5/022608-0009 . 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 ti 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 am e n d m e n t . T h e s e s e c u r it i e s m a y n o t b e s o l d , n o r m a y o f f e r s t o b u y t h e m b e a c c e p t e d , p r i o r t o th e t i m e t h e O f f i c i a l S t a t e m e n t i s d e l i v e r e d i n fi n a l f o r m . U n d e r n o c i r c u m s t a n c e s s h a l l t h i s P r e l im i n a r y O f f i c i a l S t a t e m e n t c o n s t i t u t e a n o f f e r t o s el 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 ll t h e r e be 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 s d 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 . PRELIMINARY OFFICIAL STATEMENT DATED AUGUST ____, 2012 NEW ISSUE – BOOK-ENTRY ONLY RATINGS: See the caption “RATINGS” $_________* YORBA LINDA WATER DISTRICT REFUNDING REVENUE BONDS, SERIES 2012A Dated: Date of Issuance Due: October 1, as set forth on the inside cover The 2012A Bonds are being issued in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Purchasers of the 2012A Bonds will not receive securities representing their beneficial ownership in the 2012A Bonds purchased. Interest on the 2012A Bonds is payable on April 1 and October 1 of each year, commencing April 1, 2013, until the maturity thereof. The principal of and interest on the 2012A Bonds are payable by the Trustee to Cede & Co. and such interest and principal payments are to be disbursed to the beneficial owners of the 2012A Bonds through their nominees. The 2012A Bonds are subject to optional, mandatory sinking fund and extraordinary redemption as more fully described herein. The 2012A Bonds are being issued to provide funds: (i) to advance refund all of the currently outstanding Yorba Linda Water District Revenue Certificates of Participation (Highland Reservoir Renovation and Richfield Plant – Phase 3 Renovation Project) Series 2003; and (ii) to pay costs of issuance of the 2012A Bonds, all as more fully described herein. The 2012A Bonds are being issued pursuant to the Indenture of Trust, dated as of August 1, 2012, by and between the Yorba Linda Water District and U.S. Bank National Association, as trustee. The 2012A Bonds are limited obligations of the District payable solely first from amounts on deposit in the Ad Valorem Taxes Account of the Revenue Fund remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs and second from other Net Revenues of the District’s Water System, and from amounts on deposit in certain funds and accounts created under the Indenture. The obligation of the District to pay principal of and interest on the 2012A Bonds is payable on a parity with approximately $32,750,000 aggregate principal amount of the Series 2008 Installment Payments. The District may incur additional obligations payable from Net Revenues on a parity with the obligation to pay principal of and interest on the 2012A Bonds, subject to the terms and conditions of the Indenture, as more fully described herein. THE OBLIGATION OF THE DISTRICT TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH IT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE DISTRICT TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM SOURCES DESCRIBED HEREIN, 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. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the 2012A Bonds is excluded from gross income for federal income tax purposes and is not an item of taxpreference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2012A Bonds is exempt from State of California personal income tax. See the caption “TAX MATTERS” with respect to tax consequences relating to the 2012A Bonds. ____________________________________ MATURITY SCHEDULE – See Inside Cover Page ____________________________________ The 2012A Bonds are offered when, as and if issued and received by the Underwriter, subject to the approval of the valid, legal and binding nature of the 2012A Bonds by Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, and certain other conditions. Certain matters will be passed upon for the Underwriter by its counsel, Ballard Spahr LLP, for the District by Kidman Law LLP, Irvine, California, and for the Trustee by its counsel. It is anticipated that the 2012A Bonds will be available for delivery through the facilities of The Depository Trust Company on or about September 19, 2012. CITIGROUP Dated: September ___, 2012 * Preliminary; subject to change. DOCSOC/1557047v5/022608-0009 $_________* YORBA LINDA WATER DISTRICT REFUNDING REVENUE BONDS, SERIES 2012A MATURITY SCHEDULE BASE CUSIP† _________ Maturity Date (October 1) Principal Amount Interest Rate Yield CUSIP Suffix† $ % % $________ ___% Term Certificates due October 1, 2033, Price _____%, CUSIP Suffix† ___ * Preliminary; subject to change. † CUSIP® is a registered trademark of the American Bankers Association. Copyright© 1999-2012 American Bankers Association. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP® numbers are provided for convenience of reference only. Neither the District nor the Underwriter take any responsibility for the accuracy of such numbers. DOCSOC/1557047v5/022608-0009 No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement in connection with the offering made hereby and, if given or made, such other information or representations must not be relied upon as having been authorized by the District or the Underwriter. 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 2012A Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2012A Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expression of opinions 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 since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2012A BONDS AT A LEVEL THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE 2012A BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND “FORWARD-LOOKING STATEMENTS.” NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS “ESTIMATE,” “PROJECT,” “ANTICIPATE,” “EXPECT,” “INTEND,” “BELIEVE” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. THE 2012A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2012A BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THE INDENTURE HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT The District maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2012A Bonds. DOCSOC/1557047v5/022608-0009 YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS Phil Hawkins, President Gary Melton, Vice President Michael J. Beverage, Director Ric Collett, Director Bob Kiley, Director STAFF Steve Conklin, P.E., Interim General Manager Stephen Parker, CPA, Finance Manager SPECIAL SERVICES General Counsel Kidman Law LLP Irvine, California Bond Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Trustee U.S. Bank National Association Los Angeles, California Financial Advisor Fieldman, Rolapp & Associates Irvine, California Verification Agent Causey Demgen & Moore Inc. Denver, Colorado TABLE OF CONTENTS Page i DOCSOC/1557047v5/022608-0009 SUMMARY STATEMENT ................................................................................................................... i INTRODUCTION ................................................................................................................................. 1 REFUNDING PLAN ............................................................................................................................. 2 General ............................................................................................................................................. 2 Verification ...................................................................................................................................... 2 THE 2012A BONDS ............................................................................................................................. 3 General Provisions ........................................................................................................................... 3 Transfers and Exchanges Upon Termination of Book-Entry Only System ..................................... 3 Redemption of the 2012A Bonds .................................................................................................... 4 Notice of Redemption ...................................................................................................................... 4 Book-Entry Only System ................................................................................................................. 5 DEBT SERVICE PAYMENT SCHEDULE ......................................................................................... 6 SECURITY FOR THE 2012A BONDS ................................................................................................ 6 Limited Obligations Payable From Net Revenues .......................................................................... 6 Rate Covenant .................................................................................................................................. 7 Additional Indebtedness .................................................................................................................. 7 No Reserve Fund ............................................................................................................................. 8 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................. 8 YORBA LINDA WATER DISTRICT .................................................................................................. 8 General ............................................................................................................................................. 8 Land and Land Use .......................................................................................................................... 9 Governance and Management ......................................................................................................... 9 Employees and Employee Benefits ............................................................................................... 10 Budget Process............................................................................................................................... 16 District Insurance ........................................................................................................................... 16 Outstanding Obligations ................................................................................................................ 17 Ad Valorem Tax Revenues ............................................................................................................ 17 WATER SUPPLY ............................................................................................................................... 20 General ........................................................................................................................................... 20 Historic and Projected Water Supply ............................................................................................ 23 THE WATER SYSTEM ...................................................................................................................... 23 General ........................................................................................................................................... 23 Historic Water Connections ........................................................................................................... 24 Historic Water Deliveries .............................................................................................................. 25 Historic Water Sales Revenues ...................................................................................................... 25 Largest Customers ......................................................................................................................... 26 Water System Rates and Charges .................................................................................................. 26 Collection Procedures .................................................................................................................... 28 Projected Water Connections ........................................................................................................ 28 TABLE OF CONTENTS (continued) Page ii DOCSOC/1557047v5/022608-0009 Projected Water Deliveries ............................................................................................................ 29 Projected Water Sales Revenues ................................................................................................... 29 Future Water System Improvements ............................................................................................. 30 WATER SYSTEM FINANCIAL INFORMATION ........................................................................... 30 Financial Statements ...................................................................................................................... 30 Wildfire Litigation Settlement ....................................................................................................... 30 Investment of District Funds ......................................................................................................... 31 Historic Operating Results and Debt Service Coverage ................................................................ 32 Projected Operating Results and Debt Service Coverage .............................................................. 32 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES ......................... 34 Article XIIIB .................................................................................................................................. 34 Proposition 218 .............................................................................................................................. 34 Future Initiatives ............................................................................................................................ 36 APPROVAL OF LEGAL PROCEEDINGS ........................................................................................ 36 LITIGATION ....................................................................................................................................... 36 General ........................................................................................................................................... 36 TAX MATTERS .................................................................................................................................. 36 FINANCIAL ADVISOR ..................................................................................................................... 38 RATINGS ............................................................................................................................................ 38 UNDERWRITING .............................................................................................................................. 38 CONTINUING DISCLOSURE UNDERTAKING ............................................................................. 39 MISCELLANEOUS ............................................................................................................................ 39 APPENDIX A YORBA LINDA WATER DISTRICT FINANCIAL STATEMENTS ........................................................................................... A-1 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE ............................................. B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL ................................................................... C-1 APPENDIX D INFORMATION CONCERNING DTC ............................................................................ D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ............................................ E-1 i DOCSOC/1557047v5/022608-0009 SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement, and the offering of the 2012A Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement. Purpose. The 2012A Bonds are being issued to provide funds: (i) to refund all of the currently outstanding Yorba Linda Water District Revenue Certificates of Participation (Highland Reservoir Renovation and Richfield Plant – Phase 3 Renovation Project) Series 2003; and (ii) to pay costs of issuance of the 2012A Bonds, all as more fully described herein. Security for the 2012A Bonds. The 2012A Bonds are limited obligations of the District payable solely from Revenues of the District’s Water System remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, and from amounts on deposit in certain funds and accounts created under the Indenture. The obligation of the District to pay principal of and interest on the 2012A Bonds is payable first from Ad Valorem Tax Revenues remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, if any, and, to the extent that such amounts are insufficient, next from other Net Revenues of the District’s Water System. The obligation of the District to pay principal of and interest on the 2012A Bonds is payable on a parity with payments with respect to approximately $32,750,000 aggregate principal amount of Series 2008 Installment Payments under the Series 2008 Installment Purchase Agreement. The District may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2012A Bonds in the future as described herein. The obligation of the District to pay principal of and interest on the 2012A Bonds pursuant to the Indenture does not constitute an obligation for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. The obligation of the District to pay principal of and interest on the 2012A Bonds is a special obligation of the District payable solely from the sources described herein, and does not constitute a debt of the District or of the State of California or any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. The Refunding Plan. A portion of the proceeds of the 2012A Bonds will be transferred to U.S. Bank National Association, as trustee with respect to the 2003 Certificates. Such moneys, together with moneys held in certain funds and accounts established in connection with the 2003 Certificates, will be applied to refund all outstanding 2003 Certificates in the aggregate principal amount of $8,965,000. Rate Covenant. The Indenture will require the District to fix, prescribe and collect rates and charges for the Water Service which will be at least sufficient to yield during each Fiscal Year Net Revenues equal to 110% of the Debt Service for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but will not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the foregoing requirements. Additional Contracts and Bonds Test. The Indenture permits the District to execute any Contracts or issue any Bonds on a parity with the obligation to pay principal of and interest on the 2012A Bonds, provided that certain conditions are satisfied as described herein. Redemption. The 2012A Bonds are subject to optional redemption, mandatory sinking fund redemption and extraordinary redemption from Net Proceeds of insurance or condemnation as described herein. ii DOCSOC/1557047v5/022608-0009 The District. The District was formed in 1959 as a county water district under the County Water District Law, Division 12 of the Water Code of the State of California, for purposes of supplying water for domestic, irrigation, sanitation, industrial, commercial, recreation and fire suppression use. The District is located in the northeastern portion of Orange County approximately 35 miles southeast of downtown Los Angeles and 11 miles north of Santa Ana, the county seat of the County. The District includes approximately 14,475 acres of land comprising 22.6 square miles. The District serves a population of approximately 83,613, and currently provides water services to approximately 24,180 residential, commercial, irrigation and other connections. In addition, the District provides wastewater service to a portion of the District. However, no revenues from the District’s wastewater system are pledged to the payment of the principal of, premium, if any, or interest on the 2012A Bonds. Approximately 95% of the operating revenues of the District for Fiscal Year 2011 are attributable to the Water System. The District service area lies within most of the City of Yorba Linda and portions of the cities of Anaheim, Brea, and Placentia, including certain unincorporated areas of the County. The service area of the District is bounded by the City of Placentia on the west, the City of Brea on the northwest, the City of Anaheim on the south, the County/San Bernardino County line on the east and the Chino Hills State Park on the north. See the caption “YORBA LINDA WATER DISTRICT.” The District currently has two primary sources of water: groundwater pumped from local wells and imported water purchased from the Municipal Water District of Orange County delivered from The Metropolitan Water District of Southern California. See the caption “WATER SUPPLY.” See the caption “YORBA LINDA WATER DISTRICT.” 1 DOCSOC/1557047v5/022608-0009 $_________* YORBA LINDA WATER DISTRICT REFUNDING REVENUE BONDS, SERIES 2012A INTRODUCTION This Official Statement, including the cover page, the inside cover page and all appendices hereto, provides certain information concerning the sale and delivery of Yorba Linda Water District Refunding Revenue Bonds, Series 2012A (the “2012A Bonds”). The 2012A Bonds are being issued pursuant to an Indenture of Trust, dated as of August 1, 2012 (the “Indenture”), by and between the Yorba Linda Water District (the “District”) and U.S. Bank National Association, Los Angeles, California, as trustee (the “Trustee”). Descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. Capitalized terms used and not otherwise defined herein have the meanings ascribed to them in Appendix B hereto entitled “DEFINITIONS AND SUMMARY OF THE INDENTURE.” The 2012A Bonds are being issued to provide funds: (i) to advance refund all of the currently outstanding $8,965,000 aggregate outstanding principal amount of Yorba Linda Water District Revenue Certificates of Participation (Highland Reservoir Renovation and Richfield Plant – Phase 3 Renovation Project) Series 2003 (the “2003 Certificates”); and (ii) to pay costs of issuance of the 2012A Bonds. See the caption “ESTIMATED SOURCES AND USES OF FUNDS.” The 2012A Bonds are limited obligations of the District payable solely from Net Revenues, which consist of Revenues of the District Water System remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, as such terms are defined in Appendix B hereto, and from amounts on deposit in certain funds and accounts created under the Indenture. The obligation of the District to pay principal of and interest on the 2012A Bonds is payable first from Ad Valorem Tax Revenues remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, if any, and, to the extent that such amounts are insufficient, next from other Net Revenues of the District’s Water System. The obligation of the District to pay principal of and interest on the 2012A Bonds is payable on a parity with approximately $32,750,000 aggregate principal amount of installment payments (the “Series 2008 Installment Payments”) under the Installment Purchase Agreement, dated as of February 1, 2008 (the “Series 2008 Installment Purchase Agreement”), by and between the District and the Yorba Linda Water District Public Financing Corporation (the “Corporation”). See the caption “YORBA LINDA WATER DISTRICT— Outstanding Obligations.” The District may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2012A Bonds in the future as described herein. See the caption “SECURITY FOR THE 2012A BONDS—Additional District Indebtedness.” The summaries and references to the Indenture and all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary or reference is qualified in its entirety by reference to the full Indenture and each such document, statute, report or instrument, copies of which are available for inspection at the offices of the District in Yorba Linda, California and will be available from the Trustee upon request and payment of duplication cost. The capitalization of any word not conventionally capitalized or otherwise defined herein indicates that such word is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unless otherwise indicated, all financial and statistical information herein has been provided by the District. * Preliminary; subject to change. 2 DOCSOC/1557047v5/022608-0009 The District regularly prepares a variety of reports, including audits, budgets and related documents. Any registered owner of the 2012A Bonds (each, an “Owner”) may obtain a copy of such report, as available, from the District. Additional information regarding the Official Statement may be obtained by contacting Yorba Linda Water District, P.O. Box 309, Yorba Linda, California 92885-0309, Attention: General Manager. REFUNDING PLAN General The District caused the execution and delivery of the 2003 Certificates, which are currently outstanding in the aggregate principal amount of $8,965,000, pursuant to a Trust Agreement, dated as of August 1, 2003 (the “2003 Trust Agreement”), by and among the District, the Corporation and U.S. Bank National Association, as trustee (the “2003 Trustee”). The 2003 Certificates are payable from installment payments made under the Installment Purchase Agreement, dated as of August 1, 2003 (the “2003 Installment Purchase Agreement”), by and between the District and the Corporation. The District plans to apply a portion of the proceeds of the 2012A Bonds to effect an advance refunding of the 2003 Certificates. Under an Escrow Agreement, dated as of August 1, 2012 (the “2003 Escrow Agreement”), by and between the District and the 2003 Trustee, the District will deliver a portion of the proceeds of the 2012A Bonds to the 2003 Trustee for deposit in the escrow fund established under the 2003 Escrow Agreement (the “2003 Escrow Fund”). The 2003 Trustee will invest a portion of the amounts deposited in the 2003 Escrow Fund in Federal Securities as set forth in the 2003 Escrow Agreement. From the maturing principal of the Federal Securities and related investment income and other moneys on deposit in the 2003 Escrow Fund, the 2003 Trustee will pay when due all regularly scheduled payments of interest and principal with respect to the 2003 Certificates, and pay on October 1, 2013 the principal of the 2003 Certificates maturing after October 1, 2013, plus interest accrued to such date, without premium. Sufficiency of the deposits in the 2003 Escrow Fund for those purposes will be verified by Causey, Demgen & Moore Inc., Denver, Colorado (the “Verification Agent”). Assuming the accuracy of such computations, as a result of the deposit and application of funds as provided in the 2003 Escrow Agreement, the 2003 Certificates will be defeased pursuant to the provisions of the 2003 Installment Purchase Agreement and the 2003 Trust Agreement under which the 2003 Certificates were delivered, as of the date of issuance of the 2012A Bonds. The amounts held and invested by the 2003 Trustee in the 2003 Escrow Fund are pledged solely to the payment of the 2003 Certificates. Neither the funds deposited in the 2003 Escrow Fund nor the interest on the invested funds will be available for the payments of principal of and interest on the 2012A Bonds. Verification Upon issuance of the 2012A Bonds, the Verification Agent will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to them by the Underwriter relating to: (a) the adequacy of the maturing principal of and interest on the Federal Securities to pay when due all interest with respect to the 2003 Certificates on and prior to the prepayment thereof and to pay the prepayment price of the 2003 Certificates when due; and (b) the computations of yield of the 2012A Bonds and the Federal Securities which support Bond Counsel’s opinion that the interest on the 2012A Bonds is excluded from gross income for federal income tax purposes. 3 DOCSOC/1557047v5/022608-0009 THE 2012A BONDS General Provisions The 2012A Bonds will be issued in the aggregate principal amount of $_________.* The 2012A Bonds will be dated as of the date of initial issuance thereof (the “Issuance Date”), will bear interest from such date at the rates per annum set forth on the inside cover page hereof, payable on April 1 and October 1 of each year, commencing April 1, 2013 (each, an “Interest Payment Date”), and will mature on the dates set forth on the inside cover page hereof. Interest on the 2012A Bonds will be computed on the basis of a 360-day year of twelve thirty-day months. The 2012A Bonds will be issued only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the 2012A Bonds. Ownership interests in the 2012A Bonds may be purchased in book-entry form, in denominations of $5,000 or any integral multiple thereof. See the caption “—Book-Entry Only System” below and Appendix D attached hereto. In the event that the book-entry only system described below is discontinued, the principal of and redemption premium (if any) on the 2012A Bonds are payable by check or draft of the Trustee upon presentation and surrender thereof at maturity or upon prior redemption at the office of the Trustee in Los Angeles, California (the “Office of the Trustee”). Interest on the 2012A Bonds is payable on each Interest Payment Date to the person whose name appears on the registration books maintained by the Trustee (the “Registration Books”) as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding the Interest Payment Date (the “Record Date”), such interest to be paid by check of the Trustee, sent by first class mail on the applicable Interest Payment Date to the Owner at such Owner’s address as it appears on the Registration Books. An Owner of $1,000,000 or more in principal amount of 2012A Bonds may, at such Owner’s option, be paid interest by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record Date. The principal of and interest and premium, if any, on the 2012A Bonds will be payable in lawful money of the United States of America. Interest on any 2012A Bond will be payable from the Interest Payment Date preceding the date of issuance thereof, unless such date is after a Record Date and on or before the succeeding Interest Payment Date, in which case interest thereon will be payable from such Interest Payment Date, or unless such date is on or before September 15, 2012, in which case interest thereon will be payable from the Issuance Date. Transfers and Exchanges Upon Termination of Book-Entry Only System In the event that the book-entry system described above is abandoned, the 2012A Bonds will be printed and delivered as provided in the Indenture. Thereafter, any 2012A Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by such person’s duly authorized attorney, upon surrender of such 2012A Bond for cancellation at the Office of the Trustee, accompanied by delivery of a duly executed instrument of transfer in a form approved by the Trustee. Upon the surrender of a 2012A Bond for transfer, the Trustee is to issue a new 2012A Bond or 2012A Bonds of the same maturity, for a like aggregate principal amount and of authorized denomination or denominations. The Trustee may charge a sum for each new 2012A Bond issued upon any transfer. The Trustee may require the payment by any 2012A Bond Owner requesting any such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. * Preliminary; subject to change. 4 DOCSOC/1557047v5/022608-0009 2012A Bonds may be exchanged at the Office of the Trustee, for a like aggregate principal amount of 2012A Bonds of other authorized denominations of the same maturity. The Trustee may charge a sum for each new 2012A Bond issued upon any exchange except in the case of any exchange of temporary 2012A Bonds for definitive 2012A Bonds. The Trustee may 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. Following any exchange of 2012A Bonds, the Trustee will cancel and destroy the 2012A Bonds it has received. The Trustee is not required to register the exchange or transfer of any 2012A Bond: (i) within 15 days preceding selection of 2012A Bonds for redemption; or (ii) selected for redemption. Redemption of the 2012A Bonds Optional Redemption. The 2012A Bonds maturing on or after October 1, 20__ are subject to redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the District in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000, on or after October 1, 20__, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. Mandatory Sinking Fund Redemption. The 2012A Bonds with stated maturities on October 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on each October 1 on and after October 1, 20__, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule:: Prepayment Date (October 1) Principal Amount 20__ $ 20__* * Final Maturity. Extraordinary Redemption. The 2012A Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the District in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds of insurance or condemnation, upon the terms and conditions of, and as provided for in, the Indenture, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. See Appendix B under the captions “PARTICULAR COVENANTS— Insurance” and “PARTICULAR COVENANTS—Eminent Domain Proceeds,” respectively, for a description of the circumstances under which the 2012A Bonds could be subject to extraordinary redemption from Net Proceeds of insurance or condemnation. Notice of Redemption When redemption is authorized or required, the Trustee will give notice to the Owners of the 2012A Bonds designated for redemption. Notice of redemption will be mailed by first class mail at least 20 days but not more than 60 days before any Redemption Date, to the respective Owners of any 2012A Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and the Information Services. Each notice of redemption will state the date of notice, the Redemption Date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, if less than all 2012A Bonds of any such maturity are to be redeemed, the serial numbers of the 2012A Bonds of 5 DOCSOC/1557047v5/022608-0009 such maturity to be redeemed by giving the individual number of each 2012A Bond or by stating that all 2012A Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2012A Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on the Redemption Date there will become due and payable on each of said 2012A Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2012A Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon ceases to accrue, and will require that such 2012A Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2012A Bond. Notice of redemption of 2012A Bonds will be given by the Trustee, at the expense of the District, for and on behalf of the District. With respect to any notice of optional redemption of 2012A Bonds, such notice will state that such redemption will be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2012A Bonds to be redeemed and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required to redeem such 2012A Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received. Book-Entry Only System One fully-registered 2012A Bond of each maturity will be issued in the principal amount of the 2012A Bonds of such maturity. Such 2012A Bond will be registered in the name of Cede & Co. and will be deposited with DTC. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the 2012A Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer. The District cannot and does not give any assurances that DTC participants or others will distribute payments of principal of and interest on the 2012A Bonds received by DTC or its nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will service and act in the manner described in this Official Statement. See Appendix D hereto for additional information concerning DTC. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 DOCSOC/1557047v5/022608-0009 DEBT SERVICE PAYMENT SCHEDULE Set forth below is a schedule of principal of and interest on the 2012A Bonds and other Contract payments for the period ending October 1 in each of the years indicated: 2012A Bonds October 1 2012A Bonds Principal 2012A Bonds Interest Contracts(1) Total 2012 $ $ $2,144,696 $ 2013 2,142,496 2014 2,144,296 2015 2,144,896 2016 2,144,296 2017 2,142,496 2018 2,144,496 2019 2,145,096 2020 2,144,296 2021 2,147,096 2022 2,143,296 2023 2,143,096 2024 2,146,296 2025 2,146,334 2026 2,143,096 2027 2,142,356 2028 2,143,544 2029 2,142,325 2030 2,142,025 2031 2,144,025 2032 2,143,100 2033 2,144,250 2034 2,144,250 2035 2,145,250 2036 2,147,000 2037 2,144,250 2038 2,142,000 TOTAL $ $ $ 57,890,656 $ (1) Contracts include the Series 2008 Installment Purchase Agreement. See the caption “YORBA LINDA WATER DISTRICT—Outstanding Obligations.” Source: Fieldman, Rolapp & Associates. SECURITY FOR THE 2012A BONDS Limited Obligations Payable From Net Revenues The District is obligated to make payments of principal of and interest on the 2012A Bonds solely from Net Revenues of the District’s Water System. The term “Net Revenues” means, for any Fiscal Year of the District (currently, the District’s Fiscal Year commences July 1 of each year) (“Fiscal Year”), the Revenues for such Fiscal Year less Operating and Maintenance Costs and Non-Operating and Maintenance Costs for such Fiscal Year. The obligation of the District to pay principal of and interest on the 2012A Bonds is payable first from Ad Valorem Tax Revenues remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, if any, and, to the extent that such amounts are insufficient, next from other Net Revenues of the District’s Water System. The obligation to make payments of principal of and interest on the 2012A Bonds is payable from Net Revenues on a parity with the obligation of the District to make payments with respect to approximately $32,750,000 aggregate principal amount of Series 2008 Installment Payments under the Series 2008 Installment Purchase Agreement. See Appendix B— “DEFINITIONS AND SUMMARY OF INDENTURE” for a detailed discussion of the terms of the Indenture. 7 DOCSOC/1557047v5/022608-0009 See the caption “YORBA LINDA WATER DISTRICT—Outstanding Obligations” for a discussion of parity and subordinate obligations. THE OBLIGATION OF THE DISTRICT TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH IT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE DISTRICT TO PAY PRINCIPAL OF AND INTEREST ON THE 2012A BONDS IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM SOURCES DESCRIBED HEREIN, 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. Rate Covenant The Indenture will require the District to fix, prescribe and collect rates and charges for the Water Service which will be at least sufficient to yield during each Fiscal Year Net Revenues equal to 110% of the Debt Service for such Fiscal Year. The District may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the foregoing requirements. Additional Indebtedness The District may at any time execute any Contract or issue any Bonds, as the case may be, in accordance herewith; provided: (a) The Net Revenues for any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of adoption by the Board of Directors of the District (the “Board”) of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by a special report prepared by an Independent Certified Public Accountant or Independent Financial Consultant on file with the District, produces a sum equal to at least 110% of the Debt Service for such twelve month period; and (b) The Net Revenues for any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of the execution of such Contract or the date of adoption by the Board of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such twelve month period to increases or decreases in rates and charges for the Water Service approved and in effect as of the date of calculation, as evidenced by a special report prepared by an Independent Certified Public Accountant or Independent Financial Consultant on file with the District, produces a sum equal to at least 110% of the Debt Service for such twelve month period plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such twelve month period assuming such Contracts had been executed or Bonds had been issued at the beginning of such twelve month period; and (c) The estimated Net Revenues for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Project to be financed from proceeds of such Contracts or Bonds, as evidenced by a certificate of the General Manager of the District on file with the District, including (after giving effect to the completion of all such uncompleted Projects) an allowance for estimated Net Revenues for each of such Fiscal Years arising from any increase in the income, rents, fees, rates and charges estimated to be fixed, prescribed or received for Water Service and which are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by a certificate of the Manager on file with the District, will produce a 8 DOCSOC/1557047v5/022608-0009 sum equal to at least 110% of the estimated Debt Service for each of such Fiscal Years, after giving effect to the execution of all Contracts and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Projects within such Fiscal Years, assuming that all such Contracts and Bonds have maturities, interest rates and proportionate principal repayment provisions similar to the Contract last executed or then being executed or the Bonds last issued or then being issued for the purpose of acquiring and constructing any of such uncompleted Projects. Notwithstanding the foregoing, Bonds issued or Contracts executed to refund Bonds or prepay Contracts may be delivered without satisfying the conditions set forth above if Debt Service in each Fiscal Year after the Fiscal Year in which such Bonds are issued or Contracts executed is not greater than Debt Service would have been in each such Fiscal Year prior to the issuance of such Bonds or execution of such Contracts. No Reserve Fund No reserve fund has been established in connection with the issuance of the 2012A Bonds. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds: Sources(1): Principal Amount $ Plus Net Original Issue Premium Transferred Moneys(2) Total Sources $ Uses(1): 2003 Escrow Fund $ Costs of Issuance(3) Total Uses $ (1) Totals may not add due to rounding. (2) Reflects moneys transferred from funds and accounts established in connection with the 2003 Certificates. (3) Includes Underwriter’s discount and certain legal, financing and printing costs. YORBA LINDA WATER DISTRICT General The District was formed in 1959 as a county water district under the County Water District Law, Division 12 of the Water Code of the State of California, for purposes of supplying water for domestic, irrigation, sanitation, industrial, commercial, recreation and fire suppression use. The District is located in the northeastern portion of Orange County (the “County”) approximately 35 miles southeast of downtown Los Angeles and 11 miles north of Santa Ana, the county seat of the County. The District includes approximately 14,475 acres of land comprising 22.6 square miles. The District serves a population of approximately 83,613, and currently provides water services to approximately 24,180 residential, commercial, irrigation and other connections. In addition, the District provides wastewater service to a portion of the District. However, no revenues from the District’s wastewater system are pledged to the payment of the principal of, premium, if any, or interest on the 2012A Bonds. Approximately 95% of the operating revenues of the District for Fiscal Year 2011 are attributable to the Water System. The District service area lies within most of the City of Yorba Linda and portions of the cities of Anaheim, Brea, and Placentia, including certain unincorporated areas of the County. The service area of the 9 DOCSOC/1557047v5/022608-0009 District is bounded by the City of Placentia on the west, the City of Brea on the northwest, the City of Anaheim on the south, the County/San Bernardino County line on the east and the Chino Hills State Park on the north. The District currently has two primary sources of water: groundwater pumped from local wells and imported water purchased from the Municipal Water District of Orange County (“MWDOC”) delivered from The Metropolitan Water District of Southern California (“MWD”). See the caption “WATER SUPPLY.” On October 16, 2009, the District filed a formal request to annex territory to the Orange County Water District (“OCWD”). On August 4, 2010, the Board voted to execute a Memorandum of Understanding with OCWD and with two other annexing agencies to establish provisions for annexation to OCWD’s service area, to authorize a plan of action and to set future cost apportionments in connection with the annexation process. The District requested annexation into OCWD of all portions of its service area that are not currently within OCWD boundaries. The annexation of such portions of the District’s service would allow the District to pump a higher percentage of groundwater annually from the local groundwater basin managed by OCWD. This would reduce the District’s dependence on water purchased from MWDOC, which is imported from northern California and the Colorado River. Under the current arrangement with OCWD, the District is allowed to pump approximately 50% of its total yearly water demands from the local groundwater basin. If the District’s annexation request is approved, such percentage could be as high as OCWD’s basin production percentage, which varies annually. See the caption “WATER SUPPLY—General—Groundwater.” If completed, the annexation into OCWD is expected to reduce the District’s variable water costs. The District and OCWD are currently cooperating with the two other partnering agencies to complete the environment assessment of the proposed annexation, as required under the California Environmental Quality Act. The projected operating results set forth under the caption “WATER SYSTEM FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage” assume completion of the annexation process by Fiscal Year 2014. While the District expects to complete the annexation process by Fiscal Year 2014, there can be no assurance that the annexation will be effected by such time, or at all. Land and Land Use The District currently includes approximately 14,475 acres of land and is the largest county water district in the County. Land use within the District consists primarily of residential and small commercial uses. Currently, there are no heavy industrial or manufacturing uses within the District’s boundaries. There are several light–industrial and commercial centers located mainly in the northwestern, southern and southeastern portions of the District. Governance and Management The District is governed by a 5-member Board, the members of which are elected at large by the registered voters in the District to staggered 4-year terms. The current Board of Directors members, the expiration dates of their terms and their occupations are set forth below. Board of Directors Member Expiration of Term Occupation Phil Hawkins, President November 2014 Real Estate Broker Gary Melton, Vice President November 2014 Restaurant Owner Michael J. Beverage, Director November 2012 Advertising and Marketing Consultant Ric Collett, Director November 2012 Retired Waste Management Industry Manager Bob Kiley, Director November 2014 Small Business Owner Day-to-day management of the District is delegated to the General Manager. Steve Conklin, P.E., has been the District’s Interim General Manager since July 2012, responsible for the daily operations of the 10 DOCSOC/1557047v5/022608-0009 District and for ensuring that policies established by the Board are followed and goals and objectives of the Board are carried out. Prior to his appointment as Interim General Manager, Mr. Conklin served as Engineering Manager of the District, responsible for administration of planning, design, engineering and construction of all capital improvements, replacements and development-related projects for the District’s water and sewer infrastructure. Additionally, Mr. Conklin was responsible for oversight of water quality compliance and for providing backup and administrative support to the General Manager. Mr. Conklin has over 30 years experience in the water industry and holds a professional license in Civil Engineering from the State of California. He earned his Bachelor’s degree and Master’s degree in Civil Engineering from California State University, Long Beach. Prior to joining the District, Mr. Conklin served as Associate General Manager and Director of Engineering for OCWD, and also worked as a consulting engineer for 15 years. Mr. Conklin is a Life Member of the American Water Works Association and Orange County Water Association. Stephen Parker, CPA, is the Finance Manager of the District. Mr. Parker joined the District in 2010 and manages the Finance Department, which consists of the Accounting, Customer Service and Meter Reading sections. Mr. Parker spearheaded the efforts that led to the District receiving Government Finance Officers Association awards for Excellence in Financial Reporting on its first ever Comprehensive Annual Financial Report and Distinguished Budget Presentation for its Annual Operating Budget. Prior to joining the District, Mr. Parker worked for over 10 years with Mayer Hoffman McCann P.C. (formerly Conrad & Associates, LLP), reaching the title of Senior Manager while serving as external auditor for numerous local government and nonprofit clients. Mr. Parker earned his Bachelor’s degree in Business Administration with an emphasis in Accounting from Biola University, and successfully obtained and maintains his Certified Public Accountant license. Employees and Employee Benefits General. As of June 30, 2012, the District had 76.5 full-time equivalent employees, including 4.5 full-time equivalent positions in the administration department, 12 employees in the engineering department, 15 employees in the finance department, 3 employees in the human resources department, 7 employees in the information technology department and 35 employees in the operations department. Non-management and non-supervisory employees of the District are represented by the Yorba Linda Water District Employees Association (the “Association”). The current memorandum of understanding between the District and the Association expired on June 30, 2012 and the District is in the process of negotiating a new memorandum of understanding with the Association. The District expects to operate pursuant to the terms and conditions of the current memorandum of understanding until the new memorandum of understanding is entered into. The District has not experienced any strikes or other labor actions. Of the total District employment, approximately 89% is chargeable to the Water System. Pension Benefits. The District participates in the 2.0% at 55 and 2.0% at 60 Risk Pools of the California Employees Retirement System (“CalPERS”), which are cost sharing multiple-employer defined benefit pension plans. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State. Benefit provisions and all other requirements are established by State statute and District ordinance. Copies of CalPERS’ annual financial report may be obtained from its Executive Office located at 400 P Street, Sacramento, CA 95814. The contribution rate for plan members in the CalPERS 2.0% at 55 Risk Pool Retirement Plan (those District employees who were hired prior to December 22, 2011) is 7% of their annual covered salary. Pursuant to an agreement with the Management and Supervisory employees, effective July 1, 2012, the District makes contributions equal to 4% of covered salary for Management and Supervisory employees on their behalf and for their account and such employees make contributions equal to 3% of their covered salary. For all non-management employees (those represented by the Association), the District makes the full 7% contribution required of the District employees on their behalf and for their account. 11 DOCSOC/1557047v5/022608-0009 District employees who were hired on and after December 22, 2011 participate in the 2.0% at 60 Risk Pool Retirement Plan at a contribution rate of 7% of their annual covered salary, and such employees are required to make such contributions themselves. Actuarial information for the District’s 2.0% at 60 Risk Pool Retirement Plan is not yet available because Fiscal Year 2012 is the first year of the District’s participation in such plan. Actuarial information set forth below relates only to the District’s 2.0% at 55% Risk Pool Retirement Plan. The District is also required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The required employer contribution rates for Fiscal Years 2011, 2010 and 2009 were 10.461%, 10.062% and 9.886%, respectively. The contribution requirements of the plan members are established by State statute, and the employer contribution rate is established and may be amended by CalPERS. For Fiscal Years 2011, 2010 and 2009, the District’s annual employer’s contributions were $527,743, $492,476 and $482,987, respectively, for CalPERS and were equal to the District’s required and actual contributions for each year. Required employer and employee contributions are determined from rates established by CalPERS based upon various actuarial assumptions which are revised annually. The District currently funds the normal pension costs, which are determined by CalPERS using the Entry Age Normal Actuarial Cost Method, as well as an amortization of the District’s unfunded actuarial liability. For Fiscal Year 2012, the District’s CalPERS contribution is expected to be $572,000, assuming budgeted salaries and a contribution rate of 11.507% of annual covered payroll, which is equal to the annual required contribution (the “ARC”). The contribution rate for Fiscal Year 2013 has been established at 10.238% of annual covered payroll. The decrease in the employer contribution rate in Fiscal Year 2013 is a result of a lump sum payoff of the District’s side fund liability in the amount of $835,943 in July 2012. Such payment reduces the District’s contribution rates for the current and future Fiscal Years. The District had an unfunded accrued liability of $2,528,400 for its CalPERS plan as of June 30, 2011, based on an actuarial value of assets of $21,074,400, as set forth in the most recent actuarial report prepared by CalPERS. Under Government Accounting Standards Board Statement No. 27, an employer reports an annual pension cost equal to the ARC plus an adjustment for the cumulative difference between the annual pension cost and the employer’s actual plan contributions for the year. The cumulative difference is called the net pension obligation and may be positive or negative. The ARC for Fiscal Year 2012 was determined by an actuarial valuation of the plan as of June 30, 2009 and the ARC for Fiscal Year 2013 has been determined by an actuarial valuation of the plan as of June 30, 2010. The staff actuaries at CalPERS annually prepare an actuarial valuation which covers a Fiscal Year ending approximately 15 months before the actuarial valuation is delivered (thus, the actuarial valuation delivered to the District in October 2011 covered the District’s Fiscal Year ended June 30, 2010). The actuarial valuations express the District’s required contribution rates in percentages of covered payroll, which percentages the District must contribute in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the District’s contribution rate derived from the actuarial valuation as of June 30, 2009 which was delivered in October 2010, affects the District’s Fiscal Year 2012 required contribution rate). CalPERS rules require the District to implement the actuary’s recommended rates. In calculating the annual actuarially recommended contribution rates, the CalPERS actuary calculates on the basis of certain assumptions the actuarial present value of benefits that CalPERS will fund under the CalPERS plans, which includes two components, the normal cost and the unfunded actuarial accrued liability (the “UAAL”). The normal cost represents the actuarial present value of benefits that CalPERS will fund under the CalPERS plans that are attributed to the current year, and the actuarial accrued liability represents the actuarial present value of benefits that CalPERS will fund that are attributed to past years. The UAAL represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at CalPERS and the 12 DOCSOC/1557047v5/022608-0009 present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement. The UAAL is based on several assumptions such as, among others, the rate of investment return, average life expectancy, average age of retirement, inflation, salary increases and occurrences of disabilities. In addition, the UAAL includes certain actuarial adjustments such as, among others, the actuarial practice of smoothing losses and gains over multiple years (which is described in more detail below). As a result, the UAAL may be considered an estimate of the unfunded actuarial present value of the benefits that CalPERS will fund under the CalPERS plans to retirees and active employees upon their retirement and not as a fixed expression of the liability that the District owes to CalPERS under its CalPERS plans. In each actuarial valuation, the CalPERS actuary estimates the actuarial value of the assets (the “Actuarial Value”) of the CalPERS plans at the end of the Fiscal Year (which assumes, among other things, that the rate of return during that Fiscal Year equaled the assumed rate of return; the District notes that, on March 14, 2012, the CalPERS Board adopted a reduction in the assumed rate of return from 7.75% to 7.5% effective July 1, 2012, which may act to increase the District’s required annual contributions). The CalPERS actuary uses a smoothing technique to determine Actuarial Value that is calculated based on certain policies. As described below, these policies changed significantly in 2004 and 2005, affecting the Actuarial Value calculation beginning in Fiscal Year 2007. On March 14, 2012, the CalPERS Board approved a change in the inflation assumption used in the actuarial valuations used to determine employer contribution rates. The inflation assumption was changed from 3% to 2.75% effective July 1, 2012. The change will impact the inflation component of the annual investment return assumption and the long term payroll growth assumption as follows: • The annual assumed investment return will decrease from 7.75% to 7.5%. • The long term payroll growth assumption will decrease from 3.25% to 3%. • The inflation component of individual salary scales will decrease from 3.25% to 3%. Although the full impact of the above changes is not yet clear, CalPERS has estimated that they could result in net increases in future contribution levels of approximately 1% to 2%. In April 2005, the CalPERS Board adopted new policies aimed at stabilizing rising employer costs. These policies were used to set employer contribution rates for the District beginning in Fiscal Year 2007. These policies include: • Spreading CalPERS market value asset gains and losses over 15 years rather than three years. • Widening the “corridor” limits for establishing the actuarial value of assets from 90% to 110% of market value to 80% to 120% of market value (except for the 3-year phase-in of investment losses from Fiscal Year 2009, as described below). • Establishing a rolling 30-year amortization on all remaining net unamortized gains or losses, instead of amortizing 10% of the net unamortized gain or loss each year pursuant to prior policy. Such an amortization schedule results in approximately 6% of unamortized gains and losses each year. Due to the excess of accrued liability over actuarial value of plan assets, the amortization payment of the total unfunded liability may be higher than the payment calculated over a 30-year amortization period. • Requiring a minimum employer contribution rate equal to the employer normal costs minus a 30-year amortization of surplus (but not less than 0%). 13 DOCSOC/1557047v5/022608-0009 Pursuant to the April 2005 policy change, multiple amortization bases (including those for benefit improvement or changes in actuarial methods or assumptions, which are typically less than 30 years) were combined into a single base (the gain and loss bases) and amortized over a rolling 30-year period to effect a “fresh start” as of June 30, 2004. The April 2005 policy did not affect other existing amortization bases for benefit improvements, assumptions changes and method changes. Due to significant market investment losses of approximately 24% in the CalPERS trust fund for Fiscal Year 2009, CalPERS implemented a 3-year phase-in of the Fiscal Year 2009 investment loss. This phased in approach will be achieved by temporarily relaxing the constraints on the smoothed value of assets around the actual market value. The corridor will be widened and then contracted as follows: • Increase the corridor limits from 80% to 120% of market value to 60% to 140% of market value to determine the actuarial value of assets for the June 30, 2009 valuation, which impacts the Fiscal Year 2012 contribution rate. • Reduce the corridor limits from 60% to 140% of market value to 70% to 130% of market value to determine the actuarial value of assets for the June 30, 2010 valuation, which impacts the Fiscal Year 2013 contribution rate. • Return to the 80% to 120% of market value corridor limits for the actuarial value of assets on June 30, 2011 and thereafter, which impacts contribution rates for Fiscal Year 2014 and beyond. • Asset losses outside of the 80% to 120% corridor described above will be amortized pursuant to a fixed 30-year amortization schedule. In addition, in February 2010, the CalPERS Board adopted a resolution requiring additional contributions for any plan or pool if the cash flows hamper adequate funding progress by preventing the expected funded status on a market value of assets basis of the plan to either: • Increase by at least 15% by June 30, 2043; or • Reach a level of 75% funded by June 30, 2043. Such contributions have been factored into the District’s contribution rates set by CalPERS. The following table summarizes the District’s annual required contributions for its CalPERS plan for Fiscal Years 2008 through 2012: 14 DOCSOC/1557047v5/022608-0009 Employer Contribution District-Funded Employee Contribution Employee Contribution Annual Pension Cost Percentage of Annual Pension Cost Contributed 2008 $439,109 $324,544 $ 0 $763,653 100% 2009 482,987 341,989 0 824,976 100 2010 492,476 342,607 0 835,083 100 2011 527,743 353,133 0 880,876 100 2012 549,308 333,408 942 883,658 100 The following table sets forth the schedule of funding for the District’s 2.0% at 55 Risk Pool as a whole as of June 30, 2010. The employer contribution rate for Fiscal Year 2013 is 10.238%. Valuation Date Entry Age Normal Accrued Liability Actuarial Value of Assets Unfunded Actuarial Accrued Liability Market Value of Assets Funded Ratio(1) Annual Covered Payroll 06/30/06 $2,754,396,608 $2,492,226,176 $262,170,432 $2,636,941,527 95.7% $699,897,835 06/30/07 2,611,746,790 2,391,434,447 220,312,343 2,756,866,680 105.6 665,522,859 06/30/08 2,780,280,768 2,547,323,278 232,957,490 2,581,857,668 92.9 688,606,681 06/30/09 3,104,798,222 2,758,511,101 346,287,121 2,014,366,266 64.9 742,981,488 06/30/10 3,309,064,934 2,946,408,106 362,656,828 2,320,125,367 70.1 748,401,352 (1) Based on the market value of assets. Source: CalPERS Actuarial Report Dated October 2011. For additional information relating to the District’s CALPERS plan, see Note 7 to the District’s audited financial statements for Fiscal Year 2011 attached hereto as Appendix A. CalPERS reported significant investment losses in 2009, which accounts for a portion of the increase in the District’s unfunded actuarial liability from June 30, 2008 to June 30, 2009. In addition, the increase in the District’s unfunded actuarial liability is attributable to CalPERS studies performed in Fiscal Year 2009 and the adjustment of assumptions made by CalPERS valuations for age at retirement, years of service, mortality rates, and certain other assumptions. CalPERS earnings reports for Fiscal Years 2010 and 2011 report an investment gain in excess of 13.0 and 21.7%, respectively. Future earnings performance may increase or decrease future contribution rates for plan participants, including the District. The District’s projections of Operating and Maintenance Costs shown under the caption “WATER SYSTEM FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage” do not assume further unusual increases in CalPERS contributions or other labor costs. However, no assurance can be provided that such expenses will not increase significantly in the future. Other Post-Employment Benefits. The District, through a single employer defined benefit plan, provides post-employment health care benefits (“OPEB”). Specifically, the District provides health (medical, dental and vision) insurance for its retired employees and directors, their dependent spouses (if married and covered on the District’s plan at time of retirement), or survivors in accordance with Board resolutions. Medical coverage is provided for retired employees who are age 50 or over and who have a minimum of 5 years service with the District. The District pays 100% of the premium for the retiree and two-thirds of the premium amount for eligible dependents accrued at a rate of one year for every three years of service. Two-thirds of the premium amount of medical coverage is provided for the surviving spouse of retired employees for the remaining vested period. The OPEB plan does not provide a publicly available financial report. 15 DOCSOC/1557047v5/022608-0009 The contribution requirements of OPEB plan members and the District are established and may be amended by the Board. Currently, contributions are not required from plan members. The District is currently funding its OPEB obligation on a pay-as-you-go basis. For the year ended June 30, 2011, the District paid $140,747 in health care costs for 15 retirees and their covered dependents and made a contribution of $162,818 to the OPEB plan. The District expects to make a contribution of $163,476 to the OPEB plan in Fiscal Year 2012. Governmental Accounting Standards Board Statement No. 45 (“GASB 45”) requires governmental agencies to account for and report the outstanding obligations and commitments related to other post-employment benefits in essentially the same manner as for pensions. While requiring the District to disclose the unfunded actuarial accrued liability and the annual required contribution (the actuarial value of benefits earned during a Fiscal Year plus costs to amortize the unfunded actuarial accrued liability, or “OPEB ARC”) in its financial statements, GASB 45 does not require the District to fund such OPEB ARC. The OPEB ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded liabilities of the plan over a period not to exceed thirty years. The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation: OPEB ARC $ 177,323 Interest on Net OPEB Obligation 11,824 Adjustment to OPEB ARC - Annual OPEB Cost (Expense) 189,147 Actual Contributions Made (303,565) Decrease in Net OPEB Obligation (114,418) Net OPEB Obligation – Beginning of Year 236,483 Net OPEB Obligation – End of Year $ 122,065 The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the OPEB plan, and the net OPEB obligation for the Fiscal Years ended June 30, 2011, 2010 and 2009 were as follows: Fiscal Year Ended June 30 Annual OPEB Costs Percentage of Annual OPEB Costs Contributed Net OPEB Obligation 2009 $217,979 44.64% $120,774 2010 224,018 48.35 236,483 2011 189,147 160.49 122,065 As of March 1, 2011, the District’s OPEB plan was 0% funded. The actuarial accrued liability for benefits was $1,594,667, and the actuarial value of assets was zero, resulting in an unfunded actuarial accrued liability (the “OPEB UAAL”) of $1,594,667. The covered payroll (annual payroll of active employees covered by the plan) was $5,044,860 and the ratio of the OPEB UAAL to the covered payroll was 31.61%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about rates of employee turnover, retirement, mortality, as well as economic assumptions regarding claim costs per retiree, healthcare inflation and interest rates. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress set forth below presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 16 DOCSOC/1557047v5/022608-0009 Projections of benefits for financial reporting purposes are based on the substantive OPEB plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the March 1, 2011 actuarial investment valuation, the entry age normal cost method was used. The actuarial assumptions included an inflation rate of 3.0% per annum, an investment return of 7.6% per annum, a projected salary increase of 3.0% per annum and a health inflation rate of 4.0% per annum. The District is using the level percentage of payroll method to allocate amortization cost by year and a closed 30 year period for the initial unfunded actuarial accrued liability. Valuation Date Actuarial Accrued Liability (a) Actuarial Value of Assets (b) OPEB UAAL (a) – (b) Funded Ratio (b) / (a) Annual Covered Payroll OPEB UAAL as Percentage of Annual Covered Payroll 6/1/2009 $1,740,127 $ - $1,740,127 0.00% $4,983,653 34.92% 3/1/2011 1,594,667 - 1,594,667 0.00 5,044,860 31.61 The District’s projections of Operating and Maintenance Costs shown under the caption “WATER SYSTEM FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage” do not assume further unusual increases in OPEB funding expenses. However, no assurance can be provided that such expenses will not increase significantly in the future. The District does not expect that any increased funding of OPEB will have a material adverse effect on the ability of the District to make payments of principal of and interest on the 2012A Bonds. Budget Process Prior to June 30 of each year, District staff submits a proposed budget for the following Fiscal Year to the Board. The Board generally conducts a public workshop to obtain comments from residents and ratepayers before adopting the budget. On June 28, 2012, the Board approved the budget for Fiscal Year 2013. Decisions by the Board and the General Manager during the period covered by the budget are flexible to changing conditions, while meeting the generally basic budgetary objectives of the Board. Water rates, fees and customer service charges are presented to the Board in August following approval of the budget. District Insurance The District is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. In an effort to manage its risk exposure, the District is a member of the Association of California Water Agencies/Joint Powers Insurance Authority (“ACWA/JPIA”). ACWA/JPIA is a risk-pooling self-insurance authority, created under provisions of State law. The purpose of ACWA/JPIA is to arrange and administer programs of insurance for the pooling of self-insured losses and to purchase excess insurance coverage. As of June 30, 2011, as a member of ACWA/JPIA, the District participated in the following insurance programs: • General and auto liability, public officials and employee’s error and omissions: Total risk financing self-insurance limits of $1,000,000 and combined single limit at $1,000,000 per occurrence. ACWA/JPIA purchases additional excess coverage layers as follows: $59 million for general, auto and public officials liability, which increases the limits on the insurance coverage noted above. 17 DOCSOC/1557047v5/022608-0009 • Employee dishonesty coverage up to $100,000 per loss, including public employee dishonesty, forgery or alteration and theft, disappearance and destruction coverages, subject to a $1,000 deductible per occurrence. • Property loss is paid at the replacement cost for property on file, if replaced within two years after the loss, otherwise paid on an actual cash value basis. The District’s Retrospective Allocation Point (deductible) is $25,000 per occurrence. ACWA/JPIA is self-insured for the first $50,000, and purchases excess coverage up to $100 million, subject to a $1,000 deductible, except for a $500 deductible on vehicles. • Boiler and machinery coverage for the replacement cost up to $100 million per occurrence, subject to various deductibles depending on the type of equipment. • Workers’ compensation insurance up to California statutory limits for all work related injuries/illnesses covered by California law. Other than the settlement discussed under the caption “WATER SYSTEM FINANCIAL INFORMATION—Wildfire Litigation Settlement,” settled claims have not exceeded any of the coverage amounts in any of last three Fiscal Years. The District is currently engaged in litigation with its excess liability insurers to recover the amount paid in connection with such settlement. See the caption “WATER SYSTEM FINANCIAL INFORMATION—Wildfire Litigation Settlement.” Outstanding Obligations Series 2008 Certificates. On February 26, 2008, the District caused the execution and delivery of the Revenue Certificates of Participation (2008 Capital Improvement Projects) Series 2008 (the “Series 2008 Certificates”) for the purpose of financing certain capital improvements to the Water System of the District. The Series 2008 Certificates are secured by the Series 2008 Installment Payments payable under the Series 2008 Installment Purchase Agreement. The Series 2008 Installment Payments, which are currently outstanding in the aggregate principal amount of $32,750,000, are payable from Net Revenues on a parity with the payments of principal of and interest on the 2012A Bonds. Revolving Line of Credit. [TO BE UPDATED TO REFLECT DOCUMENT STRUCTURE] The District is expected to enter into a revolving line of credit with Wells Fargo Bank, National Association (the “Line of Credit”) on or about the date of issuance of the 2012A Bonds. The Line of Credit is in the maximum outstanding principal amount of $7,000,000 and has an interest rate equal to 70% of the 1-month LIBOR rate plus 0.90% per annum. The District’s obligations outstanding from time to time under the Line of Credit are payable from Net Revenues on a subordinate basis to the payments of principal of and interest on the 2012A Bonds. Ad Valorem Tax Revenues General. The County levies a 1% ad valorem property tax on behalf of all taxing agencies in the County, including the District. The taxes collected are allocated to taxing agencies within the County, including the District, on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of “situs” growth in assessed value (new construction, change of ownership, and inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county-wide or less than city-wide special districts. 18 DOCSOC/1557047v5/022608-0009 In Fiscal Year 2011, the District received $1,258,769 in 1% ad valorem property tax revenues from the County. Such revenues constitute Ad Valorem Tax Revenues pledged to as the first source of payment of the principal of and interest on the 2012A Bonds. From time to time legislation has been considered as part of the State budget to shift Property Tax Revenues from special districts to school districts or other governmental entities. Legislation enacted in connection with the 1992-93 State budget shifted approximately 35% of many special districts’ shares of the countywide 1% ad valorem tax, including the District. The 2004-05 State budget reallocated additional portions of the special districts’ shares of the countywide 1% ad valorem tax, shifting a portion of the Ad Valorem Tax Revenues collected by the County from special districts to school districts. As a result of the 2004-05 State budget, the District lost approximately $1,586,028 of Ad Valorem Tax Revenues, cumulatively, over Fiscal Years 2005 and 2006. Pursuant to the 2004-05 State budget, such Ad Valorem Tax Revenues reverted to the District in Fiscal Year 2007. On November 2, 2004, State voters approved Proposition 1A, which amends the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State may not, among other things: (i) shift property taxes from local governments to schools or community colleges; or (ii) change how 1% ad valorem property tax revenues are shared among local governments without two-thirds approval of both houses of the State Legislature. Beginning in State fiscal year 2009-10, the State may shift to schools and community colleges a limited amount of local government 1% ad valorem property tax revenues if certain conditions are met, including: (a) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State; and (b) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years and no additional shifts may occur until the State repays the shifted revenues. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. On July 27, 2009, the Governor of the State signed a revised fiscal year 2009-10 State budget which included a shift of approximately 8% of 1% ad valorem property tax revenues from certain local agencies, including the District, to school districts and other governmental agencies. The District believes that pursuant to Proposition 1A, the State is obligated to repay the portion of the Ad Valorem Tax Revenues that were subject to such shift, totaling $102,192, to the District by State fiscal year 2012-13, plus interest at the rate of 2% per annum, all in accordance with Proposition 1A. There can be no assurance that the Ad Valorem Tax Revenues that the District currently expects to receive will not be temporarily shifted from the District pursuant to Proposition 1A in future years, or reduced pursuant to State legislation enacted in the future. The State is currently projecting a large deficit for Fiscal Year 2012-13. Various proposals have been circulated to address this projected deficit, including a temporary shift of 1% ad valorem property tax revenues from special districts such as the District. The District cannot predict whether the State will again temporarily shift some amount of the Ad Valorem Tax Revenues away from the District in the current or future Fiscal Years. If the property tax formula is changed for a State fiscal year or permanently changed in the future, it could have a material adverse effect on the receipt of Ad Valorem Tax Revenues by the District. See the caption “SECURITY FOR THE 2012A BONDS—Limited Obligations Payable From Net Revenues” for a discussion of the extent to which Ad Valorem Tax Revenues are available to make payments of principal of and interest on the 2012A Bonds. Assessed Valuation. The assessed valuation of the property in the County is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. 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. 19 DOCSOC/1557047v5/022608-0009 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. The table below sets forth the secured and unsecured assessed valuations for property in the District for Fiscal Years 2008 through 2012. The information in the table below has been provided by the Orange County Auditor-Controller. The District has not independently verified the information in the table below and does not guarantee its accuracy. TABLE 1 YORBA LINDA WATER DISTRICT ASSESSED VALUATION FISCAL YEARS 2008 THROUGH 2012 Fiscal Year Local Secured Utility(1) Unsecured Total 2008 $16,543,312,248 $ 725,046 $269,109,623 $16,813,146,917 2009 16,856,326,092 0 275,018,617 17,131,344,709 2010 16,427,302,430 0 285,869,712 16,713,172,142 2011 16,518,679,174 0 279,460,021 16,798,139,195 2012 16,999,386,679 0 246,912,352 17,246,299,031 (1) Since the enactment of Assembly Bill 2670, the assessed value of certain railroad property is no longer allocated to individual tax rate areas but to the entire county in which such property is located. Source: Orange County Auditor-Controller. Tax Levies and Delinquencies. In accordance with the State 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. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax-defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax-defaulted property is subject to sale by the County Treasurer-Tax Collector. Property taxes on the unsecured roll are due as of a January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of 1.5% per month begins to accrue on November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. 20 DOCSOC/1557047v5/022608-0009 The table below sets forth property tax levies and delinquencies in the District as of June 30 for Fiscal Years 2007 through 2011. TABLE 2 YORBA LINDA WATER DISTRICT PROPERTY TAX LEVIES AND COLLECTIONS FISCAL YEARS 2007 THROUGH 2011 Fiscal Year Secured Tax Charge(1) Amount Delinquent June 30 Percent Delinquent June 30 2007 $1,163,557.71 $38,081.94 3.27% 2008 1,233,431.30 49,578.43 4.02 2009 1,235,906.65 45,472.67 3.68 2010(2) 1,125,148.67 27,179.99 2.42 2011 1,209,831.35 19,811.11 1.64 (1) 1% General Fund apportionment. Includes secured and supplemental rolls. (2) Reflects shift of $102,192 of Ad Valorem Tax Revenues pursuant to Proposition 1A, which is expected to be repaid by the State in Fiscal Year 2013. See the caption “—General.” Source: California Municipal Statistics Inc. In Fiscal Year 2012, Ad Valorem Tax Revenues constituted approximately 4.61% of total Revenues received by the District. The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as provided for in Section 4701 et seq. of the State Revenue and Taxation Code. As a result of the implementation of the Teeter Plan by the County, the County apportions secured property taxes and assessments on an accrual basis when due (irrespective of actual collections) to participating local political subdivisions for which the County acts as the levying or collecting agency. The District does not participate in the Teeter Plan. As a result, the District is subject to the risk that delinquencies in the payment of 1% ad valorem property taxes could reduce the amount of Ad Valorem Property Taxes received by the District. Conversely, the District will benefit from Ad Valorem Property Taxes generated by penalties and interest charged on delinquent ad valorem property taxes. WATER SUPPLY General The District currently has two primary sources of water: groundwater pumped from ten local active wells and imported water purchased from MWDOC delivered from MWD. Groundwater. The District operates ten active water wells. Wells 1, 5, 7, 10, 12, 18 and 19 are located at the District’s Richfield Plant. Wells 11 and 20 are located adjacent to OCWD’s spreading basins. Well 15 is located in the City of Anaheim. In 1998, the District renovated the wells located at the Richfield Plant, upgrading them to current standards and single lift operations. The District’s wells are located in the Orange County Groundwater Basin, which is estimated to have a total storage capacity of 66,000,000 acre feet. The wells have an average depth of 400 feet and produce sufficient quantities to supply approximately 75% of water demand within the District. Total maximum daily production from the wells is approximately 15,000 gallons per minute. 21 DOCSOC/1557047v5/022608-0009 District groundwater pumping is affected by policies of OCWD, the agency responsible for managing the Orange County Groundwater Basin, including the setting of replenishment assessments, basin production percentages of total water demand by agencies pumping basin groundwater and basin equity assessments. OCWD establishes and collects replenishment assessments as a means of purchasing water and funding projects for the purpose of replenishing the Orange County Groundwater Basin. The replenishment assessment is established annually by OCWD and applies to every acre foot of groundwater produced from the Orange County Groundwater Basin. In addition, each year, OCWD sets a basin production percentage (the “BPP”) for water to be extracted from the Orange County Groundwater Basin. The BPP is the amount of groundwater, as a percentage of the total water demands, that can be pumped from the Orange County Groundwater Basin during the year by a groundwater pumping agency without incurring the additional assessment described in the following paragraph. The amount of groundwater that an agency can pump without incurring the additional assessment is calculated by multiplying the total water use of such agency by the BPP (the “BPP formula”). The additional assessment incurred by an agency that pumps groundwater above the limit established by the BPP formula is called the basin equity assessment (the “BEA”). The BEA is established annually by OCWD and is intended to discourage pumping of amounts above the BPP formula by raising the cost of producing groundwater so that it equals the cost of importing water, thereby encouraging groundwater pumping agencies to supplement their groundwater production with imported water for the portion of their water use that exceeds the BPP. The BEA is a surcharge to discourage, yet still allow for, the production of groundwater in excess of the BPP formula. One of the District’s operating objectives is to minimize the production of groundwater in excess of the BPP formula in order to minimize the BEA payment. In Fiscal Year 2011, the District did not pay a BEA to OCWD. Because of historic low precipitation in the Santa Ana River Watershed and a drawdown of the Orange County Groundwater Basin in recent years, OCWD has lowered the BPP. For Fiscal Years 2009, 2010 and 2011, the BPP was 69%, 62% and 62%, respectively. As a result of higher local precipitation in Fiscal Year 2011, which resulted in a substantial recharge of the Orange County Groundwater Basin, the BPP for Fiscal Year 2012 was raised to 65%, which, based on estimated demands, would allow the District to pump approximately 10,746 acre feet from the Orange County Groundwater Basin without incurring any BEA. The District pays OCWD a replenishment assessment of $254 per acre foot for all groundwater pumped and a BEA equal to an additional $493 per acre foot for groundwater pumped in excess of the BPP formula. OCWD faces various challenges in managing the Orange County Groundwater Basin. A description of these challenges as well as a variety of other operating information with respect to OCWD is included in certain disclosure documents prepared by OCWD. OCWD has certain publicly available documents and has entered into certain continuing disclosure agreements pursuant to which OCWD is contractually obligated, for the benefit of owners of certain of their outstanding obligations, to file certain annual reports, notices of certain enumerated events as defined under Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”), and annual audited financial statements (the “OCWD Information”) with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System (“EMMA”), maintained on the Internet at http://emma.msrb.org. The OCWD Information is not incorporated herein by reference thereto, and the District makes no representation as to the accuracy or completeness of such information. OCWD HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE DISTRICT, THE TRUSTEE OR THE OWNERS OF THE 2012A BONDS TO PROVIDE OCWD INFORMATION TO THE DISTRICT OR THE OWNERS OF THE 2012A BONDS. OCWD HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO OCWD. OCWD IS NOT CONTRACTUALLY 22 DOCSOC/1557047v5/022608-0009 OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE DISTRICT OR THE OWNERS OF THE 2012A BONDS UNDER RULE 15c2-12. Imported Water. The other source of supply available to the District is water that the District purchases from MWDOC, a member of MWD. MWD imports water into southern California from the Colorado River via the Colorado River Aqueduct, and from northern California via the State Water Project. MWD is the largest wholesale water agency in the United States, distributing water to a service area that extends from Ventura to the California-Mexico border. MWD’s distribution system sells water directly to certain agencies and through subsidiary agencies such as MWDOC to other agencies such as the District. The District pays for its imported water through MWDOC but takes actual delivery of water it purchases through pipelines owned by MWD in the Orange County area. The pipelines used to import water have a combined capacity of approximately 26 million gallons per day (“mgd”). The District currently has adequate capacity with existing pipelines to meet its peak demand. MWDOC’s charge to the District consists of three components: (a) MWDOC’s cost to purchase water from MWD; (b) a surcharge in the current amount of $4.25 per acre foot for MWDOC’s administrative costs; and (c) a readiness-to-serve charge in the current amount of $524,626 per year. MWD faces various challenges in the continued supply of imported water to MWDOC. A description of these challenges as well as a variety of other operating information with respect to MWD is included in certain disclosure documents prepared by MWD. MWD has certain publicly available documents and has entered into certain continuing disclosure agreements pursuant to which MWD is contractually obligated for the benefit of owners of certain of their outstanding obligations, to file certain annual reports, notices of certain enumerated events as defined under Rule 15c2-12 and annual audited financial statements (the “MWD Information”) with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system (“EMMA”) at http://emma.msrb.org. The MWD Information is not incorporated herein by reference thereto, and the District makes no representation as to the accuracy or completeness of such information. MWD HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE DISTRICT, THE TRUSTEE OR THE OWNERS OF THE 2012A BONDS TO PROVIDE MWD INFORMATION TO THE DISTRICT OR THE OWNERS OF THE 2012A BONDS. MWD HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO MWD. MWD IS NOT CONTRACTUALLY OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE DISTRICT OR THE OWNERS OF THE 2012A BONDS UNDER RULE 15c2-12. 23 DOCSOC/1557047v5/022608-0009 Historic and Projected Water Supply Set forth below is a summary of the District’s sources of water supply for the last five Fiscal Years. The decrease in water supply between Fiscal Years 2008 and 2011 reflects a combination of conservation initiatives by the District in coordination with MWDOC and the effects of the economic recession. Although reductions in water supply result in lower Water System sales, they also result in reduced Operating and Maintenance Costs to the District. TABLE 3 YORBA LINDA WATER DISTRICT HISTORIC WATER SUPPLY IN ACRE FEET PER YEAR Fiscal Year Groundwater Imported Water Total Increase/(Decrease) 2008 13,676 10,976 24,652 (3.92)% 2009 14,966 8,451 23,417 (5.01) 2010 9,400 10,754 20,154 (13.93) 2011 8,853 10,435 19,288 (4.30) 2012 10,020 10,812 20,832 8.00 Source: District. Set forth below is a summary of the District’s projected sources of water supply for Fiscal Years 2013 through 2017. TABLE 4 YORBA LINDA WATER DISTRICT PROJECTED WATER SUPPLY IN ACRE FEET PER YEAR Fiscal Year Groundwater Imported Water Total Increase/(Decrease) 2013 10,064 9,936 20,000(1) (4.00)% 2014 10,550 9,530 20,080 0.40 2015 11,040 9,120 20,160 0.40 2016 10,934 9,307 20,241 0.40 2017 10,974 9,348 20,322 0.40 (1) Decrease in total water supply in Fiscal Year 2013 reflects budgeted water supply, which incorporates a 3-year average. Source: District. THE WATER SYSTEM General The Water System of the District serves approximately 22.6 square miles of territory. The Water System consists of more than 347 miles of water pipeline of various diameters, 14 active reservoirs with a combined capacity of approximately 57,000,000 gallons, and ten active water wells providing a combined maximum capacity of approximately 20 mgd. Additionally, the Water System contains three pipeline connections for potable imported water with a combined capacity of 26 mgd, and one pipeline connection for non-potable water with a capacity of 2.6 mgd. The well depths of the Water System are monitored on a continuous basis. The entire Water System is linked to the Supervisory Control and Data Acquisition System, a computer software system that monitors and controls the wells, tanks, lift stations and booster stations. The District has an automatic meter reading system for water consumption, which is recorded through radio reads and downloaded into the District’s computer system for billing. One half of the District is billed one month and the other half the following month to maintain cash flow for the District. 24 DOCSOC/1557047v5/022608-0009 The District classifies its customers into the following major categories: residential, commercial and industrial, landscape, private fire service, construction and untreated water. As shown in the table below, the District provides service to approximately 22,066 individually metered residential connections, 231 master-metered multifamily residential units, 803 commercial and industrial connections and 862 irrigation connections. The commercial and industrial customer base is composed primarily of service businesses such as markets, service stations and restaurants as well as hospitals, office buildings, car washes and other commercial service establishments. The City of Yorba Linda is the District’s largest customer, using water to irrigate landscaping in parks, street medians and slopes. Connections served by the District also include 217 connections for private fire protection. The table below illustrates the number of customers in each major category and percent of total as of April 30, 2012. TABLE 5 YORBA LINDA WATER DISTRICT NUMBER OF UNITS SERVED AND WATER USE BY CATEGORY Customer Category Number of Connections Percent of Total Connections Percent of Water Use Residential 22,066 91.26% 70.28% Master-Metered Multifamily 231 0.96 2.28 Commercial and Industrial 803 3.32 8.11 Irrigation 862 3.56 17.62 Private Fire Service 217 0.90 0.65 Untreated Water 1 0.00 1.06 Total 24,180 100.00% 100.00% Source: District. Historic Water Connections The following table shows the number of water connections to the Water System for the last five Fiscal Years. TABLE 6 YORBA LINDA WATER DISTRICT HISTORIC WATER CONNECTIONS Fiscal Year Connections(1) Increase/(Decrease) 2008 23,505 0.71% 2009 23,586 0.34 2010 23,788 0.86 2011 23,644(2) (0.61) 2012 23,962 1.34 (1) Excludes private fire connections. (2) Decrease in Fiscal Year 2011 connections reflects effects of the economic recession. Source: District. 25 DOCSOC/1557047v5/022608-0009 Historic Water Deliveries The following table presents a summary of historic water deliveries for the Water System in acre feet per year for the last five Fiscal Years. The decrease in water deliveries between Fiscal Years 2008 through 2011 reflects a combination of conservation initiatives by the District in coordination with MWDOC and the effects of the economic recession. Although water deliveries decreased in Fiscal Years 2008 through 2011, water sales revenues increased in each of such years as a result of rate increases adopted by the Board. TABLE 7 YORBA LINDA WATER DISTRICT HISTORIC WATER DELIVERIES IN ACRE FEET PER YEAR Fiscal Year Water Deliveries(1) Increase/(Decrease) 2008 23,291 (3.04)% 2009 24,371 4.64 2010 19,351 (20.60) 2011 17,907 (7.46) 2012 20,656 15.35 (1) The differences between historic water deliveries and historic water supply set forth in Table 3 under the caption “WATER SUPPLY—Historic and Projected Water Supply” reflect system losses. Source: District. Historic Water Sales Revenues The following table shows annual water sales revenues of the District for the last five Fiscal Years. TABLE 8 YORBA LINDA WATER DISTRICT HISTORIC WATER SALES REVENUES Fiscal Year Sales Revenues Increase/(Decrease) 2008 $19,470,109 2.78% 2009 19,626,738 0.80 2010 21,806,164 11.10 2011 22,686,251 4.04 2012(1) 24,121,336 6.33 (1) Reflects unaudited actual Fiscal Year 2012 revenues. Source: District. 26 DOCSOC/1557047v5/022608-0009 Largest Customers The following table sets forth the ten largest customers of the Water System as of June 30, 2011, as determined by annual payments. TABLE 9 YORBA LINDA WATER DISTRICT TEN LARGEST WATER SYSTEM CUSTOMERS Customer Type of Business Annual Payments Percent of Total City of Yorba Linda Government $ 1,614,372 7.12% Placentia Yorba Linda Unified School District Government 289,092 1.27 Yorba Linda Villages Homeowner’s Association 106,004 0.47 Rancho Dominguez Association Homeowner’s Association 99,387 0.44 Archstone Apartments Apartments 91,111 0.40 Cal Water Manufacturing 88,672 0.39 Tac West Manufacturing 81,068 0.38 Placentia Linda Hospital Hospital 72,838 0.32 Advanced Management Apartments 68,314 0.29 St. Francis of Assisi School 66,345 0.28 Total $ 2,577,203 11.36% Source: District. These ten largest customers accounted for approximately 11.36% of water sales revenues and 9.95% of total Water System Revenues for Fiscal Year 2011. Water System Rates and Charges General. District rates and charges for water service in the District’s service area are set by the Board and are not subject by statute to the jurisdiction of, or regulation by, the California Public Utilities Commission or any other regulatory body. The Board currently sets water charges to pay the costs of water pumping and to recover operating expenses of the Water System. Capital improvements and debt service payments for the Water System are funded from capital facilities fees, property tax revenues and water rates. The District generally applies one schedule of rates and charges for the Water System, with the exception of separately stated rates for construction water, untreated water and private fire water. Additionally, the District sets separate rates and charges for its sewer operations, the revenues from which are not pledged to the payment of principal of and interest on the 2012A Bonds. The District has adopted a policy whereby the Board, at its option and determination, may pass through increased water or energy costs to its customers. Any costs passed through to customers must be approved in advance by the Board. Pursuant to the policy “[i]ncreased costs of purchased water and energy costs which are charged to [the District] by the Municipal Water District of Orange County, Orange County Water District, the Metropolitan Water Agency, Southern California Edison and/or the Southern California Gas Company will pass through by determining the unit cost per 100 cubic feet of water and then applying such cost to retail accounts on the basis of water usage.” The Board has indicated that its intent is to provide notice to its customers for any increased water or energy costs resulting from any aforementioned pass throughs. On June 21, 2012, after compliance with the notice, hearing and protest provisions of Proposition 218 described under the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND 27 DOCSOC/1557047v5/022608-0009 CHARGES—Proposition 218,” the Board adopted a resolution implementing water rate increases of 1.5% in Fiscal Year 2013, 2.5% in Fiscal Year 2014 and 2.5% in Fiscal Year 2015. The projected water revenues for Fiscal Years 2015 and thereafter set forth under the caption “WATER SYSTEM FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage” assume future water rate increases of approximately 3% per annum that have not yet been authorized. Such rate increases are subject to the notice, public hearing and protest provisions of Proposition 218. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES— Proposition 218.” There can be no assurance that the Board will adopt such rate increases as currently projected. Water Service Charges. The District requires water meters for all of its customers. Since August 1, 2010, the District’s water service charges have been $11.73 per month for all meter sizes plus $2.52 per 100 cubic feet (748 gallons) (a “unit”) of water use. On June 21, 2012, after compliance with the notice, hearing and protest provisions of Proposition 218 described under the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218,” the Board adopted a resolution: (1) changing the monthly water service charge from $11.73 per month for all customers to a capacity rate based on water meter size, as set forth in the below table. The capacity charges took effect beginning July 1, 2012 and will increase in Fiscal Years 2014 and 2015 as set forth below; and (2) changing the per-unit charge from $2.52 to $2.57. TABLE 10 YORBA LINDA WATER DISTRICT MONTHLY CAPACITY CHARGES Effective Date Meter Size August 1, 2010 July 1, 2012 July 1, 2013 July 1, 2014 5/8” and 3/4”(1) $11.73 $ 7.56 $ 8.80 $ 10.06 1”(1) 11.73 12.60 14.67 16.77 1/1/2” 11.73 25.20 29.34 33.54 2” 11.73 40.32 46.94 53.66 3” 11.73 88.20 102.67 117.37 4” 11.73 158.76 187.80 211.26 6” 11.73 352.80 410.67 469.47 (1) Approximately 93% of District connections, representing approximately 72% of Water System Revenues in Fiscal Year 2011, were to residential customers with 5/8”, 3/4” or 1” meters. Source: District. 28 DOCSOC/1557047v5/022608-0009 The table below sets forth a comparison of the District’s annual water rates and charges for a single family residential user to those of nearby water purveyors as of June 30, 2011. All amounts reflect the billing for 20 units of water use per month: TABLE 11 WATER SERVICE CHARGE COMPARISON Community Total Bill Golden State Water Company $96.02 Mesa Consolidated Water District 79.50 District 62.13(1) City of Brea 61.77 City of La Palma 52.23(2) City of Anaheim 43.95 (1) As set forth in Table 10 above, District water service charges increased on July 1, 2012. The water service charge for a single family residential user consuming 20 units per month is approximately $64.00 ($2.57 per unit multiplied by 20 units ($51.40) plus a $12.60 capacity charge for a 1” meter). (2) Based upon assumed monthly fixed charge of $14.83, plus a per unit/commodity charge of $1.87 per unit. Source: District. Collection Procedures The District is on a monthly billing cycle for Water Service, sending out bills each 27 days for the preceding month’s service. If payment is not received within 27 days, a reminder bill is rendered. After an additional 16 days, 72 hour shut-off door hangers are hung on all unpaid accounts. If any account remains unpaid after such 72 hour period, water is turned off and the meter is locked until all balances are paid. As of June 30, 2012, accounts comprising less than 1% of the total Water System Revenues were delinquent. The District reports, however, that upon receipt of the notices described above, almost all of its customers pay delinquent amounts before the end of the 60 day billing cycle. All accounts not paid in full at the end of the billing cycle will be discontinued until full payment is made plus $148 in aggregate reconnection assessments. Projected Water Connections The following table shows the number of connections to the Water System projected by the District for the current and next four Fiscal Years. TABLE 12 YORBA LINDA WATER DISTRICT PROJECTED WATER CONNECTIONS Fiscal Year Connections(1) Increase/(Decrease) 2013 24,094 0.55% 2014 24,193 0.41 2015 24,292 0.41 2016 24,393 0.42 2017 24,495 0.42 (1) Excludes private fire connections. Source: District. 29 DOCSOC/1557047v5/022608-0009 Projected Water Deliveries The following table shows the Water System deliveries in acre feet per year projected by the District for the current and next four Fiscal Years. There can be no assurance that the projected water deliveries set forth below will be achieved, whether occasioned by a shortfall of water deliveries due to general drought or other limiting conditions, or other factors. See the caption “WATER SUPPLY” for a discussion of factors that could affect the District’s water supply. TABLE 13 YORBA LINDA WATER DISTRICT PROJECTED WATER DELIVERIES IN ACRE FEET PER YEAR Fiscal Year Deliveries Increase/(Decrease) 2013 19,000 (8.02)%(1) 2014 19,076 0.40 2015 19,152 0.40 2016 19,229 0.40 2017 19,306 0.40 (1) Projected decrease from Fiscal Year 2012 deliveries in Fiscal Year 2013 reflects budgeted water deliveries, which incorporates a 3-year average and includes an estimate of 5% water loss. Source: District. Projected Water Sales Revenues The following table shows annual water sales revenues projected by the District for the current and next four Fiscal Years. TABLE 14 YORBA LINDA WATER DISTRICT PROJECTED WATER SALES REVENUES Fiscal Year Sales Revenues Increase/(Decrease) 2013 $25,018,174 4.61% 2014 26,259,982 4.96 2015 27,432,706 4.47 2016 28,999,561 5.71 2017 30,354,189 4.67 Source: District. The above projections are based on the projected water deliveries described under the caption “— Projected Water Deliveries,” the rates described under the caption “—Water System Rates and Charges” for Fiscal Years 2013 and 2014 and projected rate increases of approximately 3% per annum thereafter, as described under the caption “—Water System Rates and Charges.” Projected water rate increases for Fiscal Years 2015 and thereafter have not yet been authorized. Such rate increases are subject to the notice, public hearing and protest provisions of Proposition 218. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” There can be no assurance that the Board will adopt such rate increases as currently projected. The projected annual water sales revenues set forth above also assume completion of the OCWD annexation process by Fiscal Year 2014. See the caption “YORBA LINDA WATER DISTRICT—General.” There can be no assurance that the annexation will be effected by such time, or at all, and there can be no assurance that the projected water sales revenues set forth above will be achieved. 30 DOCSOC/1557047v5/022608-0009 Future Water System Improvements The District projects total capital improvements to the Water System of approximately $15,000,000 over the next five Fiscal Years. Many of such improvements relate to groundwater extraction and are dependent upon the annexation into OCWD of those portions of the District’s service area that are not currently within OCWD boundaries. See the caption “YORBA LINDA WATER DISTRICT—General.” The District expects that the projected capital improvements will be funded by grants and Revenues remaining after payment of Debt Service. The District does not expect to enter into additional obligations payable from Net Revenues to finance such capital improvements. WATER SYSTEM FINANCIAL INFORMATION Financial Statements A copy of the most recent financial statements of the District audited by White Nelson Diehl Evans LLP, Certified Public Accountants & Consultants, Irvine, California (the “Auditor”) are included as Appendix A hereto (the “Financial Statements”) and should be read in their entirety. The Auditor’s letter concludes that the Financial Statements present fairly, in all material respects, the financial position of the District as of June 30, 2011 and the results of its changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America, as well as the accounting systems prescribed by the State Controller’s Office and State regulations governing Special Districts. The Financial Statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not preformed any post-audit analysis of the financial condition of the District. The Auditor has not reviewed or audited this Official Statement. The summary operating results contained under the caption “—Historic Operating Results and Debt Service Coverage” are derived from the Financial Statements and audited financial statements for prior Fiscal Years (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. The Auditor has not reviewed or audited the summary operating results or any other portion of this Official Statement. Wildfire Litigation Settlement In 2008, a firestorm known as the Freeway Complex Fire, the largest wildfire in the County in half a century, resulted in the destruction of several homes served by the District. Certain homeowners sued the District, alleging that the District’s water system failed to provide sufficient water for fire protection purposes. The District’s excess liability insurers denied coverage for the Freeway Complex Fire lawsuit. In June 2012, with no admission of liability, the District paid $5,000,000 (the “Settlement Amount”) from District reserves as part of a settlement with the plaintiff-homeowners. As part of the settlement, the lawsuit was referred to a third-party neutral who awarded damages in favor of certain plaintiff-homeowners. Under the settlement, the successful plaintiff-homeowners will attempt to recover their awards in a separate lawsuit against the District’s excess liability insurers, but will not pursue further recovery from the District. The District believes that its excess liability insurers wrongfully denied coverage in connection with the Freeway Complex Fire lawsuit and is currently in litigation against such insurers to recover both the Settlement Amount and certain legal fees. (See the caption “YORBA LINDA WATER DISTRICT—District Insurance”). There can be no assurance that the District’s efforts to recover the Settlement Amount will be successful. However, the District is protected from any further financial liability in excess of the Settlement Amount. 31 DOCSOC/1557047v5/022608-0009 The Financial Statements attached hereto as Appendix A do not reflect the payment of the Settlement Amount, which occurred subsequent to Fiscal Year 2011. The historic Water System operating results set forth in Table 15 under the caption “—Historic Operating Results and Debt Service Coverage” also do not reflect the payment of the Settlement Amount, which was not paid from operating Revenues or Net Revenues of the Water System. However, the discussion of District reserves set forth under the caption “—Investment of District Funds” reflects the payment of the Settlement Amount in June 2012. Investment of District Funds The District invests its funds in accordance with Resolution No. 11-24 of the District entitled “Resolution of the Board of Directors of the Yorba Linda Water District Setting Forth Public Funds Investment Policy and Rescinding Resolution 11-08” adopted on December 22, 2011 (the “District Investment Policy”). The District Investment Policy sets forth the policies and procedures applicable to the investment of District funds and designates eligible investments. The District Investment Policy also sets forth stated objectives, including the assurance of the safety of invested funds, the maintenance of sufficient liquidity and the attainment of the best yield or returns on investments. The Board has delegated the authority for investing the funds of the District to the General Manager. Such authority is subject to renewal each year. The General Manager is authorized to designate representatives to manage the funds of the District and has designated such authority to the Finance Manager of the District and the Senior Accountant of the District. The District Investment Policy provides a number of permitted investment categories authorized under State law. The permitted investment categories include the following: (i) Federal Deposit Insurance Corporation- or Federal Savings and Loan Insurance Corporation-insured or collateralized obligations of banks or savings and loan institutions; (ii) certificates of deposit issued by financial institutions which maintain a rating equivalent of “A” or higher by one of the nationally recognized statistical rating organizations (“NRSROs”) up to a maximum of $250,000 and a maximum maturity of 5 years, provided that the maximum investment in this category does not exceed 30% of the investment portfolio in the aggregate; (iii) the State Local Agency Investment Fund; (iv) the Orange County Treasurer’s Commingled Investment Pool; (v) the California Asset Management Program, limited to bond proceeds; (vi) treasury bills, notes and bonds, with maturities not to exceed five years; (vii) obligations issued by federal agencies and United States government-sponsored enterprises, such as the Federal National Mortgage Association, the Federal Land Bank and the Federal Home Loan Bank, with maturities not to exceed five years, and provided that the maximum investment in this category does not exceed 50% of the investment portfolio in the aggregate; (viii) corporate bonds rated “A” or its equivalent or better by an NRSRO, provided that the maximum maturity is limited to five years and the maximum investment in this category does not exceed 30% of the investment portfolio in the aggregate; (ix) banker’s acceptances, provided that the maximum term does not to exceed 180 days and the maximum investment in this category does not exceed 10% of the investment portfolio in the aggregate; (x) commercial paper, provided that the corporation has assets in excess of $500,000,000 and its commercial paper is rated “a-1” or higher by an NRSRO and that the investment matures in 270 days or less, and provided that the maximum investment in this category does not exceed 25% of the investment portfolio in aggregate; (xi) the Investment Trust of California; and (xii) Money Market Funds. The Board may revise the District Investment Policy from time to time. As of June 30, 2012, after payment of the Settlement Amount discussed under the caption “—Wildfire Litigation Settlement,” the District had funds invested in the amount of $21,680,166 in authorized investments under the District Investment Policy, summarized as follows: money market securities ($72,177), government securities of the Federal Home Loan Bank ($2,157,786), investment trusts in CalTrust Short Term ($500,338) and CalTrust Medium Term ($15,624,717) and the State of California Local Agency Investment Fund ($3,325,148). 32 DOCSOC/1557047v5/022608-0009 Approximately 88.92% of the $21,680,166 in District reserves is attributable to the Water System, including an operating reserve ($3,632,086), an emergency reserve ($1,000,992), a capital project reserve ($11,248,023), a debt service reserve ($1,021,981), a maintenance reserve ($200,000) and reserves held in connection with the Series 2008 Certificates discussed under the caption “YORBA LINDA WATER DISTRICT—Outstanding Obligations—Series 2008 Certificates” ($2,175,035). Historic Operating Results and Debt Service Coverage The following table sets forth the operating results of the Water System of the District for the last five Fiscal Years. TABLE 15 YORBA LINDA WATER DISTRICT HISTORIC OPERATING RESULTS (FISCAL YEAR ENDED JUNE 30) 2008 2009 2010 2011 2012(1) Revenues Water Sales $ 19,470,109 $ 19,626,738 $ 21,806,164 $ 22,686,251 $ 24,121,336 Ad Valorem Tax Revenues 1,257,943 1,276,638 1,269,441 1,258,769 1,249,609 Interest Income 1,028,575 468,011 248,882 252,522 236,517 Other(2) 578,699 925,951 1,508,160 1,714,109 1,266,496 Total Revenues $ 22,335,326 $ 22,297,338 $ 24,832,647 $ 25,911,651 $ 26,873,958 Operating and Maintenance Costs Variable Water Costs $ 10,516,507 $ 10,859,328 $ 10,688,318 $ 11,267,615 $ 12,263,870 Personnel Services 5,168,852 5,864,468 5,863,006 6,114,939 5,914,655 Supplies & Services 4,010,377 3,705,278 3,228,241 3,160,419 3,353,429 Total Operating and Maintenance Costs $ 19,695,736 $ 20,429,074 $ 19,779,565 $ 20,542,973 $ 21,531,954 Net Operating Revenues $ 2,639,590 $ 1,868,264 $ 5,053,082 $ 5,368,678 $ 5,342,004 Non-Operating and Maintenance Costs $ 123,934 $ 157,241 $ 148,476 $ 291,195(4) $ 90,489 Net Revenues $ 2,515,656 $ 1,711,023 $ 4,904,606 $ 5,077,483 $ 5,251,515 Debt Service Series 2003 Installment Payments $ 674,595 $ 674,306 $ 673,074 $ 670,726 $ 672,383 Series 2008 Installment Payments - 1,472,565 2,133,196 2,133,496 2,132,796 Total Debt Service $ 674,595 $ 2,146,871 $ 2,806,270 $ 2,804,222 $ 2,805,179 Remaining Revenues $ 1,841,061 $ (436,848)(3) $ 2,098,336 $ 2,273,260 $ 2,446,336 Debt Service Coverage 3.73 0.80 1.75 1.81 1.87 (1) Reflects unaudited actual Fiscal Year 2012 results. (2) Includes customer service charges, rental and royalty income and other miscellaneous revenues. Fiscal Year 2009 amount includes approximately $119,000 in capital contributions. Beginning in Fiscal Year 2010, Other Revenues also include between approximately $400,000 in certain connection fees which were previously characterized as contributed capital. (3) Paid from District reserves on hand. (4) Increase reflects accounting treatment as expenses of certain projects which were initially budgeted as capital expenditures. Source: District. Projected Operating Results and Debt Service Coverage The following table sets forth the projected operating results of the Water System of the District for Fiscal Years 2013 through 2017, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the District’s estimate of projected financial results based on several significant assumptions, including the assumptions set forth in the footnotes to the chart set forth below. Such assumptions are material in the development of the District’s financial projections, and variations 33 DOCSOC/1557047v5/022608-0009 in the assumptions may produce substantially different financial results. Although the District believes these projections to be reasonable, actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material. TABLE 16 YORBA LINDA WATER DISTRICT PROJECTED OPERATING RESULTS (FISCAL YEAR ENDING JUNE 30) 2013(1) 2014 2015 2016 2017 Revenues Water Sales(2) $ 25,018,174 $ 26,259,982 $ 27,432,706 $ 28,999,561 $ 30,354,189 Ad Valorem Tax Revenues(3) 1,244,320 1,256,763 1,269,331 1,282,024 1,294,844 Interest Income(4) 150,000 182,524 157,229 245,279 246,540 Other(5) 1,076,191 1,088,717 1,102,100 1,115,444 1,129,055 Total Revenues $ 27,488,685 $ 28,787,986 $ 29,961,366 $ 31,642,308 $ 33,024,628 Operating and Maintenance Costs Variable Water Costs(6) $ 12,953,024 $ 13,284,876 $ 12,360,109 $ 13,043,675 $ 13,685,151 Personnel Services(7) 6,741,403 7,134,868 7,364,898 7,653,982 7,954,279 Supplies & Services(8) 3,509,393 3,499,924 3,648,805 3,677,892 3,836,219 Total Operating and Maintenance Costs $ 23,203,820 $ 23,919,668 $ 23,373,812 $ 24,375,549 $ 25,475,649 Net Operating Revenues $ 4,284,865 $ 4,868,318 $ 6,587,554 $ 7,266,759 $ 7,548,979 Non-Operating and Maintenance Costs(9) $ 118,210 $ 120,574 $ 122,986 $ 125,445 $ 127,954 Net Revenues $ 4,166,655 $ 4,747,744 $ 6,464,568 $ 7,141,314 $ 7,421,025 Debt Service Series 2003 Installment Payments(10) $ 461,488 $ - $ - $ - $ - Series 2008 Installment Payments(11) 2,131,096 2,128,396 2,129,596 2,129,596 2,128,396 2012A Bonds(12) 195,840 604,800 618,500 615,625 611,250 Total Debt Service $ 2,788,424 $ 2,733,196 $ 2,748,096 $ 2,745,221 $ 2,739,646 Remaining Revenues $ 1,378,231 $ 2,014,548 $ 3,716,472 $ 4,396,093 $ 4,681,379 Debt Service Coverage 1.49 1.74 2.35 2.60 2.71 (1) Reflects Fiscal Year 2013 budgeted amounts with certain adjustments. See the caption “YORBA LINDA WATER DISTRICT—Budget Process.” (2) Reflects projected water deliveries described under the caption “THE WATER SYSTEM—Projected Water Deliveries,” approved rate increases for Fiscal Years 2013 and 2014 and projected rate increases of approximately 3% per annum thereafter, as described under the caption “THE WATER SYSTEM—Water System Rates and Charges.” Future water rate increases for Fiscal Years 2015 and thereafter have not yet been authorized. Such rate increases are subject to the notice, public hearing and protest provisions of Proposition 218. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” There can be no assurance that the Board will adopt such rate increases as currently projected. Also assumes completion of the OCWD annexation process by Fiscal Year 2014. See the caption “YORBA LINDA WATER DISTRICT—General.” There can be no assurance that the annexation will be effected by such time, or at all. (3) Projected to increase approximately 1% per annum from Fiscal Year 2012 amount. (4) Projected to vary as a result of the expenditure of reserves on capital improvements. (5) Projected to increase approximately 1.2% per annum from Fiscal Year 2013 budgeted amount. Includes customer service charges, rental and royalty income and other miscellaneous revenues. (6) Reflects expenses of groundwater production and water purchases from MWDOC. See Table 4 under the caption “WATER SUPPLY—Historic and Projected Water Supply.” Decrease in Fiscal Year 2015 reflects completion of the OCWD annexation process, which is expected to result in lower variable water costs. See the caption “YORBA LINDA WATER DISTRICT—General.” (7) Increase in Fiscal Year 2013 reflects budgeted costs, including for positions that are currently unfilled. Projected to increase approximately 5.8% in Fiscal Year 2014 from Fiscal Year 2013 budgeted amount, approximately 3.2% in Fiscal Year 2015 from Fiscal Year 2014 amount and approximately 3.9% per annum thereafter. (8) Based on District projections. 34 DOCSOC/1557047v5/022608-0009 (9) Based on District projections. (10) Expected to be refunded from proceeds of the 2012A Bonds. See the caption “REFUNDING PLAN.” (11) Reflects scheduled Series 2008 Installment Payments. See the caption “YORBA LINDA WATER DISTRICT— Outstanding Obligations—Series 2008 Certificates.” (12) Projected at all-in true interest cost of 3.46% per annum. Source: District. CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The “base year” for establishing such appropriation limit is the 1978-79 State fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if: (i) the financial responsibility for a service is transferred to another public entity or to a private entity; (ii) the financial source for the provision of services is transferred from taxes to other revenues; or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by or for the State or other entity of local government, exclusive of certain State subventions, refunds of taxes and benefit payments from retirement, unemployment, insurance and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from: (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost reasonably borne by the entity in providing the service or regulation); and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s 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. Certain expenditures are excluded from the appropriations limit, including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by a vote of electors of the issuing entity and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly. The District is of the opinion that its water charges do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The District will covenant in the Indenture that it will prescribe rates and charges sufficient to provide for payment of the principal of and interest on the 2012A Bonds in each year. Proposition 218 General. An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the State Constitution. According to the “Title and Summary” of the Initiative prepared by the State Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” Article XIIID. Article XIIID defines the terms “fee” and “charge” to mean “any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service.” A “property-related service” is defined as “a public service having a direct relationship to property ownership.” Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel 35 DOCSOC/1557047v5/022608-0009 map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a “fee” or “charge” as defined in Article XIIID, the local government’s ability to increase such fee or charge may be limited by a majority protest. In addition, Article XIIID includes a number of limitations applicable to existing fees and charges, including provisions to the effect that: (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. Based upon the State Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the State Supreme Court, it was generally believed that Article XIIID did not apply to charges for water services that are “primarily based on the amount consumed” (i.e., metered water rates), which had been held to be commodity charges related to consumption of the service, not property ownership. The Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006) (the “Bighorn Case”), however, that fees for ongoing water service through an existing connection were property-related fees and charges. The Supreme Court specifically disapproved the holding in Howard Jarvis Taxpayers Association v. City of Los Angeles that metered water rates are not subject to Proposition 218. The District has complied with the notice, hearing and protest procedures in Article XIIID with respect to water rate increases, as further explained by the State Supreme Court decision in the Bighorn Case, since 2007. Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge,” so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the State Supreme Court held in the Bighorn Case that the provisions of Article XIIIC applied to rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. In any event, the District and its general counsel do not believe that Article XIIIC grants to the voters within the District the power to repeal or reduce rates and charges in a manner which would be inconsistent with the contractual obligations of the District. However, there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the 2012A Bonds. Remedies available to beneficial owners of the 2012A Bonds in the event of a default by the District are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time-consuming to obtain. In addition to the specific limitations on remedies contained in the applicable documents themselves, the right and obligation with respect to the Indenture is subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial 36 DOCSOC/1557047v5/022608-0009 discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix C), will be similarly qualified. The District believes that its current water rates and land based charges comply with the requirements of Proposition 218 and expects that any future water rates and land based charges will comply with Proposition 218’s procedural and substantive requirements to the extent applicable thereto. Future Initiatives Articles XIIIB, XIIIC and XIIID were adopted as a measure that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiatives could be proposed and adopted affecting the District’s revenues or ability to increase revenues. APPROVAL OF LEGAL PROCEEDINGS The valid, legal and binding nature of the 2012A Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, acting as Bond Counsel. The form of such legal opinion is attached hereto as Appendix C, and such legal opinion will be attached to each 2012A Bond. Certain matters will be passed upon for the District by Kidman Law LLP, Irvine, California, general counsel to the District, for the Underwriter by its counsel, Ballard Spahr LLP, and for the Trustee by its counsel. LITIGATION General 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 knowledge of the District, threatened against the District affecting the existence of the District or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or issuance of the 2012A Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the 2012A Bonds, the Indenture, 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 any amendment or supplement thereto, or contesting the powers of the District or its authority with respect to the 2012A Bonds or any action of the District contemplated by any of said documents, nor to the knowledge of the District, is there any basis therefor. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the 2012A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the 2012A Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2012A Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. The difference between the issue price of a 2012A Bond (the first price at which a substantial amount of the 2012A Bond of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2012A Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2012A Bond Owner before 37 DOCSOC/1557047v5/022608-0009 receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the 2012A Bond Owner will increase the 2012A Bond Owner’s basis in the 2012A Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the 2012A Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State personal income tax. The amount by which a 2012A Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2012A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the “Code”); such amortizable bond premium reduces the 2012A Bond Owner’s basis in the applicable 2012A Bond (and the amount of tax-exempt interest received with respect to the 2012A Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2012A Bond Owner realizing a taxable gain when a 2012A Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2012A Bond to the Owner. Purchasers of the 2012A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. Bond Counsel’s opinion as to the exclusion from gross income of interest (and original issue discount) on the 2012A Bonds is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Code, that must be satisfied subsequent to the issuance of the 2012A Bonds to assure that interest (and original issue discount) on the 2012A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2012A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2012A Bonds. The District has covenanted to comply with all such requirements. The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax exempt bond issues, including both random and targeted audits. It is possible that the 2012A Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2012A Bonds might be affected as a result of such an audit of the 2012A Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2012A Bonds to the extent that it adversely affects the exclusion from gross income of interest on the 2012A Bonds or their market value. It is possible that subsequent to the issuance of the 2012A Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the 2012A Bonds or the market value of the 2012A Bonds. Recently, proposed legislative changes have been introduced in Congress, which, if enacted, could result in additional federal income or state tax being imposed on owners of tax-exempt state or local obligations, such as the 2012A Bonds. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the 2012A Bonds. No assurance can be given that subsequent to the issuance of the 2012A Bonds such changes (or other changes) will not be introduced or enacted or interpretations will not occur. Before purchasing any of the 2012A Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the 2012A Bonds. Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2012A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any 2012A 38 DOCSOC/1557047v5/022608-0009 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2012A Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the 2012A Bonds and the accrual or receipt of interest (and original issue discount) on the 2012A Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2012A Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2012A Bonds. A complete copy of the proposed opinion of Bond Counsel is set forth in Appendix C—“FORM OF OPINION OF BOND COUNSEL.” FINANCIAL ADVISOR The District has retained Fieldman, Rolapp & Associates, Irvine, California, as financial advisor (the “Financial Advisor”) in connection with the issuance of the 2012A Bonds. The Financial Advisor has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. RATINGS The District expects that Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), will assign the 2012A Bonds the rating of “___” and that Fitch Ratings, Inc. (“Fitch”) will assign the 2012A Bonds the rating of “___”. There is no assurance that any credit rating given to the 2012A Bonds will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by S&P or Fitch, respectively, if, in the judgment of S&P or Fitch, as applicable, circumstances so warrant. Any downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2012A Bonds. Such ratings reflect only the views of S&P and Fitch, respectively, and an explanation of the significance of such ratings may be obtained from S&P and Fitch, as applicable. UNDERWRITING The 2012A Bonds will be purchased by Citigroup Global Markets Inc. (the “Underwriter”) pursuant to a Purchase Contract, dated September __, 2012, by and between the District and the Underwriter (the “Purchase Contract”). Under the Purchase Contract, the Underwriter has agreed to purchase all, but not less than all, of the 2012A Bonds for an aggregate purchase price of $_______ (representing the principal amount of the 2012A Bonds, less an Underwriter’s discount of $______, plus net original issue premium of $______). The Purchase Contract provides that the Underwriter will purchase all of the 2012A Bonds if any are purchased, the obligation to make such a purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions. The initial public offering prices stated on the inside front cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2012A Bonds to certain dealers (including dealers depositing 2012A Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. Citigroup Inc., parent company of Citigroup Global Markets Inc., the Underwriter of the 2012A Bonds, has entered into a retail brokerage joint venture with Morgan Stanley. As part of the joint venture, Citigroup Global Markets Inc. will distribute municipal securities to retail investors through the financial advisor network of a new broker-dealer, Morgan Stanley Smith Barney LLC. This distribution arrangement 39 DOCSOC/1557047v5/022608-0009 became effective on June 1, 2009. As part of this arrangement, Citigroup Global Markets Inc. will compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the 2012A Bonds. Citigroup Global Markets Inc. has also entered into a master distribution agreement (the “Master Distribution Agreement”) with TheMuniCenter L.L.C. (“TMC”), for the distribution to retail investors of certain municipal securities offerings at their original issue prices. TMC has established an electronic primary offering application platform through which certain TMC approved users that are also broker-dealers or municipal securities dealers can submit orders for and receive allocations of new issue municipal securities at the original issue price for their retail customers. Pursuant to the Master Distribution Agreement (if applicable for this transaction), Citigroup Global Markets Inc. may share with TMC a portion of its underwriting compensation with respect to any 2012A Bonds that are allocated to a TMC user. The TMC users permitted to participate in the remarketing of the 2012A Bonds may also share a portion of the compensation received by Citigroup Global Markets Inc. with respect to any 2012A Bonds allocated to such TMC user pursuant to the terms of a Member Addendum to the TMC user’s Trading Authorization User Agreement with TMC. Citigroup Financial Products Inc., an affiliate of Citigroup Global Markets Inc., owns a 31.35% equity interest in TheDebtCenter L.L.C., the parent company of TMC. CONTINUING DISCLOSURE UNDERTAKING The District has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and beneficial owners of the 2012A Bonds to provide certain financial information and operating data relating to the District by not later than the 270 days following the end of the District’s Fiscal Year (currently its Fiscal Year ends on June 30) (the “Annual Report”), commencing with the report for Fiscal Year ending June 30, 2012, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the District with EMMA. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E—“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with Section (b)(5) of the Rule. [The District has not failed to comply with the terms of its existing continuing disclosure agreements in the last five years in any material respect.] MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2012A Bonds. The execution and delivery of this Official Statement have been duly authorized by the District. YORBA LINDA WATER DISTRICT By: President A-1 DOCSOC/1557047v5/022608-0009 APPENDIX A YORBA LINDA WATER DISTRICT FINANCIAL STATEMENTS B-1 DOCSOC/1557047v5/022608-0009 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE The following is a summary of certain provisions of the Indenture which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the Indenture for a full and complete statement of the provisions thereof. [TO COME] C-1 DOCSOC/1557047v5/022608-0009 APPENDIX C FORM OF OPINION OF BOND COUNSEL Upon issuance of the 2012A Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: September __, 2012 Yorba Linda Water District P.O. Box 309 Yorba Linda, California 92885-0309 Re: Yorba Linda Water District Refunding Revenue Bonds, Series 2012A Members of the Board of Directors: We have examined a certified copy of the record of the proceedings of the Yorba Linda Water District (the “District”) relative to the issuance of the $__________ Refunding Revenue Bonds, Series 2012A, dated the date hereof (the “2012A Bonds”), and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the District, the initial purchaser of the 2012A Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. The 2012A Bonds are being issued pursuant to an Indenture of Trust, dated as of August 1, 2012 (the “Indenture”), by and between the District and U.S. Bank National Association, as trustee (the “Trustee”). The 2012A Bonds mature on the date and in the amount referenced in the Indenture. The 2012A Bonds are dated their date of delivery and bear interest at the rates per annum referenced in the Indenture. The 2012A Bonds are registered in the form set forth in the Indenture. Based on our examination as Bond Counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that: 1. The proceedings of the District show lawful authority for the issuance and sale of the 2012A Bonds under the laws of the State of California now in force, and the Indenture has been duly authorized, executed and delivered by the District, and, assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2012A Bonds and the Indenture are valid and binding obligations of the District enforceable against the District in accordance with their terms. 2. The obligation of the District to make the payments of principal of and interest on the 2012A Bonds from Net Revenues (as defined in the Indenture) is an enforceable obligation of the District and does not constitute an indebtedness of the District in contravention of any constitutional or statutory debt limit or restriction. 3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the 2012A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. 4. Interest on the 2012A Bonds is exempt from State of California personal income tax. 5. The difference between the issue price of a 2012A Bond (the first price at which a substantial amount of the 2012 Bonds of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2012A Bonds constitutes original issue discount. Original issue discount accrues C-2 DOCSOC/1557047v5/022608-0009 under a constant yield method, and original issue discount will accrue to a 2012A Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the 2012A Bond Owner will increase the 2012A Bond Owner’s basis in the 2012A Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the 2012A Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. 6. The amount by which a 2012A Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2012A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the “Code”); such amortizable bond premium reduces the 2012A Bond Owner’s basis in the applicable 2012A Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2012A Bond premium may result in a 2012A Bond Owner realizing a taxable gain when a 2012A Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2012A Bond to the Owner. Purchasers of the 2012A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The opinions expressed herein as to the exclusion from gross income of interest on the 2012A Bonds are based upon certain representations of fact and certifications made by the District and are subject to the condition that the District comply with all requirements of the Code, that must be satisfied subsequent to the issuance of the 2012A Bonds to assure that such interest on the 2012A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2012A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2012A Bonds. The District has covenanted to comply with all such requirements. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2012A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) on the 2012A Bonds for federal income tax purposes with respect to any 2012A Bond if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the 2012A Bonds. The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture and the 2012A Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. We are admitted to the practice of law only in the State of California and our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2012A Bonds or other offering material relating to the 2012A Bonds and expressly disclaim any duty to advise the owners of the 2012A Bonds with respect to matters contained in the Official Statement. Respectfully submitted, D-1 DOCSOC/1557047v5/022608-0009 APPENDIX D INFORMATION CONCERNING DTC The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2012A Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the 2012A Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2012A Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2012A Bonds. The 2012A Bonds 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 2012A Bond will be issued for each annual maturity of the 2012A Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, 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 issues of 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 is rated AA+ by Standard & Poor’s. 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. Purchases of 2012A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2012A Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2012A Bonds (“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 2012A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive bonds representing their ownership interests in 2012A Bonds, except in the event that use of the book-entry system for the 2012A Bonds is discontinued. To facilitate subsequent transfers, all 2012A Bonds 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 2012A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2012A Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2012A Bonds are credited, which may or may not be the Beneficial Owners. D-2 DOCSOC/1557047v5/022608-0009 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 2012A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2012A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2012A Bonds documents. For example, Beneficial Owners of 2012A Bonds may wish to ascertain that the nominee holding the 2012A Bonds 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 notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the 2012A Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2012A Bonds 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 2012A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 2012A Bonds 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, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption 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. A 2012A Bond Owner shall give notice to elect to have its 2012A Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2012A Bond by causing the Direct Participant to transfer the Participant’s interest in the 2012A Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of 2012A Bond in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2012A Bond are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered 2012A Bond to the Trustee’s DTC account. DTC may discontinue providing its services as depository with respect to the 2012A Bonds at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates 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, 2012A Bonds will be printed and delivered to DTC. THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE 2012A BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2012A BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. E-1 DOCSOC/1557047v5/022608-0009 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE Upon issuance of the 2012A Bonds, the District proposes to enter into a Continuing Disclosure Certificate in substantially the following form: This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Yorba Linda Water District (the “District”) in connection with the execution and delivery of $________ Refunding Revenue Bonds, Series 2012A (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of August 1, 2012 (the “Indenture of Trust”), by and between the District and U.S. Bank National Association, as trustee (the “Trustee”). The District covenants and agrees as follows: 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. 2. Definitions. In addition to the definitions set forth in the Indenture of Trust, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report. The term “Annual Report” means any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner. The term “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. EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/. Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year. Holder. The term “Holder” means a registered owner of the Bonds. Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate. Official Statement. The term “Official Statement” means the Official Statement of the District dated September __, 2012 delivered in connection with the issuance of the Bonds. Participating Underwriter. The term “Participating Underwriter” means the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. 3. Provision of Annual Reports. (a) The District shall provide not later than 270 days following the end of its Fiscal Year (commencing with Fiscal Year 2012) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be E-2 DOCSOC/1557047v5/022608-0009 submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the District is unable to provide to EMMA an Annual Report by the date required in subsection (a), the District shall send to EMMA a notice in substantially the manner prescribed by the Municipal Securities Rulemaking Board. 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) The audited financial statements of the District for the prior Fiscal Year, 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 Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Principal amount of the Bonds outstanding. An update of the information in the following tables in the Official Statement: 1. Table 2 “PROPERTY TAX LEVIES AND COLLECTIONS;” 2. Table 3 “HISTORIC WATER SUPPLY IN ACRE FEET PER YEAR;” 3. Table 6 “HISTORIC WATER CONNECTIONS;” 4. Table 7 “HISTORIC WATER DELIVERIES IN ACRE FEET PER YEAR;” 5. Table 8 “HISTORIC WATER SALES REVENUES;” 6. Table 9 “TEN LARGEST WATER SYSTEM CUSTOMERS;” and 7. Table 15 “HISTORIC OPERATING RESULTS.” 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, which have been submitted to EMMA or the Securities and Exchange Commission; provided that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further that the District shall clearly identify each such document so included by reference. 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; E-3 DOCSOC/1557047v5/022608-0009 5. issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701-TEB); 6. tender offers; 7. defeasances; 8. ratings changes; and 9. bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds; 2. modifications to the rights of Bondholders; 3. optional, unscheduled or contingent Bond calls; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and 7. appointment of a successor or additional trustee or the change of the name of a trustee. (c) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the District shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event. 6. Customarily Prepared and Public Information. Upon request, the District shall provide to any person financial information and operating data regarding the District which is customarily prepared by the District and is publicly available. 7. Termination of Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). E-4 DOCSOC/1557047v5/022608-0009 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any Holders or Beneficial Owners of at least 50% aggregate principal amount of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture of Trust, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the District satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the District shall have refused to comply therewith within a reasonable time. 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: September __, 2012 YORBA LINDA WATER DISTRICT By: Its: President ITEM NO. 9.3 AGENDA REPORT Meeting Date: August 23, 2012 Subject:Personnel-Risk Management Committee (Beverage/Collett) · Minutes of meeting held August 7, 2012 at 4:00 p.m. · Meeting scheduled September 6, 2012 at 10:00 a.m. ATTACHMENTS: Name:Description:Type: 080712_PRM_-_Minutes.doc PRM Mtg Minutes 08/07/12 Minutes 1 MINUTES OF THE YORBA LINDA WATER DISTRICT PERSONNEL-RISK MANAGEMENT COMMITTEE MEETING August 7, 2012 A meeting of the Yorba Linda Water District’s Personnel-Risk Management Committee was called to order by Director Beverage at 4:00 p.m. The meeting was held at the District’s Administrative Office at 1717 E Miraloma Ave, Placentia CA 92870. COMMITTEE STAFF Director Michael J. Beverage, Chair Steve Conklin, Interim General Manager Director Ric Collett Gina Knight, Human Resources Mgr 1. PUBLIC COMMENTS None. 2. ACTION CALENDAR 2.1. ACWA-JPIA Workers’ Compensation Program Renewal for FY 2012/13 The Committee reviewed the estimated Annual Premium for the Workers Compensation Program which is administered by ACWA-JPIA. Staff reported that this year ACWA-JPIA’s Executive Committee approved no change in the rates for the renewal of this program. This year the District’s e-mod factor decreased from .90 to .81. This year’s deposit premium is estimated at $104,393.56. The Committee will recommend to the Board of Directors approval of the deposit premium and renewal of the program. 2.2. ACWA-JPIA General Liability Insurance Deposit Premium for the October 1, 2012 to September 30, 2013 Policy Year and Retrospective Allocation Point. The Committee reviewed the liability premium for the upcoming year as well as the Retrospective Allocation Point (RAP) of $25,000 (the District’s deduction amount for each claim). This year’s deposit premium is $215,272 representing an 11% increase from last year’s premium, which was $193,296. The increase is due to the District’s e-mod factor of 1.3600. Last year it was 1.3000. The e-mod is calculated by using three consecutive year’s worth of losses. The Committee will recommend to the Board of Directors approval of the deposit premium and renewal of the program as well as the $25,000 RAP. 3. DISCUSSION ITEMS 3.1. Amending Employee Compensation Letters Staff presented Resolution 12-17 amending Resolutions 12-07 and 12-08, Employee Compensation Letters and Pay Plans for both the Management and Supervisory/Confidential employee groups. Staff explained for 2 administration purposes the language for one of the provisions (2% Deferred Compensation Matching) was being revised to facilitate the implementation as well as the administration of the provision. The Committee will recommend the Board of Directors adopt Resolution 12-17 at the Board of Directors meeting of August 23, 2012. 3.2. Request for Proposals for an Organizational Efficiency Study Staff presented a Draft RFP for professional services toward the preparation of an Organizational Efficiency Study. The Committee agreed to have the District’s Managers review the Draft RFP for finalization of the document. The Committee requested staff to bring back the RFP after Management’s review. 3.3. Human Resources/Risk Management/Safety Activity and Status of Recruitments and Budgeted Positions Staff updated the Committee on the recent recruitment activity for the Accounting Assistant II vacancy. Interviews for this position will be held on August 20, 2012. Staff updated the Committee on the status of several employees that have been on a leave of absence due to medical issues. The Committee discussed the Management Action Program (MAP) and if the District could benefit from this program in the future after the Organizational Efficiency Study is completed. 3.4. Future Agenda Items and Staff Tasks None. 4. ADJOURNMENT 4.1. The meeting was adjourned at 5:45 p.m. The next meeting of the Personnel-Risk Management Committee will be held Tuesday, September 6, 2012 at 10:00 a.m. ITEM NO. 9.4 AGENDA REPORT Meeting Date: August 23, 2012 Subject:Planning-Engineering-Operations Committee (Collett/Kiley) · Minutes of meeting held August 2, 2012 at 3:00 p.m. · Meeting scheduled September 6, 2012 at 3:00 p.m. ATTACHMENTS: Name:Description:Type: 080212_-_PEO_Minutes.docx PEO Mtg Minutes 08/02/12 Minutes 1 MINUTES OF THE YORBA LINDA WATER DISTRICT PLANNING-ENGINEERING-OPERATIONS COMMITTEE MEETING August 2, 2012 A meeting of the Planning-Engineering-Operations Committee was called to order by Director Collett at 3:00 p.m. The meeting was held at the District’s Administrative Office at 1717 E Miraloma Ave, Placentia CA 92870. COMMITTEE STAFF Director Ric Collett, Chair Steve Conklin, Engineering Manager Director Robert R. Kiley Lee Cory, Operations Manager John DeCriscio, Chief Plant Operator VISITORS Thomas Harder 1. PUBLIC COMMENTS Mr. Harder commented that he is a local resident and groundwater hydrologist. He saw the notice of the public meeting and attended to find out more about the District. He stayed for the entire meeting and thanked the Committee at the conclusion. 2. ACTION CALENDAR 2.1. Approval of Change Orders No. 2 & 3 for Pressure Stations Upgrade Project, Phase 1 Mr. Conklin reported that construction is proceeding on schedule for the subject project. He noted that during demolition of the existing vault for the Van Buren PRS replacement, the vault walls were found to be 18- to 36- inches thick, rather than 9-inches thick, per the record drawings. This required additional labor, new shoring, additional dump fees and placement of 20 cubic yards of slurry due to the significantly larger excavation. Following discussion, the Committee supported the staff recommendation that the Board approve Change Orders 2 & 3 for three additional work days and $14,904.07 for additional labor and materials. 2.2. Response to NOP for Proposed Cielo Vista Project Mr. Conklin presented to the Committee the draft letter prepared by staff with the District’s concerns to be addressed in the EIR to be prepared through the County for the proposed Cielo Vista Project. The Committee discussed the proposed project and provided comments on the draft letter. The Committee’s comments were incorporated into the final letter, which was mailed to the County by the due date of August 6, 2012 2 3. DISCUSSION ITEMS 3.1. Monthly Production Division Report Mr. DeCriscio reported on water production, weather conditions, water quality indicators, equipment out of service and that returned to service, equipment maintenance functions, and after-hours responses by staff. He described the work in progress to upgrade the control system for the Richfield chlorine generators. The Committee asked that a report be provided at the next meeting with final cost and details. 3.2. Monthly Preventative Maintenance Report Mr. Cory reported on preventative and reactive maintenance work in July 2012. He noted that this is the first month of the new FY, and that work is proceeding on schedule. 3.3. Monthly Groundwater Production and Purchased Import Water Report Mr. DeCriscio reported that we are taking a higher percentage of import water (currently 67%) from now through December before the cost of import water increases in January 2013. Thereafter, we will increase our groundwater use in order to achieve our BPP goal of 50.3%. 3.4. Groundwater Producers Meeting Report (July meeting was cancelled.) 3.5. Status Report on Capital Projects in Progress Mr. Conklin reported on the status of capital projects in planning, design and construction. 3.6. Status of Strategic Plan Initiatives Mr. Conklin reported on the status of strategic plan initiatives relating to engineering and operations. 3.7. Future Agenda Items and Staff Tasks The Committee requested that staff provide a report on the status of meters in the District; i.e., how many with electronic read vs manual read and the plan for the future. 4. ADJOURNMENT 4.1. The meeting adjourned at 3:55 p.m. The next meeting of the Planning- Engineering-Operations Committee will be held Thursday, September 6, 2012 at 3:00 p.m. ITEM NO. 9.5 AGENDA REPORT Meeting Date: August 23, 2012 Subject:Public Affairs-Communications-Technology Committee (Melton/Beverage) · Minutes of meeting held August 6, 2012 at 4:00 p.m. · Meeting scheduled September 4, 2012 at 4:00 p.m. ATTACHMENTS: Name:Description:Type: 080612_PACT_-_Minutes.docx PACT Mtg Minutes 08/06/12 Minutes 1 MINUTES OF THE YORBA LINDA WATER DISTRICT PUBLIC AFFAIRS-COMMUNICATIONS-TECHNOLOGY COMMITTEE MEETING August 6, 2012 A meeting of the Public Affairs-Communications-Technology Committee was called to order by Director Melton at 4:00 p.m. The meeting was held at the District’s Administrative Office at 1717 E Miraloma Ave, Placentia CA 92870. COMMITTEE STAFF Director Gary T. Melton, Chair Steve Conklin, Engineering Manager Director Michael J. Beverage Art Vega, Interim IT Manager Cindy Botts, Management Analyst Cody Peterson, Public Affairs Intern 1. PUBLIC COMMENTS None. 2. ACTION CALENDAR 2.1. Internet Services Upgrade Mr. Vega reported to the Committee on the need of the District to increase the level of its internet service to provide for more bandwidth, or data- carrying capacity. After discussing the competitive proposals from AT&T and Time Warner, the Committee supported the staff recommendation that the Board authorize staff to upgrade internet services with Time Warner Cable for a monthly cost of $999, plus taxes and fees. 3. DISCUSSION ITEMS 3.1. Computerized Maintenance and Management System Project Status The Committee reviewed the CMMS Report and progress to date. Mr. Vega also informed the Committee that despite delays, CMMS implementation for daily work by the Valve Crew should go live by the next PACT meeting. 3.2. Sewer Facilities GIS Conversion Status The Committee reviewed the updated map of the City sewer GIS conversion and was satisfied with the progress to date. 3.3. Status of Website Redesign Ms. Botts informed the Committee of the website’s status. She explained that the site is ready to be uploaded online but, in order to comply with the Grand Jury Report on transparency, there will be a slight delay while final changes are implemented. 2 3.4. Fall Newsletter Draft Content and Layout Ms. Botts presented the draft layout for the Fall newsletter to the Committee. Director Beverage suggested rearranging the format of the last page and adding more information about events that the District supported. 3.5. Promotional Collateral Inventory and Replacement Ms. Botts presented various promotional materials to the Committee for their approval. After discussing possible alternatives as well as pros and cons, the Committee approved the purchase of several promotional items. 3.6. Public Outreach Activities Ms. Botts updated the Committee on the status of Public Outreach Activities and District water bottle donations in the community. 3.7. Status Report on Strategic Plan Initiatives Mr. Vega informed the Committee of the updates made to the Strategic Plan Initiatives. Director Beverage requested that a more detailed account of progress be provided in future reports. 3.8. Future Agenda Items Topics discussed for future discussion include: an employee wall, signage, District logo for Board Room, and PR master plan. 4. ADJOURNMENT 4.1. The meeting was adjourned at 5:35 p.m. The next meeting of the Public Affairs-Communications-Technology Committee will be held September 4, 2012 at 4:00 p.m. ITEM NO. 11.1 AGENDA REPORT Meeting Date: August 23, 2012 Subject:Meetings from August 24, 2012 - September 30, 2012 ATTACHMENTS: Name:Description:Type: BOD_-_Activities_Calendar.pdf Backup Material Backup Material Event Date Attendance by: August 2012 Citizens Advisory Committee MeetingMon, Aug 27Beverage Finance-Accounting Committee MeetingMon, Aug 27Kiley/Hawkins ISDOCThu, Aug 30Kiley/Staff September 2012 District Offices ClosedMon, Sep 3 Pub Affairs-Communications-Tech Committee MeetingTue, Sep 4Melton/Beverage Yorba Linda City CouncilTue, Sep 4Hawkins MWDOC/MWD WorkshopWed, Sep 5Melton/Staff Board of Directors Regular MeetingWed, Sep 5 OCWD BoardWed, Sep 5Kiley/Staff Personnel-Risk Management Committee MeetingThu, Sep 6Beverage/Collett Planning-Engineering-Operations Committee MeetingThu, Sep 6Collett/Kiley WACOFri, Sep 7Hawkins LAFCOWed, Sep 12Beverage Yorba Linda Planning CommissionWed, Sep 12Kiley Board of Directors Regular MeetingThu, Sep 13 Exec-Admin-Organizational Committee MeetingMon, Sep 17Hawkins/Melton Yorba Linda City CouncilTue, Sep 18Melton MWDOC BoardWed, Sep 19Melton/Staff OCWD BoardWed, Sep 19Kiley/Staff Citizens Advisory Committee MeetingMon, Sep 24Beverage Joint Committee Meeting with MWDOC and OCWDTue, Sep 25Hawkins/Beverage Finance-Accounting Committee MeetingWed, Sep 26Kiley/Hawkins Yorba Linda Planning CommissionWed, Sep 26Collett Board of Directors Regular MeetingThu, Sep 278:30AM 8:30AM 5:30PM 8:30AM 4:00PM 4:00PM 7:00PM 7:30AM 9:00AM 7:00PM 8:30AM 4:00PM 6:30PM 6:30PM 8:30AM 9:00AM 5:30PM 10:00AM 3:00PM 4:00PM 11:30AM 7:00AM 4:00PM Board of Directors Activity Calendar Time 8:30AM 8/16/2012 7:42:29 AM