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HomeMy WebLinkAbout2017-04-11 - Financing Authority Meeting Agenda PacketAGENDA YORBA LINDA WATER DISTRICT FINANCING AUTHORITY REGULAR MEETING Tuesday, April 11, 2017, 6:30 PM 1717 E Miraloma Ave, Placentia CA 92870 1. CALL TO ORDER 1.1. Please note that the Financing Authority meeting has been scheduled pending Board approval of the agreement to form said authority and will be called to order immediately following Item No. 8.2. on the agenda for the Regular Board of Directors Meeting on April 11, 2017 at 6:30 p.m. 2. ROLL CALL J. Wayne Miller, President Al Nederhood, Vice President Andrew J. Hall, Director Phil Hawkins, Director Brooke Jones, Director 3. 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 three minutes. 4. ACTION CALENDAR This portion of the agenda is for items where staff presentations and Board discussions are needed prior to formal Board action. 4.1. Presentation of Joint Exercise of Powers Agreement Creating the Yorba Linda Water District Financing Authority Recommendation: That the Board of Directors receive and file the Joint Exercise of Powers Agreement, direct the Secretary to file a notice of the agreement with the Secretary of State pursuant to Section 6503.5 of the California Government Code, and direct the Executive Director to prepare a Conflict of Interest Code for consideration at the next meeting. 4.2. Approving Sale of Revenue Bonds, Series 2017A Recommendation: That the Board of Directors adopt Resolution No. FA-17-01 Approving the Sale of Revenue Bonds, Series 2017A in an Aggregate Principal Amount Not to Exceed $35,000,000 and Approving the Execution and Delivery of Certain Documents in Connection Therewith and Certain Other Matters. 5. ADJOURNMENT 5.1. The next regular meeting of the Financing Authority will be held Thursday, April 25, 2017 at 6:30 p.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. 4.1 AGENDA REPORT Meeting Date: April 11, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Marc Marcantonio, General Manager Prepared By:Annie Alexander, Executive Assistant Subject:Presentation of Joint Exercise of Powers Agreement Creating the Yorba Linda Water District Financing Authority STAFF RECOMMENDATION: That the Board of Directors receive and file the Joint Exercise of Powers Agreement, direct the Secretary to file a notice of the agreement with the Secretary of State pursuant to Section 6503.5 of the California Government Code, and direct the Executive Director to prepare a Conflict of Interest Code for consideration at the next meeting. DISCUSSION: Should the District's Board of Directors determine to approve the Joint Exercise of Powers Agreement to form the Yorba Linda Water District Financing Authority, the Board of the Financing Authority will need to formally receive the agreement. Following approval, the agreement will establish the officers of the Financing Authority as follows: Chair, which office is held by the person serving as President of the Board of Directors of the District; Vice Chair, which office is held by the person serving as Vice President of the Board of Directors of the District; Executive Director, which office is held by the person serving as the General Manager of the District; Treasurer, which office is held by the person serving as Finance Manager of the District; and Secretary, which office is held by the person serving as the Executive Secretary of the District. The agreement also designates that the dates and locations of regular meetings of the Financing Authority take place concurrently with the dates and locations of regular meetings of the District. Additionally, the Board of the Financing Authority will need to direct the Secretary to file a notice of the Joint Exercise of Powers Agreement with the Secretary of State pursuant to and in the form required by Section 6503.5 of the California Government Code. The Board of the Financing Authority will also need to direct the Executive Director to prepare a Conflict of Interest Code for the Authority for consideration at the next regular meeting. All required actions described above can be accomplished by a single motion as listed in the staff recommendation. ATTACHMENTS: Name:Description:Type: Joint_Powers_Agreement_-_YLWDFA.docx Agreement Agreement JOINT EXERCISE OF POWERS AGREEMENT by and between YORBA LINDA WATER DISTRICT and CALIFORNIA MUNICIPAL FINANCE AUTHORITY creating the YORBA LINDA WATER DISTRICT FINANCING AUTHORITY April 11, 2017 TABLE OF CONTENTS Section 1. Definitions ........................................................................................................................... 1 Section 2. Purpose ............................................................................................................................... 2 Section 3. Term .................................................................................................................................... 2 Section 4. The Authority ....................................................................................................................... 2 Section 5. Powers ................................................................................................................................ 5 Section 6. Termination of Powers ........................................................................................................ 6 Section 7. Fiscal Year .......................................................................................................................... 6 Section 8. Disposition of Assets ........................................................................................................... 6 Section 9. Contributions and Advances ............................................................................................... 6 Section 10. Bonds .................................................................................................................................. 6 Section 11. Agreement not Exclusive .................................................................................................... 7 Section 12. Accounts and Reports ......................................................................................................... 7 Section 14. Conflict of Interest Code ..................................................................................................... 8 Section 15. Breach ................................................................................................................................. 8 Section 16. Notices ................................................................................................................................ 8 Section 17. Withdrawal .......................................................................................................................... 8 Section 18. Effectiveness ....................................................................................................................... 8 Section 19. Severability .......................................................................................................................... 8 Section 20. Successors; Assignment ..................................................................................................... 8 Section 21. Amendment of Agreement .................................................................................................. 8 Section 22. Form of Approvals ............................................................................................................... 8 Section 23. Waiver of Personal Liability ................................................................................................. 9 Section 24. Notices ................................................................................................................................ 9 Section 25. Section Headings ................................................................................................................ 9 Section 26. Miscellaneous ..................................................................................................................... 9 JOINT EXERCISE OF POWERS AGREEMENT THIS AGREEMENT, dated April 11, 2017, by and between 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 “Local Agency”), and CALIFORNIA MUNICIPAL FINANCE AUTHORITY, a joint exercise of powers authority organized and existing under and by virtue of the laws of the State of California (“CMFA”). DECLARATION OF PURPOSE A. Chapter 5 of Division 7 of Title 1 of the California Government Code (the “Act”) authorizes the Local Agency and CMFA to create a joint exercise of powers entity which has the power to exercise any powers common to the Local Agency and CMFA and to exercise additional powers granted to it under the Act. This Agreement creates such an agency, which shall be known as the Yorba Linda Water District Financing Authority (the “Authority”) for the purposes and to exercise the powers described herein. B. The Local Agency is authorized to buy, sell, lease and use property and to incur indebtedness for public purposes pursuant to the California Government Code and other laws of the State of California. C. CMFA is authorized to buy, sell and lease property and to issue bonds, expend bond proceeds, and borrow and loan money for any of its corporate purposes pursuant to the Act and a Joint Exercise of Powers Agreement Relating to the California Municipal Finance Authority, dated as of January 1, 2004, as amended, by and among the cities, counties, districts and other political subdivisions that are parties to that agreement. D. Article 4 of the Act (known as the “Marks-Roos Local Bond Pooling Act of 1985”) authorizes and empowers the Authority to issue bonds and to purchase bonds issued by, or to make loans to, the Local Agency or CMFA for financing public capital improvements, working capital, liability and other insurance needs, or projects whenever there are significant public benefits, as determined by the Local Agency or CMFA. The Marks-Roos Local Bond Pooling Act of 1985 further authorizes and empowers the Authority to sell bonds so issued or purchased to public or private purchasers at public or negotiated sale. TERMS OF AGREEMENT Section 1. Definitions. Unless the context otherwise requires, the terms defined in this Section 1 shall for all purposes of this Agreement have the meanings herein specified. “Act” shall mean Articles 1, 2 and 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code, as amended. “Agreement” shall mean this Joint Exercise of Powers Agreement, as it may be amended from time to time, creating the Authority. “Authority” shall mean the Yorba Linda Water District Financing Authority created by this Agreement. “Board” or “Board of Directors” shall mean the governing board of the Authority. -2- “Bonds” shall mean bonds and any other evidence of indebtedness of the Authority authorized and issued pursuant to the Act. “CMFA” shall mean California Municipal Finance Authority, a joint exercise of powers authority, duly organized and existing under and by virtue of the laws of the State. “Indenture” shall mean each indenture, trust agreement or other such instrument pursuant to which Bonds are issued. “Local Agency” shall mean the Yorba Linda Water District, a county water district duly organized and existing under and by virtue of the laws of the State. “Member” or “Members” shall mean the Local Agency and/or CMFA, as appropriate. “State” shall mean the State of California. Section 2. Purpose. This Agreement is made pursuant to the Act for the purpose of assisting in the financing and refinancing of capital improvement projects of the Local Agency and to finance working capital for the Local Agency by exercising the powers referred to in this agreement and shall benefit no other entity. Any Bonds issued by the Authority shall be solely for projects benefiting the Local Agency. Section 3. Term. This Agreement shall become effective as of the date hereof and shall continue in full force and effect until terminated by a supplemental agreement of CMFA and the Local Agency; provided, however, that in no event shall this Agreement terminate while any Bonds or other obligations of the Authority remain outstanding under the terms of any indenture, trust agreement, contract, agreement, lease, sublease or other instrument pursuant to which such Bonds are issued or other obligations are incurred. Section 4. The Authority. (a) Creation of the Authority. There is hereby created pursuant to the Act an authority and public entity to be known as the “Yorba Linda Water District Financing Authority.” As provided in the Act, the Authority shall be a public entity separate from the Local Agency and CMFA. The debts, liabilities and obligations of the Authority shall not constitute debts, liabilities or obligations of the Local Agency or CMFA. Within 30 days after the effective date of this Agreement or any amendment hereto, the Authority will cause a notice of this Agreement or amendment to be prepared and filed with the office of the Secretary of State of the State in the manner set forth in sections 6503.5 of the Act. Such notice shall also be filed with the office of the Finance Director of the State. (b) Governing Board. The Authority shall be administered by the Board, which shall consist of the five members of the Board of Directors of the Local Agency. The term of office as a member of the Board shall terminate when such member of the Board shall cease to hold its respective office at the Local Agency, and the successor to such officer or director of the Local Agency shall become a member of the Board, upon assuming such office. Members of the Board shall not receive any compensation for serving as such, but shall be entitled to reimbursement for any expenses actually incurred in connection with serving as a -3- member if the Board shall determine that such expenses shall be reimbursed and there are unencumbered funds available for such purpose. (c) Meetings of Board. (1) Time and Place. The Board shall hold regular meetings concurrently with meetings of the Local Agency. The Board may suspend the holding of regular meetings so long as there is no need for Authority business. The Board may hold special meetings at any time and from time to time in accordance with law, provided that any action taken regarding the sale of Bonds shall occur by resolution placed on a noticed and posted meeting agenda for a regular meeting of the Authority. (2) Legal Notice. All regular and special meetings of the Board shall be called, noticed, held and conducted subject to the provisions of the Ralph M. Brown Act (Chapter 9 of Part 1 of Division 2 of Title 5 of the California Government Code), or any successor legislation hereafter enacted. (3) Minutes. The Secretary of the Authority shall cause minutes of all meetings of the Board to be kept and shall, as soon as practicable after each meeting, cause a copy of the minutes to be forwarded to each member of the Board and to the Local Agency and CMFA. (4) Quorum. A majority of the members of the Board shall constitute a quorum for the transaction of business, except that less than a quorum may adjourn meetings from time to time. (d) Officers; Duties; Bonds. (1) The officers of the Authority shall be the Chair, Vice Chair, Executive Director, Secretary and Treasurer. Such officers may be directors or officers of the Local Agency serving ex officio. (2) The Chair of the Authority shall be the Board member who is the President of the Board of Directors of the Local Agency. The term of office of the Chair shall be the same as the term of the President of the Board of Directors of the Local Agency. The Chair shall preside at all meetings of the Authority, and shall submit such information and recommendations to the Board as he or she may consider proper concerning the business, policies and affairs of the Authority. The Vice President of the Board of Directors of the Local Agency shall perform the duties of the Chair of the Authority in the absence or incapacity of the Chair of the Authority. (3) The Vice Chair shall be the Board member who is the Vice President of the Board of Directors of the Local Agency. The term of office of the Vice Chair shall be the same as the term of the Vice President of the Board of Directors of the Local Agency. The Vice Chair shall perform the duties of the Chair in the absence or incapacity of the Chair. In case of the resignation or death of the Chair, the Vice Chair shall perform such duties as are imposed on the Chair, until such time as a new Chair is selected or appointed. (4) The General Manager of the Local Agency is hereby designated as the Executive Director of the Authority and shall be responsible for execution and supervision of the affairs of the Authority. Except as otherwise authorized by resolution of the Board, the Executive Director or the Executive Director’s designee shall sign all contracts, deeds and other instruments executed by the Authority. In addition, subject to the applicable provisions of any -4- trust agreement, indenture or resolution providing for a trustee or other fiscal agent, the Executive Director is designated as the public officer or person who has charge of, handles, or has access to any property of the Authority, and shall file an official bond if so required by the Board and, as such, shall have the powers, duties and responsibilities specified in Section 6505.1 of the Act. (5) The Executive Secretary of the Local Agency is hereby designated as the Secretary of the Authority. The Secretary shall keep the records of the Authority, shall act as Secretary at the meetings of the Authority and record all votes, and shall keep a record of the proceedings of the Authority in a journal of proceedings to be kept for such purpose, and shall perform all duties incident to the office. (6) The Finance Manager of the Local Agency is hereby designated as the Treasurer of the Authority. The Treasurer of the Authority is designated as the public officer or person who has charge of, handles, or has access to any property of the Authority, and such officer shall file an official bond in the amount of $25,000 as required by Section 6505.1 of the Act; provided, that such bond shall not be required if the Authority does not possess or own property or funds with an aggregate value of greater than $500 (excluding amounts held by a trustee or other fiduciary in connection with any Bonds). The cost of the bond shall be paid by the Local Agency. (7) So long as required by Sections 6505 and 6505.5 of the Act, the Treasurer of the Authority shall prepare or cause to be prepared: (a) a special audit as required pursuant to Section 6505 of the Act every year during the term of this Agreement; and (b) a report in writing on the first day of July, October, January and April of each year to the Board, the Local Agency and CMFA, which report shall describe the amount of money held by the Treasurer of the Authority for the Board, the amount of receipts since the last such report, and the amount paid out since the last such report (which may exclude amounts held by a trustee or other fiduciary in connection with any Bonds to the extent that such trustee or other fiduciary provides regular reports covering such amounts). (8) The services of the officers shall be without compensation by the Authority. The Local Agency will provide such other administrative services as required by the Authority, and shall not receive economic remuneration from the Authority for the provision of such services. (9) The Board shall have the power to appoint such other officers and employees as it may deem necessary and to retain independent counsel, consultants and accountants. (10) All of the privileges and immunities from liability, exemptions from laws, ordinances and rules, all pension, relief, disability, worker’s compensation and other benefits which apply to the activities of officers, agents or employees of the Members when performing their respective functions within the territorial limits of their respective Member, shall apply to them to the same degree and extent while engaged in the performance of any of their functions and duties extraterritorially under the provisions of this Agreement. (11) None of the officers, agents or employees, if any, directly employed by the Authority shall be deemed, by reason of their employment by the Authority, to be employed by any Member or, by reason of their employment by the Authority, to be subject to any of the requirements of any Member. -5- (12) The Members hereby confirm their intent and agree that, as provided in Section 4(a) hereof and in the Act, the debts, liabilities and obligations of the Authority shall not constitute debts, liabilities or obligations of the Local Agency or CMFA, and they do not intend by the following sentence to impair this provision. Notwithstanding Section 4(a) hereof and the Act, the Local Agency and the Authority shall indemnify, defend and hold harmless CMFA and each of CMFA’s officers, directors, employees, attorneys and agents from and against any and all costs, expenses, losses, claims, damages and liabilities directly or indirectly arising out of or in connection with the activities of the Authority, including but not limited to any transaction or series of transactions undertaken by or for the benefit of the Local Agency. CMFA may elect to defend itself in any such action with counsel of its choice, the reasonable fees of such counsel to be paid by the Local Agency. The Authority and the Local Agency shall be jointly and severally liable for any indemnity obligation owed to CMFA or any other indemnified party under this paragraph. Notwithstanding the provisions of Section 895.6 of the Government Code of the State, the Local Agency shall not have any right to contribution from CMFA. This paragraph shall survive the termination of this Agreement. (13) In any event, the Authority or the Local Agency shall cause all records regarding the Authority’s formation, existence, operations, any Bonds issued by the Authority, obligations incurred by it and proceedings pertaining to its termination to be retained for at least six (6) years following termination of the Authority or final payment of any Bonds issued by the Authority, whichever is later. (14) Confirmation of officers shall be the first order of business at the first meeting of the Authority, regular or special, held in each calendar year. (15) No Board member, officer, agent or employee of the Authority, without prior specific or general authority by a vote of the Board, shall have any power or authority to bind the Authority by any contract, to pledge its credit, or to render it liable for any purpose in any amount. Section 5. Powers. The Authority shall have any and all powers which are common powers of the Local Agency and CMFA, and the powers separately conferred by law upon the Authority. All such powers, whether common to the Members or separately conferred by law upon the Authority, are specified as powers of the Authority, except any such powers which are specifically prohibited to the Authority by applicable law. The Authority’s exercise of its powers is subject to the restrictions upon the manner of exercising the powers of the Local Agency. The Authority is hereby authorized, in its own name, to do all acts necessary or convenient for the exercise of its powers, including, but not limited to, any or all of the following: to sue and be sued; to make and enter into contracts; to employ agents, consultants, attorneys, accountants, and employees; to acquire, hold or dispose of property, whether real or personal, tangible or intangible, wherever located; to issue Bonds or otherwise incur debts, liabilities or obligations to the extent authorized by the Act or any other applicable provision of law and to pledge any property or revenues or the rights thereto as security for such Bonds and other indebtedness. Notwithstanding the foregoing, the Authority shall have any additional powers conferred under the Act or under applicable law, insofar as such additional powers may be necessary to accomplish the purposes set forth in Section 2 hereof. -6- Section 6. Termination of Powers. The Authority shall continue to exercise the powers herein conferred upon it until the termination of this Agreement in accordance with Section 3 hereof. Section 7. Fiscal Year. Unless and until changed by resolution of the Board, the fiscal year of the Authority shall be the period from July 1 of each year to and including the following June 30, except for the first fiscal year, which shall be the period from the date of this Agreement to June 30, 2017. Section 8. Disposition of Assets. Upon termination of this Agreement pursuant to Section 3 hereof, any surplus money in possession of the Authority or on deposit in any fund or account of the Authority shall be returned in proportion to any contributions made as required by Section 6512 of the Act. The Board is vested with all powers of the Authority for the purpose of concluding and dissolving the business affairs of the Authority. After rescission or termination of this Agreement pursuant to Section 3 hereof, all property of the Authority, both real and personal, shall be distributed to the Local Agency, subject to Section 9 hereof. Section 9. Contributions and Advances. Contributions or advances of public funds and of personnel, equipment or property may be made to the Authority by the Local Agency and CMFA for any of the purposes of this Agreement. Payment of public funds may be made to defray the cost of any such contribution. Any such advance made in respect of a revenue- producing facility shall be made subject to repayment, and shall be repaid, in the manner agreed upon by the Local Agency or CMFA, as the case may be, and the Authority at the time of making such advance as provided by Section 6512.1 of the Act. It is mutually understood and agreed that neither the Local Agency nor CMFA has any obligation to make advances or contributions to the Authority to provide for the costs and expenses of administration of the Authority, even though either may do so. The Local Agency or CMFA may allow the use of personnel, equipment or property in lieu of other contributions or advances to the Authority. Section 10. Bonds. (a) Authority to Issue Bonds. When authorized by the Act or other applicable provisions of law and by resolution of the Board, the Authority may issue Bonds for the purpose of raising funds for the exercise of any of its powers or to otherwise carry out its purposes under this Agreement. Said Bonds shall have such terms and conditions as are authorized by the Board. Notwithstanding the foregoing, the Authority shall not incur any form of indebtedness for the repayment of money borrowed, including (but not limited to) bonds, debentures, notes, loans, leases, installment purchase agreements or other securities, without the prior written approval of CMFA, which approval shall not be unreasonably withheld or delayed; provided, however, that the Authority shall pay to CMFA: (i) upon the incurrence of such indebtedness, a closing fee in an amount equal to the issuance fee that a borrower would pay to CMFA for the same type of transaction issued by CMFA, in accordance with the CMFA fee schedule in effect on such date of incurrence; and (ii) annually in advance, on the date of incurrence of such indebtedness and on each anniversary thereof until the indebtedness is retired, an annual fee equal to the annual fee, if any, that a borrower would pay to CMFA for the same type of transaction issued by CMFA, in accordance with the CMFA fee schedule in effect on the date of such incurrence. (b) Bonds Limited Obligations. The Bonds, including the principal and any purchase price thereof, and the interest and premium, if any, thereon, shall be special obligations of the Authority payable solely from, and secured solely by, the revenues, funds and other assets pledged therefor under the applicable Indenture(s) and shall not constitute a charge against the -7- general credit of the Authority. The Bonds shall not be secured by a legal or equitable pledge of, or lien or charge upon or security interest in, any property of the Authority or any of its income or receipts except the property, income and receipts pledged therefor under the applicable Indenture(s). The Bonds shall not constitute a debt, liability or obligation of the State or any public agency thereof, including CMFA and the Local Agency, other than the special obligation of the Authority as described above. Neither the faith and credit nor the taxing power of the State or any public agency thereof, including CMFA and the Local Agency, shall be pledged to the payment of the principal or purchase price of, or the premium, if any, or interest on the Bonds nor shall the State or any public agency or instrumentality thereof, including CMFA and the Local Agency, in any manner be obligated to make any appropriation for such payment. The Authority shall have no taxing power. No covenant or agreement contained in any Bond or Indenture shall be deemed to be a covenant or agreement of any director, officer, agent or employee of the Authority, the Local Agency or CMFA, in his or her individual capacity, and no director or officer of the Authority executing a Bond shall be liable personally on such Bond or be subject to any personal liability or accountability by reason of the issuance of such Bond. Section 11. Agreement not Exclusive. This Agreement shall not be exclusive and shall not be deemed to amend or alter the terms of other agreements between the Local Agency and CMFA, except as the terms of this Agreement shall conflict therewith, in which case the terms of this Agreement shall prevail. Section 12. Accounts and Reports. All funds of the Authority shall be strictly accounted for in books of account and financial records maintained by the Authority, including a report of all receipts and disbursements. The Authority shall establish and maintain such funds and accounts as may be required by generally accepted accounting principles and by each Indenture for outstanding Bonds (to the extent such duties are not assigned to a trustee for owners of Bonds). The books and records of the Authority shall be open to inspection at all reasonable times by the Local Agency and CMFA and their representatives. The Authority shall require that each Indenture provide that the trustee appointed thereunder shall establish suitable funds, furnish financial reports and provide suitable accounting procedures to carry out the provisions of such Indenture. Said trustee may be given such duties in said Indenture as may be desirable to carry out the requirements of this Section 12. (a) Audits. The Treasurer of the Authority shall cause an independent audit to be made of the books of accounts and financial records of the Authority in compliance with the requirements of the Act. Any costs of the audit, including contracts with, or employment of, certified public accountants or public accountants in making an audit pursuant to this Section 12, shall be borne by the Authority and shall be a charge against any unencumbered funds of the Authority available for that purpose. (b) Audit Reports. The Treasurer of the Authority, as soon as practicable after the close of each Fiscal Year but in any event within the time necessary to comply with the requirements of the Act shall file a report of the audit performed pursuant to this Section 12(b) as required by the Act and shall send a copy of such report to public entities and persons in accordance with the requirements of the Act. -8- Section 13. Funds. Subject to the provisions of each Indenture for outstanding Bonds providing for a trustee to receive, have custody of and disburse funds which constitute Authority funds, the Treasurer of the Authority shall receive, have the custody of and disburse Authority funds pursuant to accounting procedures approved by the Board and shall make the disbursements required by this Agreement or otherwise necessary to carry out the provisions and purposes of this Agreement. Section 14. Conflict of Interest Code. The Authority shall, by resolution, adopt a Conflict of Interest Code to the extent required by law. Such Conflict of Interest Code may be the conflict of interest code of the Local Agency. Section 15. Breach. If default shall be made by the Local Agency or CMFA in any covenant contained in this Agreement, such default shall not excuse either the Local Agency or CMFA from fulfilling its obligations under this Agreement and the Local Agency and CMFA shall continue to be liable for the performance of all conditions herein contained. The Local Agency and CMFA hereby declare that this Agreement is entered into for the benefit of the Authority created hereby and the Local Agency and CMFA hereby grant to the Authority the right to enforce by whatever lawful means the Authority deems appropriate all of the obligations of each of the parties hereunder. Each and all of the remedies given to the Authority hereunder or by any law now or hereafter enacted are cumulative and the exercise of one right or remedy shall not impair the right of the Authority to any or all other remedies. Section 16. Notices. Notices and other communications hereunder to the parties shall be sufficient if delivered to the clerk or secretary of the governing body of each party. Section 17. Withdrawal. Neither CMFA nor the Local Agency may withdraw from this Agreement prior to the end of the term of this Agreement determined in accordance with Section 3. Section 18. Effectiveness. This Agreement shall become effective and be in full force and effect and a legal, valid and binding obligation of CMFA and the Local Agency when each party has executed a counterpart of this Agreement. Section 19. Severability. Should any part, term, or provision of this Agreement be decided by the courts to be illegal or in conflict with any law of the State, or otherwise be rendered unenforceable or ineffectual, the validity of the remaining parts, terms or provisions hereof shall not be affected thereby. Section 20. Successors; Assignment. This Agreement shall be binding upon and shall inure to the benefit of the successors of the parties hereto. Except to the extent expressly provided herein, neither party may assign any right or obligation hereunder without the consent of the other. Section 21. Amendment of Agreement. This Agreement may be amended by supplemental agreement executed by the Members at any time; provided, however, that this Agreement may be terminated only in accordance with Section 3 hereof and, provided further, that such supplemental agreement shall be subject to any restrictions contained in any Bonds or documents related to any Bonds to which the Authority is a party. Section 22. Form of Approvals. Whenever an approval is required in this Agreement, unless the context specifies otherwise, it shall be given, in the case of CMFA, by resolution duly -9- adopted by the board of directors of CMFA, and, in the case of the Local Agency, by resolution duly adopted by the Board of Directors of the Local Agency, and, in the case of the Authority, by resolution duly adopted by the Board. Whenever in this Agreement any consent or approval is required, the same shall not be unreasonably withheld. Section 23. Waiver of Personal Liability. No member, officer or employee of the Authority, the Local Agency or CMFA shall be individually or personally liable for any claims, losses, damages, costs, injury and liability of any kind, nature or description arising from the actions of the Authority or the actions undertaken pursuant to this Agreement, and the Local Agency shall defend such members, officers or employees against any such claims, losses, damages, costs, injury and liability. Without limiting the generality of the foregoing, no member, officer or employee of the Authority or of any Member shall be personally liable on any Bonds or be subject to any personal liability or accountability by reason of the issuance of Bonds pursuant to the Act and this Agreement. To the full extent permitted by law, the Board shall provide for indemnification by the Authority of any person who is or was a member of the Board, or an officer, employee or other agent of the Authority, and who was or is a party or is threatened to be made a party to a proceeding by reason of the fact that such person is or was such a member of the Board, or an officer, employee or other agent of the Authority, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding, if such person acted in good faith and in the course and scope of his or her office, employment or agency. In the case of a criminal proceeding, the Board may provide for indemnification and defense of a member of the Board, or an officer, employee or other agent of the Authority to the extent permitted by law. Section 24. Notices. Notices to the Local Agency hereunder shall be sufficient if delivered to the Finance Manager of the Local Agency, and notices to CMFA hereunder shall be sufficient if delivered to the financial advisor of CMFA. Section 25. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Agreement. Section 26. Miscellaneous. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Where reference is made to duties to be performed for the Authority by a public official or employee, such duties may be performed by that person’s duly authorized deputy or assistant. Where reference is made to actions to be taken by CMFA or the Local Agency, such action may be exercised through the officers, staff or employees of CMFA or the Local Agency, as the case may be, in the manner provided by law. THIS AGREEMENT IS MADE IN THE STATE, UNDER THE CONSTITUTION AND LAWS OF THE STATE AND IS TO BE CONSTRUED AS A CONTRACT MADE AND TO BE PERFORMED IN THE STATE. This Agreement is the complete and exclusive statement of the agreement among the parties with respect to the subject matter hereof, which supersedes and merges all prior proposals, understandings, and other agreements, whether oral, written, or implied in conduct, between the parties relating to the subject matter of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their proper officers or officials thereunto duly authorized, as of the day and year first above written. YORBA LINDA WATER DISTRICT By President Attest: Executive Secretary CALIFORNIA MUNICIPAL FINANCE AUTHORITY By: Authorized Signatory [Joint Exercise of Powers Agreement – Yorba Linda Water District Financing Authority] ITEM NO. 4.2 AGENDA REPORT Meeting Date: April 11, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Delia Lugo, Finance Manager Reviewed by Legal:Yes Prepared By:Delia Lugo, Finance Manager Subject:Approving Sale of Revenue Bonds, Series 2017A SUMMARY: The District proposes to undertake the refinancing of the acquisition and construction of certain improvements, betterments, renovations and expansions of facilities within its water system. The Board of Directors has determined that it is desirable to issue Revenue Bonds, Series 2017A (the “Bonds”) in an aggregate principal amount not to exceed $35,000,000 to assist the District in financing the 2017 Project and refinancing the 2008 Project. STAFF RECOMMENDATION: That the Board of Directors adopt Resolution No. FA-17-01 Approving the Sale of Revenue Bonds, Series 2017A in an Aggregate Principal Amount Not to Exceed $35,000,000 and Approving the Execution and Delivery of Certain Documents in Connection Therewith and Certain Other Matters. DISCUSSION: The Bonds are to be secured by installment payments to be made pursuant to an Installment Purchase Agreement (the “Installment Purchase Agreement”), by and between the District and the Yorba Linda Water District Financing Authority, which installment payments will be payable from net revenues of the District’s water system. The Board has determined that it is in the best interest of the Authority to enter into the Installment Purchase Agreement with the District, and to approve certain other documents. ATTACHMENTS: Name:Description:Type: Resolution_No._FA-17-01_-_YLWDFA.docx Resolution Resolution Installment_Purchase_Agreement_-_YLWDFA.docx Installment Purchase Agreement Backup Material Indenture_of_Trust_-_YLWDFA.docx Indenture of Trust Backup Material Purchase_Contract_-_YLWDFA.docx Purchase Contract Backup Material Preliminary_Official_Statement_-_YLWDFA.docx Preliminary Official Statement Backup Material Resolution No. FA-17-01 Approving the Sale of Revenue Bonds Series 2017A 1 RESOLUTION NO. FA-17-01 RESOLUTION OF THE BOARD OF DIRECTORS OF THE YORBA LINDA WATER DISTRICT FINANCING AUTHORITY APPROVING THE SALE OF ITS REVENUE BONDS, SERIES 2017A IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $35,000,000 AND APPROVING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION THEREWITH AND CERTAIN OTHER MATTERS WHEREAS, the Yorba Linda Water District Financing Authority (the “Authority”), a public entity duly organized and existing under a joint exercise of powers agreement and under the Constitution and laws of the State of California (the “State”), has the powers, among others, to issue bonds and to finance water and wastewater facilities on behalf of its members pursuant to Articles 1, 2 and 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State, including but not limited to Article 4 thereof (known as the “Marks-Roos Local Bond Pooling Act of 1985,” Government Code Section 6584 et seq.); and WHEREAS, the Yorba Linda Water District (the “District”), a county water district duly organized and existing under and by virtue of the laws of the State, and a member of the Authority, proposes to undertake the financing of the acquisition and construction of certain improvements, betterments, renovations and expansions of facilities within its water system (the “2017 Project”); and WHEREAS, the District also proposes to undertake the refinancing of the acquisition and construction of certain improvements, betterments, renovations and expansions of facilities within its water system (the “2008 Project” and, together with the 2017 Project, the “Project”); and WHEREAS, the Board of Directors of the Authority (the “Board”) has determined that it is desirable to issue its Revenue Bonds, Series 2017A (the “Bonds”) in an aggregate principal amount not to exceed $35,000,000 to assist the District in financing the 2017 Project and refinancing the 2008 Project; and WHEREAS, the Bonds are to be secured by installment payments to be made pursuant to an Installment Purchase Agreement (the “Installment Purchase Agreement”), by and between the District and the Authority, which installment payments will be payable from net revenues of the District’s water system; and Resolution No. FA-17-01 Approving the Sale of Revenue Bonds Series 2017A 2 WHEREAS, the Board has determined that it is in the best interest of the Authority to enter into the Installment Purchase Agreement with the District, and to approve certain other documents; and WHEREAS, the Authority and U.S. Bank National Association, as trustee (the “Trustee”), desire to enter into an Indenture of Trust (the “Indenture”), to provide for the issuance and security of the Bonds and to provide for the financing of the 2017 Project and the refinancing of the 2008 Project; and WHEREAS, pursuant to the Indenture, the Authority will assign to the Trustee the installment payments payable under the Installment Purchase Agreement; and WHEREAS, a preliminary official statement with respect to the Bonds (the “Preliminary Official Statement”), has been prepared by the District and the Authority with the assistance of Stradling Yocca Carlson & Rauth, a Professional Corporation, as bond counsel (“Bond Counsel”) and disclosure counsel; and WHEREAS, the Authority desires to execute and deliver a Purchase Contract (the “Purchase Contract”) with the District and Citigroup Global Markets Inc., as underwriter of the Bonds (the “Underwriter”), with respect to the Bonds; and WHEREAS, there have been presented to the Board copies of each of the aforementioned documents and certain other documents relating to the foregoing; NOW, THEREFORE, the Board of Directors of the Yorba Linda Water District Financing Authority hereby finds, determines, declares and resolves as follows: SECTION 1. The Board hereby specifically finds and declares that each of the statements, findings and determinations of the Authority set forth in the above recitals and in the preambles of the documents approved herein are true and correct and that the financing and refinancing of the Project will result in significant public benefits for the residents of the District. The Board hereby further finds and determines that: (a) there are significant public benefits to the citizens of the District of the type described in Section 6586 of the Marks-Roos Local Bond Pooling Act of 1985 (the “Act”) in having the Authority assist the District with respect to the financing and refinancing of the Project through the issuance of the Bonds, in that the issuance of the Bonds and related transactions will result in demonstrable savings in effective interest rate to the District and significant reductions in effective user charges levied by the District; and (b) the Project includes facilities for the production, storage, transmission or treatment of water within the meaning of Section 6586.5(c) of the Act. Resolution No. FA-17-01 Approving the Sale of Revenue Bonds Series 2017A 3 SECTION 2. The Board hereby authorizes the preparation, sale and delivery of the Bonds in accordance with the terms and provisions of the Indenture in an aggregate principal amount (not in excess of $35,000,000) that is determined by the Executive Director or the Treasurer, together with other available funds, as being necessary: (a) to finance the 2017 Project; (b) to refinance the 2008 Project; and (c) to pay the costs of issuing the Bonds. SECTION 3. The form of the Bonds, as set forth in the form of the Indenture (as the Indenture may be modified pursuant hereto), is hereby approved; and the Chair and the Secretary are hereby authorized and directed to execute the Bonds by manual or facsimile signature in the name and on behalf of the Authority. SECTION 4. The Installment Purchase Agreement is hereby approved substantially in the form on file with the Secretary. The Chair or Vice Chair of the Board or the Executive Director or the Treasurer of the Authority (each, an “Authorized Officer”) or the designee thereof is hereby authorized and directed to execute and deliver such Installment Purchase Agreement with such changes, insertions and omissions as may be recommended by General Counsel or Bond Counsel and approved by the officer executing the same, said execution being conclusive evidence of such approval. SECTION 5. The Indenture is hereby approved substantially in the form on file with the Secretary. Each Authorized Officer or the designee thereof is hereby authorized and directed to execute and deliver such Indenture with such changes, insertions and omissions as may be recommended by General Counsel or Bond Counsel and approved by the officer executing the same, said execution being conclusive evidence of such approval. SECTION 6. The Purchase Contract is hereby approved substantially in the form on file with the Secretary. Each Authorized Officer or the designee thereof 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 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 $35,000,000, nor shall the underwriting discount exceed 0.35% of the aggregate principal amount of the Bonds, nor shall the all-in true interest cost of the Bonds exceed 4.50% per annum. SECTION 7. The preparation and distribution of the Preliminary Official Statement in substantially the form on file with the Secretary is hereby approved. Each Authorized Officer or the designee thereof is hereby authorized to sign a certificate pursuant to Rule 15c2-12 promulgated under the Resolution No. FA-17-01 Approving the Sale of Revenue Bonds Series 2017A 4 Securities Exchange Act of 1934 relating to the Preliminary Official Statement, and each Authorized Officer or the designee thereof 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 8. The proceeds of the Bonds shall be deposited as provided in the Indenture and the Installment Purchase Agreement to finance the 2017 Project and refinance the 2008 Project. SECTION 9. The appointment of U.S. Bank National Association as Trustee under and pursuant to the Indenture, with the powers and duties of said office as set forth therein, is hereby approved. SECTION 10. The Board hereby authorizes the General Manager or his designee: (i) to solicit bids on a municipal bond insurance policy and/or reserve surety; (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 11. The Authority hereby adopts the Statement of Debt Management Policy of the District, as amended from time to time, as the Statement of Debt Management Policy of the District. SECTION 12. The Authorized Officers, the Secretary or any other proper officer of the Authority, 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 Installment Purchase Agreement, the Purchase Contract, bond insurance, a reserve surety and this resolution, including any reimbursement agreement or other agreement relative to bond insurance or a reserve surety. In the event that the Chair and Vice Chair of the Board are unavailable to sign any of the agreements described herein, any other member of the Board may sign such agreement. SECTION 13. 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. FA-17-01 Approving the Sale of Revenue Bonds Series 2017A 5 SECTION 14. This resolution shall take effect immediately. PASSED AND ADOPTED this 11th day of April, 2017 by the following called vote: AYES: NOES: ABSENT: ABSTAIN: J. Wayne Miller, Ph.D., Chair Yorba Linda Water District Financing Authority ATTEST: Annie Alexander, Secretary Yorba Linda Water District Financing Authority Reviewed as to form by General Counsel: Andrew B. Gagen, Esq. Kidman Law LLP Stradling Yocca Carlson & Rauth Draft of 3/31/17 INSTALLMENT PURCHASE AGREEMENT by and between YORBA LINDA WATER DISTRICT and YORBA LINDA WATER DISTRICT FINANCING AUTHORITY Dated as of _____ 1, 2017 Relating to $_____ YORBA LINDA WATER DISTRICT FINANCING AUTHORITY REVENUE BONDS, SERIES 2017A TABLE OF CONTENTS Page i ARTICLE I DEFINITIONS Section 1.01. Definitions ................................................................................................................ 2 ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.01. Representations by the District ................................................................................ 8 Section 2.02. Representations and Warranties by the Authority ................................................... 9 ARTICLE III ACQUISITION AND CONSTRUCTION OF PROJECTS Section 3.01. Acquisition and Construction of the 2017 Project ................................................... 9 Section 3.02. Changes to the 2017 Project .................................................................................... 9 Section 3.03. Sale and Purchase of 2008 Project ......................................................................... 10 Section 3.04. Purchase and Sale of 2017 Project and 2008 Project ............................................. 10 Section 3.05. Title ........................................................................................................................ 10 Section 3.06. Acquisition Fund .................................................................................................... 10 ARTICLE IV INSTALLMENT PAYMENTS Section 4.01. Purchase Price ........................................................................................................ 11 Section 4.02. Series 2017 Installment Payments ......................................................................... 11 ARTICLE V SECURITY Section 5.01. Pledge of Revenues ................................................................................................ 11 Section 5.02. Allocation of Revenues .......................................................................................... 12 Section 5.03. Additional Contracts and Bonds ............................................................................ 13 Section 5.04. Investments ............................................................................................................ 14 Section 5.05. Rate Stabilization Fund .......................................................................................... 14 ARTICLE VI COVENANTS OF THE DISTRICT Section 6.01. Compliance with Installment Purchase Agreement and Ancillary Agreements ............................................................................................................ 15 Section 6.02. Against Encumbrances ........................................................................................... 15 Section 6.03. Against Sale or Other Disposition of Property ...................................................... 15 Section 6.04. Against Competitive Facilities ............................................................................... 15 Section 6.05. Tax Covenants ....................................................................................................... 16 Section 6.06. Prompt Acquisition and Construction .................................................................... 17 Section 6.07. Maintenance and Operating of the Water System ................................................. 17 Section 6.08. Payment of Claims ................................................................................................. 17 Section 6.09. Compliance with Contracts .................................................................................... 17 Section 6.10. Insurance ................................................................................................................ 17 Section 6.11. Accounting Records; Financial Statements and Other Reports ............................. 18 TABLE OF CONTENTS (continued) Page ii Section 6.12. Protection of Security and Rights of the Authority ................................................ 18 Section 6.13. Payment of Taxes and Compliance with Governmental Regulations .................... 18 Section 6.14. Amount of Rates and Charges ............................................................................... 18 Section 6.15. Collection of Rates and Charges ............................................................................ 19 Section 6.16. Eminent Domain Proceeds ..................................................................................... 19 Section 6.17. Further Assurances ................................................................................................. 20 Section 6.18. Enforcement of Contracts ...................................................................................... 20 ARTICLE VII PREPAYMENT OF SERIES 2017 INSTALLMENT PAYMENTS Section 7.01. Prepayment ............................................................................................................ 20 Section 7.02. Method of Prepayment ........................................................................................... 20 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF THE AUTHORITY Section 8.01. Events of Default and Acceleration of Maturities ................................................. 21 Section 8.02. Application of Funds Upon Acceleration .............................................................. 22 Section 8.03. Other Remedies of the Authority ........................................................................... 22 Section 8.04. Non-Waiver ............................................................................................................ 22 Section 8.05. Remedies Not Exclusive ........................................................................................ 23 ARTICLE IX DISCHARGE OF OBLIGATIONS Section 9.01. Discharge of Obligations ....................................................................................... 23 ARTICLE X MISCELLANEOUS Section 10.01. Liability Limited .................................................................................................... 24 Section 10.02. Benefits of Installment Purchase Agreement Limited to Parties ........................... 24 Section 10.03. Successor Is Deemed Included in all References to Predecessor .......................... 24 Section 10.04. Waiver of Personal Liability .................................................................................. 24 Section 10.05. Article and Section Headings, Gender and References ......................................... 24 Section 10.06. Partial Invalidity ..................................................................................................... 25 Section 10.07. Assignment ............................................................................................................ 25 Section 10.08. Net Contract ........................................................................................................... 25 Section 10.09. California Law ....................................................................................................... 25 Section 10.10. Notices ................................................................................................................... 25 Section 10.11. Effective Date ........................................................................................................ 26 Section 10.12. Execution in Counterparts ...................................................................................... 26 Section 10.13. Indemnification of Authority ................................................................................. 26 Section 10.14. Amendments Permitted .......................................................................................... 26 Exhibit A Description of the 2017 Project and the 2008 Project .......................................... A-1 Exhibit B Purchase Price ...................................................................................................... B-1 Exhibit C Form of Substitution Statement ............................................................................ C-1 Exhibit D Form of Requisition from Acquisition Fund ........................................................ D-1 INSTALLMENT PURCHASE AGREEMENT This INSTALLMENT PURCHASE AGREEMENT, dated as of _____ 1, 2017, is entered into 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 YORBA LINDA WATER DISTRICT FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under and by virtue of the laws of the State of California (the “Authority”). RECITALS A. The District proposes to finance the acquisition and construction of certain improvements, betterments, renovations and expansions of facilities within its Water System, as described in Exhibit A hereto (the “2017 Project”). B. The District also proposes to refinance the acquisition and construction of certain improvements, betterments, renovations and expansions of facilities within its Water System, as described in Exhibit A hereto (the “2008 Project”). C. The Authority has agreed to assist the District in financing the 2017 Project and refinancing the 2008 Project on the terms and conditions set forth herein. D. The Authority is authorized by Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California, including but not limited to Section 6540 et seq., to finance and refinance the acquisition and construction of property for its members. E. The District is authorized by Part 5 of Division 12 of the Water Code of the State of California, including but not limited to Article 3 of Chapter 1 thereof, to finance and refinance the acquisition and construction of property for its Water System. F. The District and the Authority have duly authorized the execution of this Installment Purchase Agreement. G. The District has determined that this Installment Purchase Agreement is a Contract within the meaning of that certain Indenture of Trust, dated as of August 1, 2012 (the “2012 Indenture”), by and between the District and U.S. Bank National Association, as trustee, and that the Series 2017 Installment Payments that are payable hereunder will be secured by Revenues on a parity with the payments of principal of and interest on the 2012A Bonds (as such term is defined in the 2012 Indenture), in accordance with the meaning and intent of the 2012 Indenture. H. All acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and delivery of this Installment Purchase Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Installment Purchase Agreement. NOW, THEREFORE, IN CONSIDERATION OF THESE PREMISES AND OF THE MUTUAL AGREEMENTS AND COVENANTS CONTAINED HEREIN AND FOR OTHER VALUABLE CONSIDERATION, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS: 2 ARTICLE I DEFINITIONS Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this section shall for all purposes hereof and of any amendment hereof or supplement hereto and of any report or other document mentioned herein or therein have the meanings defined herein, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined herein. All capitalized terms used herein and not defined herein shall have the meanings ascribed thereto in the Indenture. 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 California Constitution. Bonds The term “Bonds” means the 2012A Bonds and all other 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 Series 2017 Installment Payments and which are secured by a pledge of and lien on Revenues as described in Section 5.01 hereof. 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 Series 2017 Installment Payments and which are secured by a pledge and lien on Revenues as described in Section 5.01 hereof; and excluding contracts entered into for operation and maintenance of the Water System. Authority The term “Authority” means Yorba Linda Water District Public Financing Authority, a joint exercise of powers agency duly organized pursuant to the JPA Agreement and existing under and by virtue of the laws of the State of California. Date of Operation The term “Date of Operation” means, with respect to any uncompleted Project, the estimated date by which such Project will have been completed and, in the opinion of an engineer, will be ready for commercial operation by or on behalf of the District. 3 Debt Service The term “Debt Service” means, for any period of calculation, the sum of: (i) 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); (ii) those portions of the principal amount of all outstanding serial Bonds maturing in such period; (iii) those portions of the principal amount of all outstanding term Bonds required to be prepaid or paid in such period; and (iv) those portions of the Contracts 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 Contracts 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 be a fixed rate equal to the higher of: (1) the then current variable interest rate borne by such Bonds or Contract plus 1%; and (2) 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 Contracts 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 Contracts 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 Contracts or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount shall be treated as interest in the calculation of Debt Service; and 4 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 that 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. 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 of California. Event of Default The term “Event of Default” means an event described in Section 8.01. Fiscal Year The term “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. Indenture The term “Indenture” means the Indenture of Trust, dated as of the date hereof, by and between the District and the Authority, relating to the 2017A Bonds. Independent Certified Public Accountant The term “Independent Certified Public Accountant” means any firm of certified public accountants appointed by the District, and each of whom is independent 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, 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 of the District, but who may be regularly retained to make reports to the District. Installment Payment Date The term “Installment Payment Date” means any date on which Installment Payments are scheduled to be paid by the District under and pursuant to any Contract. 5 Installment Payments The term “Installment Payments” means the Installment Payments of interest and principal scheduled to be paid by the District under and pursuant to the Contracts. Installment Purchase Agreement The term “Installment Purchase Agreement” means this Installment Purchase Agreement, by and between the District and the Authority, dated as of _____ 1, 2017, as originally executed and as it may from time to time be amended or supplemented in accordance herewith. JPA Agreement The term “JPA Agreement” means the Joint Exercise of Powers Agreement, dated April 11, 2017, by and between the District and California Municipal Finance Authority, pursuant to which the Authority is established. Law The term “Law” means the County Water District Law of the State of California (being Division 12 of the Water Code of the State of California, as amended) and all laws amendatory thereof or supplemental thereto. Manager The term “Manager” means the General Manager of the District, or any other person designated by the General Manager to act on behalf of the General Manager. 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. 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. 6 Operating and Maintenance Costs The term “Operating and Maintenance Costs” means: (i) 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 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 Installment Purchase Agreement or of the Indenture or any Contract or of any resolution or indenture authorizing the issuance of any Bonds or of such Bonds; and (ii) 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 and any amounts that are transferred to the Rate Stabilization Fund, if established. Project The term “Project” means additions, betterments, extensions or improvements to the District’s facilities designated by the Board of Directors of the District as a Project, the acquisition and construction of which is to be paid for by the proceeds of any Contracts or Bonds. Purchase Price The term “Purchase Price” means the principal amount plus interest thereon owed by the District to the Authority under the terms hereof as provided in Section 4.01. Rate Stabilization Fund The term “Rate Stabilization Fund” means the fund by that name that is described in Section 5.05. Revenue Fund The term “Revenue Fund” means the fund by that name continued pursuant to Section 5.02 herein. 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: (i) the Ad Valorem Tax Revenues; (ii) 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 7 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; (iii) the proceeds of any stand-by or water availability charges, development fees and connection charges collected by the District; and (iv) the earnings on and income derived from the investment of amounts described in clauses (i), (ii) and (iii) 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. “Revenues” also include all amounts transferred from the Rate Stabilization Fund, if such a fund is established, to the Revenue Fund during any Fiscal Year in accordance with Section 5.05 and do not include any amounts transferred from the Revenue Fund to the Rate Stabilization Fund, if such a fund is established, during any Fiscal Year in accordance with Section 5.02(c). Series 2017 Installment Payment Date The term “Series 2017 Installment Payment Date” means March 31 and September 30 of each year commencing on September 30, 2017. Series 2017 Installment Payments The term “Series 2017 Installment Payments” means the Installment Payments scheduled to be paid by the District under and pursuant to the Installment Purchase Agreement. Trustee The term “Trustee” means U.S. Bank National Association, acting in its capacity as Trustee under and pursuant to the Indenture, and its successors and assigns. 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 that the exclusion of such 8 acquired water system is required pursuant to the term of such merger, consolidation or similar action, and further excluding the District’s sewer system. 2008 Project The term “2008 Project” means the additions, betterments, extensions and improvements to the District’s Water System facilities, including real property and buildings, if any, described as such in Exhibit A hereto. 2017 Project The term “2017 Project” means the additions, betterments, extensions and improvements to the District’s Water System facilities, including real property and buildings, if any, described as such in Exhibit A hereto, to the extent: (i) approved pursuant to the California Environmental Quality Act; and (ii) paid for with the proceeds of the 2017A Bonds, and as modified in conformance with Section 3.02 hereof. 2017A Bonds The term “2017A Bonds” means the Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A, issued pursuant to the Indenture. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.01. Representations by the District. The District makes the following representations: (a) The District is a county water district duly organized and existing under and pursuant to the laws of the State of California. (b) The District has full legal right, power and authority to enter into this Installment Purchase Agreement, carry out its obligations hereunder and carry out and consummate all other transactions contemplated by this Installment Purchase Agreement, and the District has complied with the provisions of the Law in all matters relating to such transactions. (c) By proper action, the District has duly authorized the execution, delivery and due performance of this Installment Purchase Agreement. (d) The District will not take or, to the extent within its power, permit any action to be taken which results in the interest paid for the installment purchase of the 2017 Project and the 2008 Project under the terms of this Installment Purchase Agreement being included in the gross income of the Authority or its assigns for purposes of federal or State of California personal income taxation. (e) The District has determined that it is necessary and proper for District uses and purposes within the terms of the Law that the District finance and acquire the 2017 Project and refinance and acquire the 2008 Project in the manner provided for in this Installment Purchase Agreement, in order to provide essential services and facilities to persons residing in the District. 9 Section 2.02. Representations and Warranties by the Authority. The Authority makes the following representations and warranties: (a) The Authority is a joint exercise of powers agency duly organized under the JPA Agreement and in good standing under the laws of the State of California, has full legal right, power and authority to enter into this Installment Purchase Agreement and to carry out and consummate all transactions contemplated by this Installment Purchase Agreement and by proper action has duly authorized the execution and delivery and due performance of this Installment Purchase Agreement. (b) The execution and delivery of this Installment Purchase Agreement and the consummation of the transactions herein contemplated will not violate any provision of law, any order of any court or other agency of government, or any indenture, material agreement or other instrument to which the Authority is now a party or by which it or any of its properties or assets is bound, or be in conflict with, result in a breach of or constitute a default (with due notice or the passage of time or both) under any such indenture, agreement or other instrument, or result in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Authority. (c) The Authority will not take or permit any action to be taken which results in interest paid for the installment purchase of the 2017 Project and the 2008 Project under the terms of this Installment Purchase Agreement being included in the gross income of the Authority or its assigns for purposes of federal or State of California personal income taxation. ARTICLE III ACQUISITION AND CONSTRUCTION OF PROJECTS Section 3.01. Acquisition and Construction of the 2017 Project. The Authority hereby agrees to cause the 2017 Project and any additions or modifications thereto to be constructed, acquired and installed by the District as its agent. The District shall enter into contracts and provide for, as agent for the Authority, the complete design, construction, acquisition and installation of the 2017 Project in accordance with all applicable laws. The District hereby agrees that it will cause the construction, acquisition and installation of the 2017 Project to be diligently performed after the deposit of funds into the Acquisition Fund pursuant to Section 3.02 of the Indenture, upon satisfactory completion of design work and compliance with the California Environmental Quality Act and approval by the Board of Directors of the District, and that it will use its best efforts to cause the construction, acquisition and installation of the 2017 Project to be completed by ____ 1, 2020, unforeseeable delays beyond the reasonable control of the District only excepted. It is hereby expressly understood and agreed that the Authority shall be under no liability of any kind or character whatsoever for the payment of any cost of the 2017 Project and that all such costs and expenses shall be paid by the District. Section 3.02. Changes to the 2017 Project. The District may substitute other improvements for those listed as components of the 2017 Project in Exhibit A hereto, but only if the District first files with the Authority and the Trustee a statement of the District in the form attached as Exhibit C: (a) identifying the improvements to be substituted and the improvements to District facilities they replace in the 2017 Project; and (b) stating that the estimated costs of construction, acquisition and installation of the substituted improvements are not less than such costs for the improvements previously planned. 10 Section 3.03. Sale and Purchase of 2008 Project. The parties hereby confirm that the District currently has title to the 2008 Project. In consideration for the Authority’s assistance in refinancing the 2008 Project, the District agrees to sell, and hereby sells, to the Authority, and the Authority agrees to purchase and hereby purchases, from the District, the 2008 Project in the manner and in accordance with the provisions of the Installment Purchase Agreement. Section 3.04. Purchase and Sale of 2017 Project and 2008 Project. In consideration for the Series 2017 Installment Payments, the Authority agrees to sell, and hereby sells, to the District, and the District agrees to purchase, and hereby purchases, from the Authority, the 2017 Project and the 2008 Project at the purchase price specified in Section 4.01 hereof and otherwise in the manner and in accordance with the provisions of the Installment Purchase Agreement. Section 3.05. Title. All right, title and interest in each component of the 2017 Project shall vest in the District immediately upon acquisition or construction thereof. All right, title and interest in each component of the 2008 Project shall vest in the District immediately upon execution and delivery of the Installment Purchase Agreement. Such vesting shall occur without further action by the Authority or the District, and the Authority shall, if requested by the District or if necessary to assure such automatic vesting, deliver any and all documents required to assure such vesting. Section 3.06. Acquisition Fund. There is hereby established with the District the Acquisition Fund. The moneys in the Acquisition Fund shall be held by the District in trust and applied by the Finance Manager of the District to the payment of the costs of acquisition and construction of the 2017 Project and of expenses incidental thereto. Before any payment is made from the Acquisition Fund by the Finance Manager of the District, the Manager, acting as agent of the Authority, shall cause to be filed with the Finance Manager of the District a certificate of the District in the form set forth in Exhibit D hereto. Upon receipt of each such certificate, the Finance Manager of the District will pay the amount set forth in such certificate as directed by the terms thereof. The Finance Manager of the District need not make any such payment if it has received notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of; any of the moneys to be so paid, which has not been released or will not be released simultaneously with such payment. When the 2017 Project shall have been constructed and acquired in accordance with the Installment Purchase Agreement, a statement of the District stating the fact and date of such acquisition, construction and acceptance and stating that all of such costs of acquisition and incidental expenses have been determined and paid (or that all of such costs and expenses have been paid less specified claims which are subject to dispute and for which a retention in the Acquisition Fund is to be maintained in the full amount of such claims until such dispute is resolved), shall be delivered to the Finance Manager of the District and the Trustee by the Manager. Upon the receipt of such statement, the Finance Manager of the District shall transfer any remaining balance in the Acquisition Fund not needed for Acquisition Fund purposes (but less the amount of any such retention which amount shall be certified to the Finance Manager of the District by the Manager) to the Trustee, which shall deposit such amounts to the 2017A Bond Payment Fund that is held by the Trustee under the Indenture for payment of 2017A Bonds in accordance with the Indenture. 11 ARTICLE IV INSTALLMENT PAYMENTS Section 4.01. Purchase Price. (a) The Purchase Price to be paid by the District hereunder to the Authority is the sum of the principal amount of the District’s obligations hereunder plus the interest to accrue on the unpaid balance of such principal amount from the effective date hereof over the term hereof, subject to prepayment as provided in Article VII. (b) The principal amount of the payments to be made by the District hereunder is set forth in Exhibit B hereto. (c) The interest to accrue on the unpaid balance of such principal amount is as specified in Section 4.02 and Exhibit B hereto, and shall be paid by the District as and constitute interest paid on the principal amount of the District’s obligations hereunder. Section 4.02. Series 2017 Installment Payments. The District shall, subject to its rights of prepayment provided in Article VII, pay the Authority the Purchase Price in installment payments of interest and principal in the amounts and on the Series 2017 Installment Payment Dates as set forth in Exhibit B hereto. Each Series 2017 Installment Payment shall be paid to the Authority in lawful money of the United States of America. In the event that the District fails to make any of the payments required to be made by it under this section, such payment shall continue as an obligation of the District until such amount shall have been fully paid, and the District agrees to pay the same with interest accruing thereon at the rate or rates of interest then applicable to the remaining unpaid principal balance of the Series 2017 Installment Payments if paid in accordance with their terms. The obligation of the District to make the Series 2017 Installment Payments is absolute and unconditional, and until such time as the Purchase Price shall have been paid in full (or provision for the payment thereof shall have been made pursuant to Article IX), the District will not discontinue or suspend any Series 2017 Installment Payment required to be made by it under this section when due, whether or not the Water System or any part thereof is operating or operable or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and whether or not the 2017 Project has been completed, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. ARTICLE V SECURITY Section 5.01. Pledge of Revenues. The Ad Valorem Tax Revenues, all other Revenues, other amounts on deposit in the Revenue Fund, amounts transferred from the Rate Stabilization Fund, if established, to the Revenue Fund as described in Section 5.05, and any other amounts (including proceeds of the sale of the 2017A Bonds) held in any fund or account established pursuant to the Installment Purchase Agreement (except the Rate Stabilization Fund, if established (other than 12 those amounts transferred by the District from the Rate Stabilization Fund, if established, to the Revenue Fund)), are irrevocably pledged to the payment of the Series 2017 Installment Payments. This Installment Purchase Agreement is a Contract for purposes of the 2012 Indenture, and the District so finds, and represents that the conditions of Section 6.14 of the 2012 Indenture 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 2017 Installment Payments. The Ad Valorem Tax Revenues shall not be used for any other purposes while any of the Series 2017 Installment Payments remain unpaid, except as provided for herein and in the 2012 Indenture. In the event that the Ad Valorem Tax Revenues are not sufficient in amount to pay the 2012A Bonds and the Series 2017 Installment Payments when due, such amounts shall be paid from other Net Revenues. The District hereby reaffirms, in furtherance of the foregoing and the 2012 Indenture, that all Revenues and all amounts on deposit in the Revenue Fund are hereby irrevocably pledged to the payment of the 2012A Bonds and the Series 2017 Installment Payments as provided herein 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 any of the Series 2017 Installment Payments remain unpaid; provided that out of the Revenues there may be apportioned such sums for such purposes as are expressly permitted herein. This pledge shall constitute a first and exclusive lien on Revenues, the Revenue Fund and the other funds and accounts created hereunder for the payment of the 2012A Bonds, the Series 2017 Installment Payments and all other Contracts and Bonds in accordance with the terms hereof and of the Indenture. Section 5.02. Allocation of Revenues. 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 has been previously continued under the 2012 Indenture and which fund the District agrees and covenants to maintain and to hold separate and apart from other funds so long as any Installment Payments or Bonds remain unpaid; and (ii) all Ad Valorem Tax Revenues shall be deposited when and as received in the “Ad Valorem Taxes Account of the Revenue Fund,” which account has been continued under the 2012 Indenture. Moneys in the Revenue Fund shall be used and applied by the District as provided in the 2012 Indenture and this Installment Purchase Agreement. The District shall, from the moneys in the Revenue Fund in excess of amounts pledged to the 2012A Bonds and Series 2017 Installment Payments, 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 they become due and payable. All moneys in the Ad Valorem Taxes Account and all remaining moneys in the Revenue Fund shall be set aside by the District at the following times in the following respective special funds in the following order of priority and all moneys in each of such funds shall be held in trust and shall be applied, used and withdrawn only for the purposes hereinafter authorized in this Section: (a) 2017A Bond Payment Fund. On or before each Series 2017 Installment 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 2017A Bond Payment Fund an amount equal to the interest and principal payable and coming due on the next succeeding Series 2017 Installment Payment Date. The District shall also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the applicable payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any 13 discrimination or preference, any other Debt Service in accordance with the provisions of the Contract, Bond, resolution or indenture relating thereto. Any moneys on deposit in the 2017A Bond Payment Fund on each Series 2017 Installment Payment Date (other than amounts required for the payment of past due principal or interest with respect to any 2017A Bonds not presented for payment) shall be credited to the payment of the Series 2017 Installment Payments due and payable on such date. No deposit need be made in the 2017A Bond Payment Fund as Series 2017 Installment Payments if the amount in the 2017A Bond Payment Fund is at least equal to the amount of the Series 2017 Installment Payment due and payable on the next succeeding Series 2017 Installment Payment Date. (b) Reserve Funds. On or before each Series 2017 Installment 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 trustee for deposit to such other reserve fund or account for Bonds or Contracts, an amount equal to the amount required to be deposited therein. (c) Surplus. Moneys on deposit in the Revenue Fund not necessary to make any of the payments required above may be expended by the District at any time for any purpose permitted by law or deposited in the Rate Stabilization Fund, if established. Section 5.03. 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 that: (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 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 twenty-five percent (125%) of the Debt Service for such twelve month period. When calculated for purposes of this subsection, Net Revenues do not include amounts transferred from the Rate Stabilization Fund, if established, to the Revenue Fund pursuant to Section 5.05 that are in excess of twenty-five percent (25%) of Debt Service for such Fiscal Year; and (b) 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 of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, 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 twenty-five percent (125%) 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 that such Contracts had been executed or Bonds had been issued at the beginning of such twelve month period, plus the Debt Service which would have accrued had such proposed additional Contract been executed or proposed additional Bonds been issued at the beginning of such twelve month 14 period. When calculated for purposes of this subsection, Net Revenues do not include amounts transferred from the Rate Stabilization Fund, if established, to the Revenue Fund pursuant to Section 5.05 that are in excess of twenty-five percent (25%) of Debt Service for such Fiscal Year; 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 twenty-five percent (125%) 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 5.04. 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 in the 2012 Indenture and herein. Section 5.05. Rate Stabilization Fund. The District is authorized but not required to establish a special fund designated as the “Rate Stabilization Fund.” If the District elects to establish a Rate Stabilization Fund, such fund will be held by the District in trust under the Installment Purchase Agreement. The District agrees and covenants to maintain and to hold such fund, if established, separate and apart from other funds so long as any Contracts or Bonds remain unpaid. Money transferred by the District from the Revenue Fund to the Rate Stabilization Fund, if established, in accordance with Section 5.02(c) will be held in the Rate Stabilization Fund and applied in accordance with the Installment Purchase Agreement. The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund, if established, and transfer such amounts to the Revenue Fund for application in accordance with Section 5.02 or, in the event that all or a portion of the Series 2017 Installment Payments are discharged in accordance with Article VII, transfer all or any portion of such amounts for application in accordance with Article VII. Any such amounts transferred from the Rate Stabilization Fund, if established, to the Revenue Fund in accordance with the Indenture constitute pledged Revenues. 15 ARTICLE VI COVENANTS OF THE DISTRICT Section 6.01. Compliance with Installment Purchase Agreement and Ancillary Agreements. The District will punctually pay the Series 2017 Installment Payments in strict conformity with the terms hereof, and will faithfully observe and perform all of the agreements, conditions, covenants and terms contained herein required to be observed and performed by it, and will not terminate the Installment Purchase Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the 2017 Project or the 2008 Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either or any failure of the Authority to observe or perform any agreement, condition, covenant or term contained herein required to be observed and performed by it, whether express or implied, or any duty, liability or obligation arising out of or connected herewith or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Authority or any force majeure, including acts of God, tempest, storm, earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial disputes, lock outs, lack of transportation facilities, fire, explosion, or acts or regulations of governmental authorities. The District will faithfully observe and perform all of the agreements, conditions, covenants and terms required to be observed and performed by it pursuant to all outstanding Contracts and Bonds as such may from time to time be executed or issued, as the case may be. Section 6.02. 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 2012 Indenture. In addition, the District may at any time, or from time to time, issue evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of and lien on Revenues or any moneys in the Revenue Fund as may from time to time be deposited therein (as provided in Section 5.02), provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided herein. Section 6.03. 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 Series 2017 Installment Payments, or which would otherwise impair the rights of the Authority hereunder or 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 sold if such sale will not impair the ability of the District to pay the Series 2017 Installment Payments 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 6.04. Against Competitive Facilities. The District will not, to the extent permitted by law, acquire, construct, maintain or operate and will not, to the extent permitted by law and within 16 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 6.05. Tax Covenants. Notwithstanding any other provision of the Installment Purchase Agreement, absent an opinion of Bond Counsel that the exclusion from gross income of the interest on the 2017A 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 2017A Bonds and specifically covenants, without limiting the generality of the foregoing, as follows: (d) Private Activity. The District will take no action or refrain from taking any action, and the District will make no use of the proceeds of the 2017A Bonds or of any other moneys or property, which would cause the 2017A Bonds to be “private activity bonds” within the meaning of Section 141 of the Code; (e) Arbitrage. The District will make no use of the proceeds of the 2017A Bonds or of any other amounts or property, regardless of the source, and the District will not take any action or refrain from taking any action, which will cause the 2017A Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code; (f) Federal Guarantee. The District will make no use of the proceeds of the 2017A Bonds, and the District will not take or omit to take any action, that would cause the 2017A Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code; (g) 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 Code necessary to preserve the exclusion of interest on the 2017A Bonds pursuant to Section 103(a) of the Code; (h) Hedge Bonds. The District will make no use of the proceeds of the 2017A Bonds or any other amounts or property, regardless of the source, and the District will not take any action or refrain from taking any action, that would cause the 2017A 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 2017A Bonds for federal income tax purposes; and (i) Miscellaneous. The District will not take any 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 2017A 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 Authority to issue revenue bonds or issuing bonds or executing and delivering contracts payable on a parity with the 2017A Bonds, the interest with respect to which has been determined to be subject to federal income taxation. 17 Section 6.06. Prompt Acquisition and Construction. The District will take all necessary and appropriate steps to acquire and construct the 2017 Project, as agent of the Authority, with all practicable dispatch and in an expeditious manner and in conformity with law so as to complete the same as soon as possible. Section 6.07. Maintenance and Operating 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 6.08. 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 under the Indenture or on any funds in the hands of the District pledged to pay the Series 2017 Installment Payments or the Bonds, or which might impair the security of the Series 2017 Installment Payments. Section 6.09. Compliance with Contracts. 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 contracts for the use of the Water System and all other contracts affecting or involving the Water System, to the extent that the District is a party thereto. Section 6.10. Insurance. (a) The District will procure and maintain or cause to be procured and maintained insurance on the Water System, excluding coverage for earthquake damage or destruction, with responsible insurers in such amounts and against such risks (including accident 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 at reasonable rates. 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, then the excess Net Proceeds shall be applied in part to the prepayment of Series 2017 Installment Payments as provided in Article VII 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 Series 2017 Installment Payments then bears to the aggregate unpaid 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 Series 2017 Installment Payments 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 thereupon such Net Proceeds shall be 18 applied to the prepayment of Series 2017 Installment Payments as provided in Article VII and to the retirement of such Bonds and Contracts. (b) The District will procure and maintain such other insurance which it shall deem advisable or necessary to protect its interests and the interests of the Authority, 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. All policies of insurance required to be maintained herein shall provide that the Authority or its assignee shall be given thirty (30) days’ written notice of any intended cancellation thereof or reduction of coverage provided thereby. Section 6.11. Accounting Records; Financial Statements and Other Reports. (a) 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 Authority and the Trustee at reasonable hours and under reasonable conditions. (b) The District will prepare and file with the Authority or its assignee, annually within two hundred seventy (270) days after the close of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2017) 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 obligation to review any such financial statements. Section 6.12. Protection of Security and Rights of the Authority. The District will preserve and protect the security hereof and the rights of the Authority to the Series 2017 Installment Payments hereunder and will warrant and defend such rights against all claims and demands of all persons. Section 6.13. 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 6.14. Amount of Rates and Charges. (a) In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund, if established, on the first day of such Fiscal Year is less than the Series 2017 Installment Payments payable in such Fiscal Year, to the fullest extent permitted by law, the District will fix and prescribe, 19 at the commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues equal to one hundred twenty-five percent (125%) of Debt Service for such Fiscal Year. When calculated for purposes of this subsection, Net Revenues do not include amounts transferred from the Rate Stabilization Fund, if established, pursuant to Section 5.05 that are in excess of twenty-five percent (25%) of Debt Service for such Fiscal Year. (b) In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund on the first day of such Fiscal Year is at least equal to the Series 2017 Installment Payments payable in such Fiscal Year, to the fullest extent permitted by law, the District will fix and prescribe, at the commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Revenues equal to one hundred twenty-five percent (125%) of the sum of Operating and Maintenance Costs and Non-Operating and Maintenance Costs for such Fiscal Year. When calculated for purposes of this subsection, Revenues do not include any amounts transferred from the Rate Stabilization Fund, if established, pursuant to Section 5.05. (c) The District may make, or permit to be made, adjustments from time to time in such rates, fees and charges and may make, or permit to be made, such classification thereof as it deems necessary, but may not reduce or permit to be reduced such rates, fees and charges below those then in effect, unless the Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements. Section 6.15. 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 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 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 6.16. 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 Authority and 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 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 Authority and 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. 20 (b) If the foregoing conditions are not met, then such Net Proceeds shall be applied in part to the prepayment of Series 2017 Installment Payments as provided in Article VII 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 Series 2017 Installment Payments then bears to the aggregate unpaid principal amount of such Bonds and Contracts. Section 6.17. Further Assurances. The District will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance hereof and for the better assuring and confirming unto the Authority of the rights and benefits provided to it herein. Section 6.18. Enforcement of Contracts. So long as any of the 2017A 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 Series 2017 Installment Payments. ARTICLE VII PREPAYMENT OF SERIES 2017 INSTALLMENT PAYMENTS Section 7.01. Prepayment. (a) The District may or shall, as the case may be, prepay from Net Proceeds as provided herein the Series 2017 Installment Payments in whole, or in part, on any date in the order of payment date as directed by the District, at a prepayment price equal to the sum of the principal amount prepaid plus accrued interest thereon to the date of prepayment, without premium. (b) The District may prepay the Series 2017 Installment Payments as a whole, or in part, on any date on or after _____ 1, 20__ in the order of payment date as directed by the District, at a prepayment price equal to the principal amount of the Series 2017 Installment Payments to be prepaid, together with accrued interest thereon to the date of prepayment, without premium: (c) Notwithstanding any such prepayment, the District shall not be relieved of its obligations hereunder, including its obligations under Article IV, until the Purchase Price shall have been fully paid (or provision for payment thereof shall have been provided to the written satisfaction of the Authority). Section 7.02. Method of Prepayment. Before making any prepayment pursuant to Section 7.01, the District shall, within five (5) days following the event permitting the exercise of such right to prepay or creating such obligation to prepay, give written notice to the Authority and the Trustee describing such event and specifying the date on which the prepayment will be paid, which date shall be not less than sixty (60) (or such shorter number of days as is acceptable to the Trustee) days from the date such notice is given. 21 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF THE AUTHORITY Section 8.01. Events of Default and Acceleration of Maturities. If one or more of the following Events of Default shall happen: (1) if default shall be made by the District in the due and punctual payment of any Series 2017 Installment Payment or any Contract or Bond when and as the same shall become due and payable; (2) if default shall be made by the District in the performance of any of the agreements or covenants required herein to be performed by it, and such default shall have continued for a period of sixty (60) days after the District shall have been given notice in writing of such default by the Authority; or (3) if the District shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property; or (4) if payment of the principal of any Contract or Bond is accelerated in accordance with its terms; then and in each and every such case during the continuance of an Event of Default, the Authority shall, by notice in writing to the District, declare the entire principal amount of the unpaid Series 2017 Installment Payments and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything contained herein to the contrary notwithstanding. This Section, however, is subject to the condition that if at any time after the entire principal amount of the unpaid Series 2017 Installment Payments and the accrued interest thereon shall have been so declared due and payable 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 Authority a sum sufficient to pay the unpaid principal amount of the Series 2017 Installment Payments or the unpaid payment of any other Contract or Bond referred to in clause (1) above due prior to such declaration and the accrued interest thereon, with interest on such overdue installments, at the rate or rates applicable to the remaining unpaid principal balance of the Series 2017 Installment Payments or such Contract or Bond if paid in accordance with their terms, and the reasonable expenses of the Authority, and any and all other defaults known to the Authority (other than in the payment of the entire principal amount of the unpaid Series 2017 Installment Payments and the accrued interest thereon due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Authority or provision deemed by the Authority to be adequate shall have been made therefor, then and in every such case the Authority, by written notice to the District, may rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon. 22 Section 8.02. Application of Funds Upon Acceleration. Upon the date of the declaration of acceleration as provided in Section 8.01, first all Ad Valorem Tax Revenues and if such amounts are insufficient to make the following payments, then all Revenues thereafter received by the District shall be applied in the following order: First, to the payment, without preference or priority, and in the event of any insufficiency of such Revenues ratably without any discrimination or preference, of the fees, costs and expenses of the Trustee and its assigns and thereafter to the Authority, as the case may be, in carrying out the provisions of this article, including reasonable compensation to their respective accountants and counsel; Second, to the payment of the Operating and Maintenance Costs; and Third, to the payment of the entire principal amount of the unpaid Series 2017 Installment Payments and the unpaid principal amount of all Bonds and Contracts and the accrued interest thereon, with interest on the overdue installments at the rate or rates of interest applicable to the Series 2017 Installment Payments and such Bonds and Contracts if paid in accordance with their respective terms. Section 8.03. Other Remedies of the Authority. The Authority shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District or any director, officer or employee thereof, and to compel the District or any such director, officer or employee to perform and carry out its or his duties under the Law and the agreements and covenants required to be performed by it or him contained herein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority; or (c) by suit in equity upon the happening of an Event of Default to require the District and its directors, officers and employees to account as the trustee of an express trust. Notwithstanding anything contained herein, the Authority shall have no security interest in or mortgage on the 2017 Project, the 2008 Project the Water System or other assets of the District and no default hereunder shall result in the loss of the 2017 Project, the 2008 Project, the Water System, or other assets of the District. Section 8.04. Non-Waiver. Nothing in this article or in any other provision hereof shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the Series 2017 Installment Payments to the Authority at the respective due dates or upon prepayment from the Ad Valorem Tax Revenues, the Net Revenues, the Revenue Fund and the other funds herein pledged for such payment, or shall affect or impair the right of the Authority, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied herein. A waiver of any default or breach of duty or contract by the Authority shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Authority to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract 23 or an acquiescence therein, and every right or remedy conferred upon the Authority by the Law or by this article may be enforced and exercised from time to time and as often as shall be deemed expedient by the Authority. If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Authority, the District and the Authority shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. Section 8.05. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Authority is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law. ARTICLE IX DISCHARGE OF OBLIGATIONS Section 9.01. Discharge of Obligations. When: (a) all or any portion of the Series 2017 Installment Payments shall have become due and payable in accordance herewith or a written notice of the District to prepay all or any portion of the Series 2017 Installment Payments shall have been filed with the Trustee; and (b) there shall have been deposited with the Trustee at or prior to the Series 2017 Installment Payment Date or dates specified for prepayment, in trust for the benefit of the Authority or its assigns and irrevocably appropriated and set aside to the payment of all or any portion of the Series 2017 Installment Payments, sufficient moneys or sufficient moneys and non-callable Permitted Investments, described in clause (A) of the definition thereof, the principal of and interest on which Permitted Investments when due will provide money that is sufficient in the opinion of a certified public accountant to pay all principal, prepayment premium, if any, and interest of such Series 2017 Installment Payments to their respective Series 2017 Installment Payment Dates, as the case may be; and (c) provision shall have been made for paying all fees and expenses of the Trustee, then and in that event, the right, title and interest of the Authority herein and the obligations of the District hereunder shall, with respect to all or such portion of the Series 2017 Installment Payments as have been so provided for, thereupon cease, terminate, become void and be completely discharged and satisfied (except for the right of the Trustee and the obligation of the District to have such moneys and such Permitted Investments applied to the payment of such Series 2017 Installment Payments). In such event, upon request of the District the Trustee shall cause an accounting for such period or periods as may be requested by the District to be prepared and filed with the District and shall execute and deliver to the District all such instruments as may be necessary or desirable to evidence such total or partial discharge and satisfaction, as the case may be, and, in the event of a total discharge and satisfaction, the Trustee shall pay over to the District, after payment of all amounts due the Trustee pursuant to the Indenture, as an overpayment of Series 2017 Installment Payments, all such moneys or such Permitted Investments held by it pursuant hereto other than such moneys and such Permitted Investments, as are required for the payment or prepayment of the Series 24 2017 Installment Payments, which moneys and Permitted Investments shall continue to be held by the Trustee in trust for the payment of the Series 2017 Installment Payments and shall be applied by the Trustee to the payment of the Series 2017 Installment Payments of the District. ARTICLE X MISCELLANEOUS Section 10.01. Liability Limited. Notwithstanding anything contained herein, the District shall not be required to advance any moneys derived from any source of income other than the Revenues, the Revenue Fund and the other funds provided herein for the payment of amounts due hereunder or for the performance of any agreements or covenants required to be performed by it contained herein. The District may, however, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose. The obligation of the District to make the Series 2017 Installment Payments is a special obligation of the District payable solely first from the Ad Valorem Tax Revenues and second from the Net Revenues 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. Section 10.02. Benefits of Installment Purchase Agreement Limited to Parties. Nothing contained herein, expressed or implied, is intended to give to any person other than the District or the Authority any right, remedy or claim under or pursuant hereto, and any agreement or covenant required herein to be performed by or on behalf of the District or the Authority shall be for the sole and exclusive benefit of the other party. Section 10.03. Successor Is Deemed Included in all References to Predecessor. Whenever either the District or the Authority is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the District or the Authority, and all agreements and covenants required hereby to be performed by or on behalf of the District or the Authority shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 10.04. Waiver of Personal Liability. No director, officer or employee of the District shall be individually or personally liable for the payment of the Series 2017 Installment Payments, but nothing contained herein shall relieve any director, officer or employee of the District from the performance of any official duty provided by any applicable provisions of law or hereby. Section 10.05. Article and Section Headings, Gender and References. The headings or titles of the several articles and sections hereof and the table of contents appended hereto shall be solely for convenience of reference and shall not affect the meaning, construction or effect hereof, and words of any gender shall be deemed and construed to include all genders. All references herein to “Articles,” “Sections” and other subdivisions or clauses are to the corresponding articles, sections, subdivisions or clauses hereof and the words “hereby,” “herein,” “hereof,” “hereto,” “herewith” and other words of similar import refer to the Installment Purchase Agreement as a whole and not to any particular article, section, subdivision or clause hereof. 25 Section 10.06. Partial Invalidity. If any one or more of the agreements or covenants or portions thereof required hereby to be performed by or on the part of the District or the Authority shall be contrary to law, then such agreement or agreements, such covenant or covenants or such portions thereof shall be null and void and shall be deemed separable from the remaining agreements and covenants or portions thereof and shall in no way affect the validity hereof. The District and the Authority hereby declare that they would have executed the Installment Purchase Agreement, and each and every other article, section, paragraph, subdivision, sentence, clause and phrase hereof irrespective of the fact that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases hereof or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 10.07. Assignment. The Installment Purchase Agreement and any rights hereunder may be assigned by the Authority, as a whole or in part, without the necessity of obtaining the prior consent of the District. In addition to the rights and remedies assigned by the Authority to the Trustee, to the extent that the Indenture and the Installment Purchase Agreement confer upon or gives or grants to the Trustee any right, remedy or claim under or by reason of the Indenture or the Installment Purchase Agreement, the Trustee is hereby explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred given or granted. Section 10.08. Net Contract. The Installment Purchase Agreement shall be deemed and construed to be a net contract, and the District shall pay absolutely net during the term hereof the Series 2017 Installment Payments and all other payments required hereunder, free of any deductions and without abatement, diminution or set-off whatsoever. Section 10.09. California Law. THE INSTALLMENT PURCHASE AGREEMENT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Section 10.10. Notices. All written notices to be given hereunder shall be given by mail to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other party in writing from time to time, namely: If to the District: Yorba Linda Water District 1717 East Miraloma Avenue Yorba Linda, CA 92870 Attention: General Manager If to the Authority: Yorba Linda Water District Public Financing Authority 1717 East Miraloma Avenue Yorba Linda, CA 92870 Attention: Executive Director If to the Trustee: U.S. Bank National Association 633 West Fifth Street, 24th Floor Los Angeles, CA 90071 Attention: Global Corporate Trust Services Reference: Yorba Linda Water District, Series 2017A 26 Section 10.11. Effective Date. The Installment Purchase Agreement shall become effective upon its execution and delivery, and shall terminate when the Purchase Price shall have been fully paid (or provision for the payment thereof shall have been made to the written satisfaction of the Authority). Section 10.12. Execution in Counterparts. The Installment Purchase Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument. Section 10.13. Indemnification of Authority. The District hereby agrees to indemnify and hold harmless the Authority and its assigns and its officers and directors if and to the extent permitted by law, from and against all claims, advances, damages and losses, including legal fees and expenses, arising out of or in connection with the acceptance or the performance of its duties hereunder and under the Indenture; provided that no indemnification will be made for willful misconduct, negligence or breach of an obligation hereunder, under the Indenture by the Authority. Section 10.14. Amendments Permitted. (a) This Installment Purchase Agreement and the rights and obligations of the Authority and the District and of the Owners of the 2017A Bonds and of the Trustee may be modified or amended at any time by an amendment hereto which shall become binding when the written consents of the Owners of a majority in aggregate principal amount of the 2017A Bonds then Outstanding, exclusive of 2017A Bonds disqualified as provided in Section 11.04 of the Indenture. No such modification or amendment shall (1) extend the fixed maturity of any 2017A 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 2017A Bond so affected; or (2) reduce the aforesaid percentage of 2017A 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 Installment Purchase Agreement prior to or on a parity with the lien created by the Installment Purchase Agreement except as permitted herein, or deprive the Owners of the 2017A 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 2017A Bonds then Outstanding. 27 (b) This Installment Purchase Agreement and the rights and obligations of the Authority and the District and of the Owners of the 2017A Bonds may also be modified or amended at any time by an amendment hereto which shall become binding upon adoption, without the consent of the Owners of any 2017A Bonds, but only to the extent permitted by law and only for any one or more of the following purposes: (1) to add to the covenants and agreements of the District contained in the Installment Purchase Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2017A Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the District; (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 Installment Purchase Agreement, or in regard to matters or questions arising under the Installment Purchase Agreement, as the District may deem necessary or desirable; and (3) to modify, amend or supplement the Installment Purchase Agreement in such manner as to cause interest on the 2017A Bonds to remain excludable from gross income under the Code. No amendment without consent of the Owners may modify any of the rights or obligations of the Trustee without the written consent thereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] S-1 IN WITNESS WHEREOF, the parties hereto have executed and attested this Installment Purchase Agreement by their officers thereunto duly authorized as of the day and year first written above. YORBA LINDA WATER DISTRICT By: J. Wayne Miller, President ATTEST: Marc Marcantonio, Board Secretary YORBA LINDA WATER DISTRICT FINANCING AUTHORITY By: Its: Chair ATTEST: Secretary A-1 EXHIBIT A DESCRIPTION OF THE 2017 PROJECT AND THE 2008 PROJECT Description of the 2017 Project Component Capital Cost Construction of new Fairmont booster pumping station with ultimate capacity of 13,000 gallons per minute, including the construction of facilities for onsite chlorine generation to provide increased chlorine residual in the District’s water distribution system, conversion of the Fairmont Reservoir from imported water storage to groundwater storage capability, meeting fire suppression capacity and water service demand in the District’s northern and eastern areas, improving system reliability, constructing associated on-site yard piping, demolishing the existing Fairmont booster pumping station and construction of approximately 1,000 feet of pipeline under Fairmont Boulevard. $ 6,000,000 Description of the 2008 Project Component Capital Cost [DISTRICT TO UPDATE] Highland Reservoir Replacement $ 10,200,000 Hidden Hills Reservoir and Santiago Booster Upgrades 6,400,000 Lakeview Reservoir 12,500,000 Elk Mountain Reservoir Improvements 300,000 Lakeview Booster Pump Station 4,500,000 Palm Avenue Booster Pump Station and Yorba Linda Boulevard Pipeline 5,400,000 Zone 1000 Booster Pump Station 1,080,000 Fairmont Booster Pump Station Reconfiguration 400,000 Well No. 19 Long Term Storage Program 1,200,000 Well No. 20 2,000,000 Groundwater Capacity Restoration 1,200,000 OC-51 Upgrade 242,000 2005 C.I. Replacements (Ohio Street, Buena Vista and Grandview Avenue) 2,600,000 Zone 3 Transmission Pipeline, S&S Reach 5 1,000,000 Zone 4 Transmission Pipeline, S&S Reach 5 1,700,000 Anaheim Intertie Connection Improvements 500,000 Fire Flow Improvement (Via Sereno and Ohio) 125,000 Zone 4C Reconfiguration 1,070,000 Foxtail Drive Pipeline 250,000 Meter Replacement Program, Phase I 2,804,000 Meter Replacement Program, Phase II 1,000,000 Radio Read Water Meter Conversion Project, Phase I 160,000 Fairmont Booster Pump Station Site Improvements 300,000 Edison Power Pole Relocations 250,000 Richfield Road Widening 350,000 A-2 Component Capital Cost [DISTRICT TO UPDATE] Mira Loma Through Street Improvements 250,000 Mira Loma Storm Drain Project 525,000 District Geographical Information System Project 700,000 Extension of Pressure Zone 4C Reconfiguration 1,000,000 Total Cost $ 60,006,000 B-1 EXHIBIT B PURCHASE PRICE 1. The principal amount of payments to be made by the District hereunder is $_____. 2. The Series 2017 Installment Payments of principal and interest are payable in the amounts and on the Series 2017 Installment Payment Dates as follows: Installment Payment Dates Amount Attributable to Principal Amount Attributable to Interest Total 09/30/2017 $[__] $ $ 03/31/2018 09/30/2018 03/31/2019 09/30/2019 03/31/2020 09/30/2020 03/31/2021 09/30/2021 03/31/2022 09/30/2022 03/31/2023 09/30/2023 03/31/2024 09/30/2024 03/31/2025 09/30/2025 03/31/2026 09/30/2026 03/31/2027 09/30/2027 03/31/2028 09/30/2028 03/31/2029 09/30/2029 03/31/2030 09/30/2030 03/31/2031 09/30/2031 03/31/2032 09/30/2032 03/31/2033 09/30/2033 03/31/2034 09/30/2034 03/31/2035 09/30/2035 03/31/2036 09/30/2036 03/31/2037 09/30/2037 03/31/2038 09/30/2038 TOTALS C-1 EXHIBIT C [FORM OF SUBSTITUTION STATEMENT] Yorba Linda Water District Financing Authority 1717 East Miraloma Avenue Yorba Linda, CA 92870 Attention: Chair U.S. Bank National Association 633 West Fifth Street, 24th Floor Los Angeles, CA 90071 Attention: Global Corporate Trust Services Reference: Yorba Linda Water District, Series 2017A The undersigned General Manager of the Yorba Linda Water District (the “District”) hereby states pursuant to Section 3.02 of the Installment Purchase Agreement, dated as of _____ 1, 2017, by and between Yorba Linda Water District Public Financing Authority and the District (the “Installment Purchase Agreement”) that each component of the 2017 Project (as defined in the Installment Purchase Agreement) described in the first column of Exhibit A attached hereto, with an estimated cost set forth in the second column of Exhibit A, will be replaced by the corresponding improvement described in the third column of Exhibit A with an estimated cost set forth in the fourth column of Exhibit A. Dated: _________ __, ____ General Manager C-2 EXHIBIT A Components of Project to be Replaced Cost of Each Components of Project to be Replaced Improvements to be Substituted Cost of Each Improvement to be Substituted D-1 EXHIBIT D FORM OF REQUISITION FROM ACQUISITION FUND $_____ YORBA LINDA WATER DISTRICT FINANCING AUTHORITY REVENUE BONDS, SERIES 2017A REQUISITION NO. _ FOR DISBURSEMENT FROM ACQUISITION FUND The undersigned hereby states and certifies: (i) that the undersigned is the duly appointed, qualified and acting General Manager of the Yorba Lina Water District, a county water district organized and existing under the Constitution and laws of the State of California (the “District”), and as such, is familiar with the facts herein certified and is authorized to certify the same; (ii) that, pursuant to Section 3.06 of that certain Installment Purchase Agreement, dated as of _____ 1, 2017 (the “Installment Purchase Agreement”), by and between the Yorba Linda Water District Financing Authority and the District, the undersigned hereby requests the Finance Manager of the District to disburse this date the following amounts from the Acquisition Fund established under the Installment Purchase Agreement, to the payees designated on the attached Exhibit A; (iii) that each obligation mentioned herein has been incurred by the District and is a proper charge against the Acquisition Fund; (iv) that any approval required under the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code), prior to the expenditure of such amount for the purpose set forth on the attached Exhibit A has been received and is final; and (v) that there has not been filed with or served upon the District notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable to any of the payees named on the attached Exhibit A, which has not been released or will not be released simultaneously with the payment of such obligation, other than materialmen’s or mechanics’ liens accruing by mere operation of law. Dated: YORBA LINDA WATER DISTRICT By: General Manager D-2 EXHIBIT A ACQUISITION FUND DISBURSEMENTS Item Number Payee Name and Address Purpose of Obligation Amount Stradling Yocca Carlson & Rauth Draft of 4/6/17 INDENTURE OF TRUST Dated as of _____ 1, 2017 By and between U.S. BANK NATIONAL ASSOCIATION, as Trustee and the YORBA LINDA WATER DISTRICT FINANCING AUTHORITY Relating to $_____ YORBA LINDA WATER DISTRICT FINANCING AUTHORITY REVENUE BONDS, SERIES 2017A TABLE OF CONTENTS Page i ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions .............................................................................................................. 3 Section 1.02. Content of Certificates and Opinions.................................................................... 10 Section 1.03. Interpretation......................................................................................................... 11 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds ......................................................................................... 11 Section 2.02. Terms of the Bonds ............................................................................................... 11 Section 2.03. Transfer of Bonds ................................................................................................. 13 Section 2.04. Exchange of Bonds ............................................................................................... 13 Section 2.05. Registration Books ................................................................................................ 13 Section 2.06. Form and Execution of Bonds .............................................................................. 13 Section 2.07. Bonds Mutilated, Lost, Destroyed or Stolen ........................................................ 14 Section 2.08. Book-Entry System ............................................................................................... 14 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds ........................................................................................... 17 Section 3.02. Application of Proceeds of the Bonds .................................................................. 17 Section 3.03. Establishment and Application of Costs of Issuance Fund ................................... 17 Section 3.04. Validity of Bonds .................................................................................................. 17 Section 3.05. Acquisition Fund .................................................. Error! Bookmark not defined. ARTICLE IV REDEMPTION OF BONDS Section 4.01. Terms of Redemption ........................................................................................... 18 Section 4.02. Selection of Bonds for Redemption ...................................................................... 18 Section 4.03. Notice of Redemption ........................................................................................... 18 Section 4.04. Partial Redemption of Bonds ................................................................................ 19 Section 4.05. Effect of Redemption ............................................................................................ 19 ARTICLE V REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; Revenue Fund ............................................................... 19 Section 5.02. Allocation of Authority Revenues ........................................................................ 20 TABLE OF CONTENTS (continued) Page ii Section 5.03. Application of Interest Account ............................................................................ 21 Section 5.04. Application of Principal Account ......................................................................... 21 Section 5.05. Application of Redemption Fund ......................................................................... 21 Section 5.06. Investments ........................................................................................................... 21 Section 5.07. Rebate Fund .......................................................................................................... 22 Section 5.08. Application of Funds and Accounts When No Bonds are Outstanding ............... 24 ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment ................................................................................................. 24 Section 6.02. Extension of Payment of Bonds ........................................................................... 24 Section 6.03. Against Encumbrances ......................................................................................... 24 Section 6.04. Power to Issue Bonds and Make Pledge and Assignment .................................... 24 Section 6.05. Accounting Records and Financial Statements .................................................... 25 Section 6.06. Tax Covenants ...................................................................................................... 25 Section 6.07. Payments Under Installment Purchase Agreement ............................................... 25 Section 6.08. Waiver of Laws ..................................................................................................... 26 Section 6.09. Further Assurances ............................................................................................... 26 Section 6.10. Eminent Domain ................................................................................................... 26 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default .................................................................................................. 26 Section 7.02. Remedies Upon Event of Default ......................................................................... 27 Section 7.03. Application of Authority Revenues and Other Funds After Default .................... 27 Section 7.04. Trustee to Represent Bond Owners ...................................................................... 28 Section 7.05. Bond Owners’ Direction of Proceedings .............................................................. 28 Section 7.06. Suit by Owners ..................................................................................................... 29 Section 7.07. Absolute Obligation of the Authority ................................................................... 29 Section 7.08. Remedies Not Exclusive ....................................................................................... 29 Section 7.09. No Waiver of Default ........................................................................................... 29 ARTICLE VIII THE TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Trustee ...................................................... 30 Section 8.02. Merger or Consolidation ....................................................................................... 31 Section 8.03. Liability of Trustee ............................................................................................... 31 Section 8.04. Right to Rely on Documents ................................................................................. 33 Section 8.05. Preservation and Inspection of Documents .......................................................... 34 Section 8.06. Compensation and Indemnification ...................................................................... 34 TABLE OF CONTENTS (continued) Page iii ARTICLE IX MODIFICATION OR AMENDMENT OF THE INDENTURE Section 9.01. Amendments Permitted ........................................................................................ 34 Section 9.02. Effect of Supplemental Indenture ......................................................................... 36 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ............................................. 36 Section 9.04. Amendment of Particular Bonds .......................................................................... 36 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture ......................................................................................... 36 Section 10.02. Discharge of Liability on Bonds ........................................................................... 37 Section 10.03. Deposit of Money or Securities with Trustee ....................................................... 37 Section 10.04. Payment of Bonds After Discharge of Indenture .................................................. 38 ARTICLE XI MISCELLANEOUS Section 11.01. Liability of Authority Limited to Authority Revenues ......................................... 38 Section 11.02. Successor Is Deemed Included in All References to Predecessor ........................ 38 Section 11.03. Limitation of Rights to Parties and Bond Owners ................................................ 39 Section 11.04. Waiver of Notice; Requirement of Mailed Notice ................................................ 39 Section 11.05. Destruction of Bonds ............................................................................................ 39 Section 11.06. Severability of Invalid Provisions ........................................................................ 39 Section 11.07. Notices .................................................................................................................. 39 Section 11.08. Evidence of Rights of Bond Owners .................................................................... 39 Section 11.09. Disqualified Bonds ............................................................................................... 40 Section 11.10. Money Held for Particular Bonds ......................................................................... 40 Section 11.11. Funds and Accounts .............................................................................................. 40 Section 11.12. Waiver of Personal Liability ................................................................................. 40 Section 11.13. Execution in Several Counterparts ....................................................................... 41 Section 11.14. CUSIP Numbers ................................................................................................... 41 Section 11.15. Choice of Law....................................................................................................... 41 Section 11.16. Notice to Rating Agencies .................................................................................... 41 Signatures ............................................................................................................................ S-1 Exhibit A Form of Bond ...................................................................................................... A-1 1 INDENTURE OF TRUST THE INDENTURE OF TRUST is made and entered into and dated as of _____ 1, 2017, by and between the YORBA LINDA WATER DISTRICT FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under and by virtue of the laws of the State of California (the “Authority”), 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”). RECITALS A. The Authority has been created pursuant to the JPA Agreement with the powers, among others, to issue bonds and to finance water supply facilities on behalf of its members. B. Yorba Linda Water District (the “District”), a member of the Authority, has determined that it is in the best interest of the public to finance and refinance certain improvements to its Water System with the assistance of the Authority. C. The Authority is authorized pursuant to State law, including but not limited to, Section 6588(c) of the Government Code of the State of California (the “Government Code”) and pursuant to Sections 5 and 10 of the JPA Agreement to incur indebtedness to finance and refinance such improvements, and is authorized pursuant to State law, including but not limited to Section 6588(m) of the Government Code, to assign and pledge to the repayment of such indebtedness amounts payable to the Authority by its members. D. The District has determined that it is in the District’s best interest to finance and refinance the acquisition and construction of certain improvements to its Water System (the “2017 Project” and the “2008 Project,” respectively), as further described in the Installment Purchase Agreement. E. The Authority hereby finds pursuant to Section 6586 of the Government Code that the issuance of the bonds authorized pursuant to Section 2.01 hereof (the “Bonds”) to finance the 2017 Project and to refinance the 2008 Project will have demonstrable savings in effective interest rate, bond preparation, bond underwriting or bond issuance costs and significant reductions in effective user charges levied by the District. F. In order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof and interest and premium, if any, thereon, the Authority has authorized the execution and delivery of the Indenture. G. The Authority has determined that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the Authority, 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. 2 GRANTING CLAUSES The Authority, 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 Bonds by the owners thereof, and for other valuable considerations, the receipt of which is hereby acknowledged, in order to secure the payment of the principal of and the interest and premium (if any) on all 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 Authority to the Bond Owners hereinafter set forth: FIRST All right, title and interest of the Authority in and to the Authority 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 Authority Revenues payable to or receivable by the Authority under the Constitution of the State, the Government Code and the Indenture and any other applicable laws of this State or otherwise, to bring actions and proceedings thereunder for the enforcement thereof, and to do any and all things which the Authority is or may become entitled to do thereunder, subject to the terms hereof. 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 Authority or by anyone on its behalf, or with its written consent, and to hold and apply the same, subject to the terms hereof. THIRD All of the rights, title, and interest of the Authority in the Installment Purchase Agreement, including all rights of the Authority to receive payments thereunder and all rights of the Authority thereunder as may be necessary to enforce compliance with said provisions (including enforcement of payment obligations and rate covenants, if any, contained in the Installment Purchase Agreement) or otherwise to protect the interest of the Owners of the Bonds, subject to the terms hereof, and excepting therefrom any rights to indemnification or to receive notices thereunder. 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 Bonds issued under and secured by the Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any of the other Bonds; 3 PROVIDED, HOWEVER, that if the Authority, 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 Bonds due or to become due thereon, at the times and in the manner provided in the Bonds according to the true intent and meaning thereof, and shall well and truly keep, perform and observe all of 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 Bonds issued and secured hereunder are to be issued, authenticated and delivered, and all sold property, rights and interests, including, without limitation, the Authority 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 Authority 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 Bonds, as follows: 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. Unless the context otherwise requires, all capitalized terms used herein and not defined have the meanings ascribed thereto in the Installment Purchase Agreement. Authority. The term “Authority” means the Yorba Linda Water District Financing Authority, a public body duly organized and existing under the JPA Agreement, and under the Constitution and laws of the State of California. Authority Revenues. The term “Authority Revenues” means: (a) all Series 2017 Installment Payments received by the Authority or the Trustee pursuant to or with respect to the Installment Purchase Agreement; and (b) all interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder. Authorized Representative. The term “Authorized Representative” means with respect to the Authority, its Chair, Vice Chair, Secretary, Treasurer or Executive Director or any other person designated as an Authorized Representative of the Authority by a Certificate of the Authority signed by its Chair, Vice Chair, Secretary, Treasurer or Executive Director and filed with the Trustee. Bond Counsel. The term “Bond Counsel” means Stradling, Yocca, Carlson & Rauth, 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. 4 Bond Year. The term “Bond Year” means the period beginning on the date of issuance of the Bonds and ending on October 1, 2017, and each successive one year or, during the last period prior to maturity, shorter period thereafter until there are no Outstanding Bonds. Bonds. The term “Bonds” means the Revenue Bonds, Series 2017A issued by the Authority and at any time Outstanding pursuant to the Indenture. 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 Authority mean a written certificate, direction, request or requisition signed in the name of the Authority 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 Bonds are delivered to the original purchaser thereof. Code. The term “Code” means the Internal Revenue Code of 1986, as amended. Costs of Issuance. The term “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the Authority and related to the authorization, issuance, sale and delivery of the 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 Bonds and any other cost, charge or fee in connection with the original issuance of the Bonds. Costs of Issuance Fund. The term “Costs of Issuance Fund” means the fund by that name established pursuant to Section 3.03. Depository; DTC. The terms “Depository” and “DTC” mean 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 Bonds. District. The term “District” means the Yorba Linda Water District, a county water district duly organized and existing under and by virtue of the laws of the State. Escrow Agent. The term “Escrow Agent” means U.S. Bank National Association, as escrow agent pursuant to the terms of the Escrow Agreement (2008 Certificates), or its successor thereunder. Escrow Agreement (2008 Certificates). The term “Escrow Agreement (2008 Certificates)” means the Escrow Agreement (2008 Certificates), dated as of ____ 1, 2017, 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. 5 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 Authority. Fitch. The term “Fitch” means Fitch Ratings, Inc., or any successor thereto. Government Code. The term “Government Code” means the Government Code of the State. Indenture. The term “Indenture” means the Indenture of Trust, dated as of _____ 1, 2017, by and between the Authority and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture. Information Services. The term “Information Services” means the Municipal Securities Rulemaking Board; 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 Authority may specify in a certificate to the Authority and the Trustee as the Trustee may select. Installment Purchase Agreement. The term “Installment Purchase Agreement” means the Installment Purchase Agreement, dated as of the date hereof, by and between the Authority and the District, as amended from time to time. Interest Account. The term “Interest Account” means the account by that name in the 2017A Bond Payment Fund established pursuant to Section 5.01. Interest Payment Date. The term “Interest Payment Date” means April 1 and October 1 of each year commencing October 1, 2017. Investment Agreement. The term “Investment Agreement” means an investment agreement by a provider, supported by appropriate opinions of counsel, provided that 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 Authority or 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 “Baa2”, 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 Bonds, together with such amendments as may be approved by the Authority and the Trustee from time to time. JPA Agreement. The term “JPA Agreement” means that certain Joint Exercise of Powers Agreement, dated April 11, 2017, by and between the District and California Municipal Finance Authority, a public body, corporate and politic, duly organized and existing under the laws of the State, as amended from time to time. 6 Letter of Representations. The term “Letter of Representations” means the letter of the Authority delivered to and accepted by the Depository on or prior to delivery of the 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 Authority delivered to and accepted by the Depository. Moody’s. The term “Moody’s” means Moody’s Investors Service, Inc. or any successor thereto. 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. Office. The term “Office” means with respect to the Trustee, the principal corporate trust office of the Trustee at 633 West Fifth Street, 24th Floor, Los Angeles, California 90071, Attention: Global Corporate Trust Services, Reference: Yorba Linda Water District, Series 2017A, or at such other or additional offices as may be specified in writing by the Trustee to the Authority, except that with respect to presentation of 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. Opinion of Counsel. The term “Opinion of Counsel” means a written opinion of counsel (including but not limited to counsel to the Authority) selected by the Authority. 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 Bonds, means (subject to the provisions of Section 11.09) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (i) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.02, including Bonds (or portions thereof) described in Section 11.10; and (iii) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture. Owner; Bond Owner. The terms “Owner” or “Bond Owner,” whenever used herein with respect to a Bond, mean the person in whose name the ownership of such Bond is registered on the Registration Books. 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. 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 7 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 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; 8 (8) Investment Agreements, including GICs, 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 S&P and Moody’s. 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) The Local Agency Investment Fund of the State of California created pursuant to Section 16429.1 of the California Government Code; and 9 (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 2017A Bond Payment Fund established pursuant to Section 5.01. Rating. The term “Rating” means any currently effective rating on the 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 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 Bond (or portion thereof), the principal amount of such 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 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 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. S&P. The term “S&P” means S&P Global Ratings, 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 securities depositories as the Authority may designate in a Request of the Authority deliver to the Trustee. 10 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 Authority and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. 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 Bonds issued by the Authority on the date of issuance of the 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. 2017A Bond Payment Fund. The term “2017A Bond Payment Fund” means the fund by that name established pursuant to Section 5.01(c). Valuation Date. “Valuation Date” means the fifth Business Day preceding the date of redemption. Value. The term “Value” which shall be determined as of the end of each month, means that the value of any investments shall be calculated as follows: (a) for the purpose of determining the amount of any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Merrill Lynch and Morgan Stanley Smith Barney. (b) As to certificates of deposit and bankers’ acceptances, the face amount thereof, plus accrued interest. (c) As to any investment not specified above, the value thereof established by prior agreement between the Authority and the Trustee. 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 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. 11 Any such certificate or opinion made or given by an officer of the Authority 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, 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 may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Authority) upon a certificate or opinion of or representation by an officer of the Authority, unless such counsel or Independent Certified Public Accountant 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 Authority, or the same counsel or Independent Certified Public Accountant, 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 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 BONDS Section 2.01. Authorization of Bonds. The Authority hereby authorizes the issuance hereunder from time to time of the Bonds, which shall constitute special obligations of the Authority, for the purpose of financing the 2017 Project and refinancing the 2008 Project. The Bonds are hereby designated the “Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A” in the aggregate principal amount of $_____. The Indenture constitutes a continuing agreement with the Owners from time to time of the Bonds to secure the full payment of the principal of and interest and premium (if any) on all the Bonds, subject to the covenants, provisions and conditions herein contained. Section 2.02. Terms of the Bonds. The Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. 12 The 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 2021 $ [__] % 2022 2023 2024 2025 2026 2027 2028 2029 2030 2032 2032 2033 2034 2035 2036 2037 2038 Interest on the 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 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 Bonds shall be payable in lawful money of the United States of America. Each 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, 2017, 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 Bond, interest thereon is in default, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the Bonds shall be calculated on the basis of a 360 day year composed of twelve 30 day months. 13 Section 2.03. Transfer of Bonds. Any 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 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 Bond during the period in which the Trustee is selecting Bonds for redemption and any Bond that has been selected for redemption. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee shall require the 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 Bonds, the Trustee will cancel and destroy the Bonds it has received. Section 2.04. Exchange of Bonds. 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 Bond during the period in which the Trustee is selecting Bonds for redemption and any Bond that has been selected for redemption. The Trustee shall require the 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 Bonds, the Trustee will cancel and destroy the 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 Bonds, which shall upon reasonable notice and at reasonable times be open to inspection during regular business hours by the Authority, 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 Bonds as hereinbefore provided. The person in whose name any 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 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 Bond to the extent of the sum or sums so paid. Section 2.06. Form and Execution of Bonds. The Bonds shall be in substantially the form set forth in Exhibit A hereto. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of its Chair, attested by the manual or facsimile signature of its Secretary. The Bonds may carry a seal, and such seal may be in the form of a facsimile of the Authority’s seal and may be reproduced, imprinted or impressed on the Bonds. The 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 Bonds shall cease to be such officer or officers of the Authority before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers of the Authority, and also any Bonds may be signed and attested on behalf of the Authority by such persons as at the 14 actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such person shall not have been such officer of the Authority. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the forms 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 Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of the Indenture. Section 2.07. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor, series and authorized denomination in exchange and substitution for the Bonds so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and upon the written request of the Authority delivered to, or upon the order of, the Authority. If any 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 Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor, series and authorized denomination in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee in the premises. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the 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 Bonds secured by the Indenture. Notwithstanding any other provision of this Section, in lieu of delivering a new Bond for a 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 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 Bonds, the Authority may provide that such Bonds shall be initially issued as book-entry Bonds. If the Authority shall elect to deliver any Bonds in book-entry form, then the Authority shall cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such Bonds in an authorized denomination corresponding to that total principal amount of the Bonds designated to mature on such date. Upon initial issuance, the ownership of each such Bond shall be registered in the Bond Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the Bonds, or any portion thereof may not thereafter be transferred except as provided in Section 2.08(e). With respect to book-entry Bonds, the Authority 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 Bonds. Without limiting the immediately preceding sentence, the Authority and the Trustee shall have no responsibility or obligation with respect to: (i) the accuracy 15 of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book-entry Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the Bond Registration Books, of any notice with respect to book-entry Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book-entry Bonds to be redeemed in the event that the Authority redeems the 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 Bonds. The Authority and the Trustee may treat and consider the person in whose name each book-entry Bond is registered in the Bond Registration Books as the absolute Owner of such book-entry Bond for the purpose of payment of principal of, premium and interest on such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest on the Bonds only to or upon the order of the respective Owner, as shown in the 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 Authority’s obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Bond Registration Books, shall receive a Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the Bonds. Upon delivery by the Depository to the Authority 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 Bonds for the Depository’s book-entry system, the Authority 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 Authority or the Trustee any obligation whatsoever with respect to persons having interests in such book-entry Bonds other than the Owners, as shown on the Bond Registration Books. In addition to the execution and delivery of a Letter of Representations, the Authority and the Trustee, if necessary, shall take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book-entry 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 Bonds; or (ii) the Authority determines that continuation of the book-entry system is not in the best interest of the beneficial owners of the Bonds or the Authority, then the Authority will discontinue the book-entry system with the Depository. If the Authority determines to replace the Depository with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate, fully registered Bond for each of the maturity dates of such book-entry Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (e) hereof. If the Authority fails to identify another qualified securities depository to replace the Depository, then the Bonds shall no longer be restricted to being registered in such Bond Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such 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 Bonds are held in book-entry form and 16 registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such Bond and all notices with respect to such 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 Bonds to Substitute Depository. (i) The Bonds shall be initially issued as provided in Section 2.01 hereof. Registered ownership of such 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 Authority 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 Authority 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 Bonds by the Trustee, together with a written request of the Authority to the Trustee designating the Substitute Depository, a single new Bond, which the Authority shall prepare or cause to be prepared, shall be issued for each maturity of 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 Authority. In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding Bonds by the Trustee, together with a written request of the Authority to the Trustee, new Bonds, which the Authority 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 Authority, subject to the limitations of Section 2.01 hereof, provided that the Trustee shall not be required to deliver such new Bonds within a period of less than sixty (60) days from the date of receipt of such written request from the Authority. (iii) In the case of a partial redemption or an advance refunding of any 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 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 Bonds shall be controlling. 17 (iv) The Authority and the Trustee shall be entitled to treat the person in whose name any 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 Authority; and the Authority and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the Bonds. Neither the Authority 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 Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the Bonds. ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds. At any time after the execution of the Indenture, the Authority may execute and the Trustee shall authenticate and, upon Request of the Authority, deliver the Bonds in the aggregate principal amount of $_____. Section 3.02. Application of Proceeds of the Bonds. The proceeds received from the sale of the Bonds shall be deposited in trust with the Trustee, who shall apply such proceeds as follows pursuant to a Direction of the Authority or the District: (a) The Trustee shall deposit the amount of $_____ from the proceeds of the Bonds in the Costs of Issuance Fund. (b) The Trustee shall transfer to the Escrow Agent the amount of $_______ for deposit in the escrow fund created under the Escrow Agreement (2008 Certificates). (c) The Trustee shall transfer the amount of $_____ from the proceeds of the Bonds to the District for deposit in the Acquisition Fund to finance a portion of the costs of the 2017 Project. 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 Authority 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 a 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 Bonds, or upon the earlier Request of the Authority, all amounts remaining in the Costs of Issuance Fund shall be deposited in the Interest Account and the Costs of Issuance Fund shall be closed. Section 3.04. Validity of Bonds. The validity of the authorization and issuance of the Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the Authority, the District or the Trustee with respect to or in connection with the Installment Purchase Agreement. The recital contained in the 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. 18 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Terms of Redemption. (a) The 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 Authority in a 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 in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, Sections 6.09 and 6.15 of the Installment Purchase Agreement, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. (b) The Bonds with stated maturities on or after October 1, 20__, shall be subject to redemption prior to their respective stated maturities, as a whole or in part as directed by the Authority in a 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) and by lot within each maturity in integral multiples of $5,000, on _____ 1, 20__ or any date thereafter at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. (c) The Bonds with stated maturities on October 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on October 1, 20__ and each October 1 thereafter, 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: Redemption Date (October 1) Principal Amount $ * * Final Maturity. Section 4.02. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds for redemption as a whole or in part on any date as directed by the Authority 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 Authority in writing of the numbers of the Bonds or portions thereof so selected for redemption. Section 4.03. Notice of Redemption. Notice of redemption shall be mailed by first class mail not less than twenty (20) days before any Redemption Date, to the respective Owners of any 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 19 of notice, the redemption date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, in the case of 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 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 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 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 Bond. Notice of redemption of Bonds shall be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority. With respect to any notice of optional redemption of Bonds, such notice may 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 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 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 Bonds. Upon surrender of any Bond redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 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 Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said 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 Bonds to be redeemed on their Redemption Dates, pay such Bonds at the Redemption Price. All 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; 2017A Bond Payment Fund. 20 (a) All of the Authority Revenues and any other amounts (including proceeds of the sale of the 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 principal of and interest, and the premium, if any, on the Bonds in accordance with their terms and the provisions of the Indenture subject only to the provisions of the Indenture permitting the terms and conditions set forth herein. Said pledge shall constitute a lien on and security interest in such amounts 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 Authority, irrespective of whether such parties have notice hereof. (b) The Authority, for good and valuable consideration in hand received, does hereby irrevocably assign and transfer to the Trustee without recourse, for the benefit of the Owners of the Bonds as set forth herein, all of its rights, title, and interest in all Series 2017 Installment Payments payable by the District pursuant to the Installment Purchase Agreement, including all rights of the Authority thereunder as may be necessary to enforce compliance with said provisions (including enforcement of payment obligations and rate covenants, if any, contained in the Installment Purchase Agreement, or otherwise to protect the interest of the Owners of the Bonds. Such assignment shall be subject to and limited by the terms of the Indenture. (c) There is hereby established with the Trustee the 2017A Bond 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 Series 2017 Installment Payments remain unpaid. Except as directed in Sections 5.06 and 5.08, all Authority Revenues shall be promptly deposited by the Trustee upon receipt thereof into the 2017A Bond 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 Authority Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee shall also create and maintain an Interest Account and a Principal Account within the 2017A Bond Payment Fund. Section 5.02. Allocation of Authority Revenues. The Trustee shall transfer from the 2017A Bond 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 Authority 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 day preceding each date on which the interest on the Bonds shall become due and payable hereunder, 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 Bonds then Outstanding. With respect to any other Bonds (as such term is defined in the Installment Purchase Agreement) or Contracts, the Trustee shall also transfer to the applicable trustee for deposit in any applicable interest account, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other interest in accordance with the provisions of the indenture, resolution or contract relating thereto. (b) Not later than the day preceding each date on which the principal of the Bonds shall become due and payable hereunder, the Trustee shall deposit in the Principal Account 21 that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such date or subject to mandatory sinking fund redemption on such date. With respect to any other Bonds (as such term is defined in the Installment Purchase Agreement) or Contracts, the Trustee shall also transfer to the applicable trustee for deposit in any applicable principal account, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other principal in accordance with the provisions of the indenture, resolution or contract relating thereto. 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 Bonds as it shall become due and payable (including accrued interest on any 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 Bonds at maturity, mandatory sinking fund redemption, purchase or acceleration; provided, however, that at any time prior to selection for redemption of any such Bonds, upon written direction of the Authority, the Trustee shall apply such amounts to the purchase of 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 Request of the Authority, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds. Section 5.05. Application of Redemption Fund. There is hereby established with the Trustee, when needed, 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 principal of and accrued interest on the 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 Bonds, upon written direction of the Authority, the Trustee shall apply such amounts to the purchase of 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 Request of the Authority, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the 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, which will, as nearly as practicable, mature on or before the dates when such moneys are anticipated to be needed for disbursement. Such investments shall be directed by the Authority pursuant to a Request of the Authority filed with the Trustee at least two (2) Business Days in advance of the making of such investments (which directions shall be promptly confirmed to the Trustee in writing). In the absence of any such directions from the Authority, 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. 22 All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder (except for interest or gain derived from the Permitted Investment described in clause (B)(8) of the definition thereof, which shall be retained in such Permitted Investment) 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 Request of the Authority. 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 5.06. The Trustee shall furnish the Authority periodic cash transaction statements which include detail for all investment transactions effected by the Trustee or brokers selected by the Authority. Upon the Authority’s election, such statements will be delivered via the Trustee’s online service and upon electing such service, paper statements will be provided only upon request. The Authority waives the right to receive brokerage confirmations of security transactions effected by the Trustee as they occur, to the extent permitted by law. The Authority further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. 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 Authority 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 separate fund designated the “Rebate Fund” when required in accordance herewith. Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest with respect to the Bonds will not be adversely affected, the Authority 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 Bonds shall be governed by this Section and the Tax Certificate for the Bonds, unless and to the extent that the Authority delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest with respect to the 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: (i) shall be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the Authority; (ii) shall have no liability or responsibility to enforce compliance by the Authority with the terms of the Tax Certificate; (iii) may rely conclusively on the Authority’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 Authority’s calculations or determinations thereunder. 23 (i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the Authority 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 Authority 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 Authority, an amount shall be deposited to the Rebate Fund by the Trustee from any Authority Revenues legally available for such purpose (as specified by the Authority 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 Authority, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the 2017A Bond Payment Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed by Request of the Authority, to the United States Treasury, out of amounts in the Rebate Fund: (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 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 Authority 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 Authority), or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the Bonds and the payments described in subsection (a) above being made may be withdrawn by the Authority and utilized in any manner by the Authority. 24 (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 Bonds. Section 5.08. Application of Funds and Accounts When No Bonds are Outstanding. On the date on which all 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 Authority for distribution in accordance with the Installment Purchase Agreement. ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal and interest to become due in respect of all of the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Authority Revenues and other assets pledged for such payment as provided in the Indenture. Section 6.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such 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 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 Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of Bonds. Section 6.03. Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrances upon the Authority Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the JPA Agreement, and reserves the right to issue other obligations for such purposes. Section 6.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into the Indenture and to pledge and assign the Authority 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 Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority 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 Authority Revenues and other assets and all the rights of the Bond Owners under the Indenture against all claims and demands of all persons whomsoever. 25 Section 6.05. Accounting Records and Financial Statements. 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 Bonds, the Authority Revenues 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 Authority and the District upon reasonable prior notice during business hours and under reasonable circumstances. Section 6.06. Tax Covenants. Notwithstanding any other provision of the Installment Purchase Agreement, absent an opinion of Bond Counsel that the exclusion from gross income of the interest on the Bonds will not be adversely affected for federal income tax purposes, the Authority covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the Bonds and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. The Authority will take no action or refrain from taking any action, and the Authority will make no use of the proceeds of the Bonds or of any other moneys or property, which would cause the Bonds to be “private activity bonds” within the meaning of Section 141 of the Code; (b) Arbitrage. The Authority will make no use of the proceeds of the Bonds or of any other amounts or property, regardless of the source, and the Authority will not take any action or refrain from taking any action, which will cause the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code; (c) Federal Guarantee. The Authority will make no use of the proceeds of the Bonds, and the Authority will not take or omit to take any action, that would cause the Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code; (d) Information Reporting. The Authority will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the Bonds pursuant to Section 103(a) of the Code; (e) Hedge Bonds. The Authority will make no use of the proceeds of the Bonds or any other amounts or property, regardless of the source, and the Authority will not take any action or refrain from taking any action, that would cause the Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the Authority 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 Bonds for federal income tax purposes; and (f) Miscellaneous. The Authority will not take any action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the Authority in connection with the issuance of the 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 Authority from issuing revenue bonds or executing 26 and delivering contracts payable on a parity with the Bonds, the interest with respect to which has been determined to be subject to federal income taxation. Section 6.07. Payments Under Installment Purchase Agreement. The Authority shall promptly collect all Series 2017 Installment Payments due from the District pursuant to the Installment Purchase Agreement and, subject to the provisions of Article VIII, shall enforce, and take all steps, actions and proceedings which the Authority or the Trustee determines to be reasonably necessary for the enforcement of all of the obligations of the District thereunder. The Authority shall not enter into any amendments to the Installment Purchase Agreement except as permitted therein. The Trustee shall give written consent only if: (a) such amendment, modification or termination will not materially adversely affect the interests of the Bond Owners; or (b) the Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding to such amendment, modification or termination. Section 6.08. Waiver of Laws. The Authority 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 Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the Authority to the extent permitted by law. Section 6.09. Further Assurances. The Authority 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 Bonds of the rights and benefits provided in the Indenture. Section 6.10. Eminent Domain. If all or any part of the 2017 Project or the 2008 Project shall be taken by eminent domain proceedings (or sold to a government entity threatening to exercise the power of eminent domain), the Net Proceeds therefrom shall be applied in the manner specified in Section 6.15 of the Installment Purchase Agreement. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default. The following events shall be Events of Default hereunder: (a) Default by the Authority in the due and punctual payment of the principal of any Bonds 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 Authority in the due and punctual payment of any installment of interest on any Bonds when and as the same shall become due and payable. (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, 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 Authority by the Trustee or by 27 the Owners of not less than a majority in aggregate principal amount of Bonds Outstanding; provided, however, that if in the reasonable opinion of the Authority the default stated in the notice can be corrected, but not within such sixty (60) day period and corrective action is instituted by the Authority 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 Authority 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 a court of competent jurisdiction shall approve a petition filed with or without the consent of the Authority 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 Authority or of the whole or any substantial part of its property. Section 7.02. Remedies Upon Event of Default. If any Event of Default shall occur, then, and in each and every such case during the continuance of such 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 Bonds at the time Outstanding, shall, in each case, upon notice in writing to the Authority and the District, declare the principal of all of the 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 Bonds contained to the contrary notwithstanding. Nothing contained in the Indenture shall permit or require the Trustee or the Authority to accelerate payments due under the Installment Purchase Agreement if the District, which is a party to such Installment Purchase Agreement, is not in default of its obligation thereunder. 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 Authority or the District shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by law, and the reasonable charges and expenses of the Trustee, and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of 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 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 Authority Revenues and Other Funds After Default. If an Event of Default shall occur and be continuing, all Authority Revenues 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 by the Trustee as follows and in the following order: (a) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and payment of reasonable fees and 28 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; and (b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the 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, in the following order of priority: First: To the payment to the persons entitled thereto of all installments of interest then due 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 Bonds 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 Bonds, 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 Authority. Section 7.04. Trustee to Represent Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the 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 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 Bonds or the Indenture and applicable provisions of any other 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 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 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 Bonds or the Indenture or any other law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Authority Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 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 Bonds, subject to the provisions of the Indenture. Section 7.05. Bond Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then 29 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 Bond Owners not parties to such direction. Section 7.06. Suit by Owners. No Owner of any 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, the Installment Purchase Agreement, the JPA Agreement or any other applicable law with respect to such 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 twenty-five percent (25%) in aggregate principal amount of the 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 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 Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, the Indenture, the Installment Purchase Agreement, the JPA Agreement or other applicable law with respect to the 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 Bonds, subject to the provisions of the Indenture. Section 7.07. Absolute Obligation of the Authority. Nothing in this Section 7.07 or in any other provision of the Indenture or in the Bonds contained shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Authority 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 Bonds. Section 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners of the 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 Bonds to exercise any right or power arising upon the occurrence of any Event of Default shall 30 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 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), 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 Authority 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 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, 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 Authority and by giving the Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the Authority 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 Bond Owner (on behalf of himself and all other 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 Authority 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 Request of the Authority 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 31 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 Authority 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 Authority 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 Bonds and to the Bond Owners at the addresses shown on the Registration Books. If the Authority 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 Authority. (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. 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 that 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 Bonds contained shall be taken as statements of the Authority, 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, the Bonds, the Installment Purchase Agreement, 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 Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the 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 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 Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the Bonds then Outstanding. 32 (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 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 under the Installment Purchase Agreement or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder or under the Installment Purchase Agreement 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 Authority or the Owners of not less than twenty-five percent (25%) of the 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 Authority or the District of any of the terms, conditions, covenants or agreements herein, or under the Installment Purchase Agreement, of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default 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 Bonds. 33 (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 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 2017 Project or the 2008 Project, 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, for purposes of the Indenture, an e-mail does not constitute a notice, request or other communication hereunder but rather the portable document format or similar attachment attached to such e-mail shall constitute a notice, request or other communication hereunder; and provided further 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 Authority elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the 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 that such instructions conflict or are inconsistent with a subsequent written instruction. The Authority 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. (o) The permissive right of the Trustee to do things enumerated herein shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. 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 34 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 Authority, 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 Bonds appearing in the Trustee’s Registration Books as the absolute owners of the 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 Authority, 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 its possession and shall be subject at all reasonable times to the inspection of the Authority, the District and any 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 Authority 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 Authority 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 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 Authority under this Section 8.06 shall survive removal or resignation of the Trustee hereunder or the discharge of the 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 Authority and of the Owners of the 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 Authority and the Trustee may 35 enter into when the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, exclusive of 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 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 Bond so affected; or (2) reduce the aforesaid percentage of 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 Authority 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 Bonds of the lien created by the Indenture on such Authority Revenues and other assets except as permitted herein, without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the 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 Authority 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 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 Authority, the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the consent of any 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 Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the Authority contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority; (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 Authority 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 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. 36 (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 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 Authority, the Trustee and all Owners of 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 Bonds; Preparation of New Bonds. 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 Authority 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 Bonds Outstanding at the time of such execution and presentation of his or her 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 Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand on the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Bond Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same maturity. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Bond Owner from accepting any amendment as to the particular Bonds held by him. ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. The Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority: (a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 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 Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the Bonds then Outstanding. 37 If the Authority shall also pay or cause to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (as evidenced by a Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and the Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, the Indenture and the pledge of Authority Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the Authority under the Indenture shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Request of the Authority, the Trustee shall execute and deliver to the Authority 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 Bonds not theretofore surrendered for such payment or redemption to the Authority. Section 10.02. Discharge of Liability on 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 Bonds (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Outstanding 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 Authority in respect of such 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 Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. 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 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 Bonds and all unpaid interest thereon to maturity, except that, in the case of 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 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 filed with the Authority 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 Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 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; 38 provided, in each case, that: (i) the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Request of the Authority) to apply such money to the payment of such principal, interest and premium, if any, with respect to such Bonds; and (ii) the Authority shall have delivered to the Trustee an opinion of Bond Counsel addressed to the Authority and the Trustee to the effect that such 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 opinion referred to above). Section 10.04. Payment of 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 Bonds and remaining unclaimed for two (2) years after the principal of all of the 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 Bonds became due and payable, shall be repaid to the Authority free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the Authority and the Trustee indemnifying the Trustee with respect to claims of Owners of 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 Authority as aforesaid, the Trustee shall at the written direction of the Authority (at the cost of the Authority) first mail to the Owners of 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 Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof. ARTICLE XI MISCELLANEOUS Section 11.01. Liability of Authority Limited to Authority Revenues. Notwithstanding anything in the Indenture or the Bonds, the Authority shall not be required to advance any moneys derived from any source other than the Authority Revenues 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 Bonds or for any other purpose of the Indenture. Nevertheless, the Authority may, but shall not be required to, advance for any of the purposes hereof any funds of the Authority which may be made available to it for such purposes. The Bonds are not a debt of the members of the Authority, the State or any of its political subdivisions (other than the Authority) and neither the members of the Authority, said State nor any of its political subdivisions (other than the Authority) is liable herein. The District shall have no liability or obligation herein except with respect to Series 2017 Installment Payments payable under the Installment Purchase Agreement. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the Authority 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 Authority or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. 39 Section 11.03. Limitation of Rights to Parties and Bond Owners. Nothing in the Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the District and the Owners of the 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 Authority, the Trustee, the District and the Owners of the 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 Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee shall destroy such Bonds as may be allowed by law, and deliver a certificate of such destruction to the Authority. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 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 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 Authority 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 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 Authority or the Trustee shall be deemed to have been sufficiently given or served for all purposes by being sent by facsimile or by being deposited, first class mail, postage prepaid, in a post office letter box, addressed, as the case may be, to the Authority, c/o Yorba Linda Water District, 1717 East Miraloma Avenue, Yorba Linda, California 92870, Attention: General Manager (or such other address as may have been filed in writing by the Authority with the Trustee), or to the Trustee at its Office by first class mail. 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 Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such 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 Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and the Authority if made in the manner provided in this Section. 40 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 Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon. Section 11.09. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the Authority, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such 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 Authority or any other obligor on the 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 Authority shall certify to the Trustee those 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 Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of registered 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 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 and for the protection of the security of the 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 Authority or the District shall be individually or personally liable for the payment of the principal of or premium or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve 41 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 Authority 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 Authority shall be liable for any defect or inaccuracy in the CUSIP number that appears on any 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 Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the Bondholders and that neither the Authority 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. Section 11.16. Notice to Rating Agencies. The Trustee shall provide any rating agency rating the Bonds with written notice of each amendment to the Indenture and a copy thereof at least 15 days in advance of its execution. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] S-1 IN WITNESS WHEREOF, the Authority has caused the Indenture to be signed in its name by its Chair and attested by its Secretary, 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 FINANCING AUTHORITY By: Chair ATTEST: Secretary of the Board U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Officer A-1 EXHIBIT A FORM OF BOND UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE INDENTURE) TO THE BOND REGISTRAR 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 FINANCING AUTHORITY REVENUE BOND, SERIES 2017A INTEREST RATE MATURITY DATE ORIGINAL ISSUE DATE CUSIP ____% October 1, 20___ _____ __, 2017 _________ REGISTERED OWNER CEDE & CO. PRINCIPAL AMOUNT: _________________________________________ DOLLARS The YORBA LINDA WATER DISTRICT FINANCING AUTHORITY, a joint exercise of powers agency duly organized and existing under the laws of the State of California (the “Authority”), 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, 2017, 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 semiannually on April 1 and October 1 in each year, commencing October 1, 2017, 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 A-2 Trustee upon presentation and surrender hereof at the Office (as defined in the hereinafter described Indenture) of U.S. Bank National Association, as 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 ($1,000,000) or more in principal amount, such payment may, at such registered owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such registered owner prior to the fifteenth (15th) day of the month preceding such interest payment date). This Bond is not a debt of the members of the Authority, the State of California, or any of its political subdivisions (other than the Authority), and neither the members of the Authority or said State, nor any of its political subdivisions (other than the Authority), is liable hereon, nor in any event shall this Bond be payable out of any funds or properties of the Authority other than the Authority Revenues (as such term is defined in the Indenture of Trust, dated as of _____ 1, 2017 (the “Indenture”), by and between the Authority and the Trustee) and other moneys pledged therefor under the Indenture. The obligation of the Yorba Linda Water District (the “District”) to make payments in accordance with the Installment Purchase Agreement (as such term is defined in the Indenture) is a limited obligation of the District as set forth in the Installment Purchase Agreement and the District shall have no liability or obligation in connection herewith except with respect to such Series 2017 Installment Payments to be made pursuant to the Installment Purchase Agreement. The Bonds do not constitute an indebtedness of the Authority in contravention of any constitutional or statutory debt limitation or restriction. This Bond is one of a duly authorized issue of bonds of the Authority designated as the “Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A” (the “Bonds”), of an aggregate principal amount of ____ Million ____ Thousand Dollars ($_____), 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 the Joint Exercise of Powers Agreement, dated April 11, 2017, by and between the District and California Municipal Finance Authority, a public body, corporate and politic, duly organized and existing under the laws of the State, as amended from time to time (the “JPA Agreement”) and the laws of the State of California and pursuant to the Indenture and the resolution authorizing the issuance of the Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the Authority) and all supplements thereto for a description of the terms on which the Bonds are issued, the provisions with regard to the nature and extent of the Authority Revenues, and the rights thereunder of the Owners of the Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the Authority hereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The Bonds have been issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds have been issued by the Authority to finance certain public capital improvements and related costs, as more fully described in the Indenture. This Bond and the interest, premium, if any, hereon and all other Bonds and the interest and premium, if any, thereon (to the extent set forth in the Indenture) are special obligations of the Authority, and are payable from, and are secured by a pledge and lien on the Authority Revenues, including all Series 2017 Installment Payments received from the District by the Authority or the A-3 Trustee, and any other amounts on deposit in certain funds and accounts created under the Indenture. As and to the extent set forth in the Indenture, all of the Authority 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 the Bonds. The Indenture and the rights and obligations of the Authority and the Owners of the 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 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 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 Bond so affected; or (ii) reduce the aforesaid percentage of 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 Authority 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 Bonds of the lien created by the Indenture on such Authority Revenues and other assets, except as expressly provided in the Indenture, without the consent of the Owners of all of the Bonds then Outstanding. The Indenture and the rights and obligations of the Authority, of the Trustee and the Owners of the 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 Authority and the Trustee may enter into without the consent of any 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 Bonds. The 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 Authority in a 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 in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, the Installment Purchase Agreement, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. The Bonds with stated maturities on or after October 1, 20__, are subject to redemption prior to their respective stated maturities, as a whole or in part as directed by the Authority in a 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) and by lot within each maturity in integral multiples of $5,000, on _____ 1, 20__ or any date thereafter at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. The Bonds with stated maturities on October 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on October 1, 20__ and each October 1 thereafter, 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 Redemption Date (October 1) Principal Amount $ * * Final Maturity. As provided in the Indenture, notice of redemption shall be mailed by the Trustee by first class mail not less than twenty (20) days prior to the redemption date to the respective Owners of any 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 proceedings for redemption or the cessation of accrual of interest thereon from and after the date fixed for 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 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 said 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 Bond or 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. Bonds 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 any Bond during the period in which the Trustee is selecting Bonds for redemption or any Bond that has been selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Authority 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 JPA Agreement, and the laws of the State of California and that the amount of this Bond, together with all A-5 other indebtedness of the Authority, does not exceed any limit under any laws of the State of California, and is not in excess of the amount of Bonds permitted to be issued under the Indenture. 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 Authority has caused this Bond to be executed in its name and on its behalf with the manual or facsimile signature of its Chair and attested to by the manual or facsimile signature of its Secretary, all as of the Original Issue Date specified above. YORBA LINDA WATER DISTRICT FINANCING AUTHORITY By: Chair Attest: Secretary of the Board [FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION TO APPEAR ON BONDS] This is one of the Bonds described in the within-mentioned Indenture. Dated: ____________, 2017 U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Signatory A-6 [FORM OF LEGAL OPINION] The following is a true copy of the opinion rendered by Stradling Yocca Carlson & Rauth, a Professional Corporation, in connection with the issuance of, and dated as of the date of the original delivery of, the Bonds. A signed copy is on file in my office. Secretary of the Board of the Yorba Linda Water District Financing Authority [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. Gilmore & Bell DRAFT 04/06/2017 v5 PURCHASE CONTRACT YORBA LINDA WATER DISTRICT FINANCING AUTHORITY $____________ Revenue Bonds, Series 2017A __________, 2017 Yorba Linda Water District 1717 East Miraloma Avenue Placentia, California 92870 Yorba Linda Water District Financing Authority 1717 East Miraloma Avenue Placentia, California 92870 Ladies and Gentlemen: The undersigned (hereinafter referred to as the “Underwriter”), acting on behalf of itself and not as an agent or representative of you, offers to enter into this purchase contract (the “Purchase Contract”) with the Yorba Linda Water District (the “District”) and the Yorba Linda Water District Financing Authority (the “Authority”), which will be binding upon the District, the Authority, and the Underwriter upon the acceptance hereof by the District and the Authority. 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 11:00 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 Indenture (as hereafter defined). 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 $____________ aggregate principal amount of Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A (the “Bonds”). The Underwriter will purchase the Bonds at a purchase price of $____________ (representing the par amount of the Bonds [plus/less] $___________ of original issue [premium/discount] and $____________ of Underwriter’s discount). 2. Description and Purpose of the Bonds. The Bonds will be issued pursuant to an Indenture of Trust, dated as of __________ 1, 2017 (the “Indenture”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). The Bonds are special limited obligations of the Authority and are payable solely from Revenues and from certain other amounts on deposit in funds and accounts under the Indenture. Revenues will consist primarily of amounts received by the Authority (the “Series 2017A Installment Payments”) pursuant to the Installment Purchase Agreement dated as of __________ 1, 2017 (the “Installment Purchase Agreement”), between the Authority and DRAFT 04-06-2017 2 the District and all interest or gain derived from the investment of amounts in any of the funds or accounts established under the Indenture. The obligation of the District to make the Series 2017A Installment Payments is a special obligation of the District payable solely from Net Revenues (as such term is defined in the Installment Purchase Agreement) of the District. The Bonds shall be as described in the Indenture and the Official Statement dated __________, 2017 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”). Proceeds from the sale of the Bonds will be used (i) to finance the acquisition and construction of certain improvements to the District’s Water System, (ii) to advance refund the outstanding Yorba Linda Water District Revenue Certificates of Participation (2008 Capital Improvement Projects) Series 2008 (the “Refunded Certificates”), and (iii) 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 (2008 Certificates), dated as of __________ 1, 2017 (the “Escrow Agreement”), by and between the District and U.S. Bank National Association, as 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 attached hereto. 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 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 Authority and the District, the Underwriter has distributed copies of the Preliminary Official Statement dated _________, 2017, relating to the Bonds, which, together with the cover page and appendices thereto, is herein called the “Preliminary Official Statement.” By their acceptance of this proposal, the Authority and the District hereby approve and ratify the distribution use by the Underwriter of the Preliminary Official Statement. The Authority and the District agree 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 Authority and/or the District and the Underwriter, and to provide copies thereof to the Underwriter as set forth in Section 6(a)(v) hereof. The Authority and 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 Authority and/or the District is a party in connection with the transactions DRAFT 04-06-2017 3 contemplated by this Purchase Contract, including this Purchase Contract and all information contained herein, and all other documents, Bonds and statements furnished by the Authority or 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 __________, 2017 or at such other time or on such earlier or later business day as shall have been mutually agreed upon by the Authority, the District, and the Underwriter, the Authority and the District will cause to be executed and delivered (i) the Bonds in book-entry form through the facilities of The Depository Trust Company (“DTC”) 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”), Newport Beach, California, or another place to be mutually agreed upon by the Authority, the District, and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof in immediately available funds to the order of the District. This payment and delivery, together with the delivery of the aforementioned documents, is herein called the “Closing.” 6. District Representations, Warranties and Covenants. (a) The District represents, warrants and covenants to the Underwriter that: (i) 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.), and the constitution and laws of the State of California (the “State”), with full right, power and authority to execute, deliver and perform its obligations under this Purchase Contract, the Installment Purchase Agreement, 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. (ii) 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 due authorization and execution by the other parties thereto, as applicable, 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 DRAFT 04-06-2017 4 the exercise of judicial discretion in appropriate cases or by limitations on legal remedies against public agencies in the State. (iii) Official Statement Accurate and Complete. The Preliminary Official Statement was as of its date, and the Official Statement is, and at all times subsequent to the date of the Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary Official Statement and the Official Statement contain and up to and including the Closing will contain no misstatement of any material fact and do not, and up to and including the Closing will 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, DTC’s book-entry system). (iv) 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 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. (v) 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 the Municipal Securities Rulemaking Board (the “MSRB”). The Underwriter acknowledges that the end of the “underwriting period” will be the date of Closing. (vi) No Material Change in Finances. At the time of the Closing, and except as otherwise described in the Official Statement, there shall not DRAFT 04-06-2017 5 have been any material adverse changes in the financial condition of the District since June 30, 2016. (vii) No Breach or Default. As of the time of acceptance hereof and as of the time of the Closing, (i) 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 (ii) the District is not and will not, in any manner which would materially adversely affect the transactions contemplated by the District Documents, be 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 times, the authorization, execution and delivery of the District Documents and compliance with the provisions of each of such agreements or instruments do not and will 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 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. (viii) No Litigation. As of the time of acceptance hereof and as of the date of Closing, 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 (i) in any way questioning the corporate existence of the District or the titles of the officers of the District to their respective offices; (ii) 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 Bonds from gross income for federal income tax purposes or contesting the powers of the District to enter into the District Documents; (iii) which may result in any material adverse change to the financial condition of the District or to its ability to pay the debt service on DRAFT 04-06-2017 6 the Bonds when due; or (iv) 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 (i) through (iv) of this sentence. (ix) No Prior Liens on Net Revenues. Except for the Yorba Linda Water District Refunding Revenue Bonds, Series 2012A (the “2012A Bonds”), which obligations have a lien on the Net Revenues that is on a parity with the lien of the Bonds, as of the date of the Closing, the District will not have outstanding any indebtedness which indebtedness is secured by a lien on the Net Revenues superior to or on a parity with the lien of the Series 2017A Installment Payments on the Net Revenues. (x) 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 (i) 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 (ii) 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 do business in connection with any such qualification or determination in any jurisdiction. (xi) 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. (xii) No Other Obligations. Between the date of this Purchase Contract and the date of Closing, the District will not, without the prior written consent of the Underwriter, offer or issue any bonds, notes or other DRAFT 04-06-2017 7 obligations for borrowed money, or incur any material liabilities, directly or contingently payable from the Net Revenues. (xiii) 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. (xiv) 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 and the Authority hereby covenant and agree that, within seven business days from the date hereof, they 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 MSRB. (xv) Continuing Disclosure. 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. The District hereby represents that, except as otherwise disclosed in the Official Statement, for the last five years it has been in compliance with each continuing disclosure undertaking it has entered into pursuant to Rule 15c2-12. 7. Authority Representations, Warranties and Covenants. The Authority represents, warrants and covenants to the Underwriter that: (a) Due Organization, Existence and Authority. The Authority is a public entity duly organized and existing under a joint exercise of powers agreement and under the Constitution and laws of the State, with full right, power and authority to execute, deliver and perform its obligations under this Purchase Contract, the Installment Purchase Agreement and the Indenture (collectively, the “Authority Documents”) and to carry out and consummate the transactions contemplated by the Authority Documents and the Official Statement. (b) Due Authorization and Approval. By all necessary official action of the Authority, the Authority has duly authorized and approved the execution and delivery of, and the performance by the Authority of the obligations contained or described in the Preliminary Official Statement, the Official Statement and the Authority 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, each Authority Document will constitute the legally valid and binding obligation of the Authority enforceable in accordance with its DRAFT 04-06-2017 8 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) The Official Statement Accurate and Complete. The Preliminary Official Statement was as of its date, and the Official Statement is, and at all times subsequent to the date of the Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary Official Statement and the Official Statement contain, and up to and including the Closing, will contain no misstatement of any material fact and do not, and up to and including the Closing, will 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 the Official Statement. The Authority 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 Authority will advise the Underwriter promptly of the institution of any proceedings known to it 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) Authority Agreement to Amend or Supplement the 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 the Official Statement should be delivered in connection with the offers or sales of the Series 2013A Bonds to reflect such event, the Authority promptly will prepare at its expense an amendment or supplement which will correct such statement or omission and the Authority shall promptly furnish to the Underwriter a reasonable number of copies of such amendment or supplement. (f) Compliance with Rule 15c2-12. The Preliminary Official Statement heretofore delivered to the Underwriter has been deemed final by the Authority as of the date of the Preliminary Official Statement, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(i) of Rule 15c2-12. The Authority and District hereby covenant and agree that, within seven business days from the date hereof, they shall cause a final form of the DRAFT 04-06-2017 9 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 MSRB. 8. Closing Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties and covenants herein and the performance by the Authority and the District of their obligations hereunder, both as of the date hereof and as 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 Authority and 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. (b) Executed Agreements and Performance Thereunder. At the time of the Closing (i) the District Documents and the Authority 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, (iv) the Authority shall perform or have performed its obligations required or specified in the Authority Documents to be performed at or prior to Closing, and (v) the Official Statement shall not have been supplemented or amended, except pursuant to Paragraphs 6(a)(iv) and 6(a)(v) hereof or as otherwise may have been agreed to in writing by the Underwriter. (c) No Default. At the time of the Closing, no default shall have occurred or be existing under the Resolutions, the District Documents, the Authority 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 adversely impact the ability of the District to pay debt service on the Bonds. (d) 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) an event shall occur which makes untrue or incorrect in any material respect, as of the time of such event, any statement or information contained in the Official Statement or which is not reflected in the Official Statement but should be reflected therein in order to make the statements contained therein in the light of the circumstances under which they were made not misleading in any material respect and, in either such event, (a) the District or the DRAFT 04-06-2017 10 Authority refuses to permit the Official Statement to be supplemented to supply such statement or information in a manner satisfactory to the Underwriter or (b) the effect of the Official Statement as so supplemented is, in the judgment of the Underwriter, to materially adversely affect the market price or marketability of the Bonds or the ability of the Underwriter to enforce contracts for the sale, at the contemplated offering prices (or yields), of the Bonds; or (ii) legislation shall be introduced in, enacted by, reported out of committee, or recommended for passage by the State of California, either House of the Congress, or recommended to the Congress or otherwise endorsed for passage (by press release, other form of notice or otherwise) 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 legislation is proposed for consideration by either such committee by any member thereof or presented as an option for consideration by either such committee by the staff or such committee or by the staff of the Joint Committee on Taxation of the Congress of the United States, or a bill to amend the Code (which, if enacted, would be effective as of a date prior to the Closing) shall be filed in either House, or a decision by a court of competent jurisdiction shall be rendered, or a regulation or filing shall be issued or proposed by or on behalf of the Department of the Treasury or the Internal Revenue Service of the United States, or other agency of the federal government, or a release or official statement shall be issued by the President, the Department of the Treasury or the Internal Revenue Service of the United States, in any such case with respect to or affecting (directly or indirectly) the federal or state taxation of interest received on obligations of the general character of the Bonds which, in the judgment of the Underwriter, materially adversely affects the market price or marketability of the Bonds or the ability of the Underwriter to enforce contracts for the sale, at the contemplated offering prices (or yields), of the Bonds; or (iii) a stop order, ruling, regulation, proposed regulation or 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 issuance, offering, sale or distribution of obligations of the general character of the Bonds (including any related underlying obligations) is in violation or would be in violation of any provisions of the Securities Act of 1933, as amended, the Securities Exchange DRAFT 04-06-2017 11 Act of 1934, as amended or the Trust Indenture Act of 1939, as amended; or (iv) legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree, or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary, or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended (the “Securities Act”), or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering, or sale of obligations of the general character of the Bonds, including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise, is or would be in violation of the federal securities law as amended and then in effect; (v) there shall have occurred (1) any outbreak or escalation of hostilities, declaration by the United States of a national or international emergency or war; or (2) any other calamity or crisis in the financial markets of the United States or elsewhere; or (3) a downgrade of the sovereign debt rating of the United States by any major credit rating agency or payment default on United States Treasury obligations; or (4) a default with respect to the debt obligations of, or the institution of proceedings under any federal bankruptcy laws by or against any state of the United States or any city, county or other political subdivision located in the United States having a population of over 1,000,000, which, in the judgment of the Underwriter, materially adversely affects the market price or marketability of the Bonds or the ability of the Underwriter to enforce contracts for the sale, at the contemplated offering prices (or yields), of the Bonds; or (vi) there shall have occurred a general suspension of trading, minimum or maximum prices for trading shall have been fixed and be in force or maximum ranges or prices for securities shall have been required on the New York Stock Exchange or other national stock exchange whether by virtue of a determination by that Exchange or by order of the Securities and Exchange Commission or any other governmental agency having jurisdiction or any national securities exchange shall have: (i) imposed additional material restrictions not in force as of the date hereof with respect to trading in securities generally, or to the Bonds or similar obligations; DRAFT 04-06-2017 12 or (ii) materially increased restrictions now in force with respect to the extension of credit by or the charge to the net capital requirements of underwriters or broker-dealers which, in the judgment of the Underwriter, materially adversely affects the market price or marketability of the Bonds or the ability of the Underwriter to enforce contracts for the sale, at the contemplated offering prices (or yields), of the Bonds; or (vii) a general banking moratorium shall have been declared by federal or New York or State of California state authorities or a major financial crisis or a material disruption in commercial banking or securities settlement or clearances services shall have occurred which, in the judgment of the Underwriter, materially adversely affects the market price or the marketability for the Bonds or the ability of the Underwriter to enforce contracts for the sale, at the contemplated offering prices (or yields), of the Bonds; or (viii) a downgrading or suspension of any rating (without regard to credit enhancement) by Moody’s Investors Service, Inc. (“Moody’s”), S&P Global Ratings (“S&P”), or Fitch Ratings (“Fitch”) of any debt securities issued by the District, or (ii) there shall have been any official statement as to a possible downgrading (such as being placed on “credit watch” or “negative outlook” or any similar qualification) of any rating by Moody’s, S&P or Fitch of any debt securities issued by the District, including the Bonds. (e) Closing Documents. At or prior to the Closing, the Underwriter shall receive with respect to the Bonds the following documents: (i) Bond Counsel 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 Authority and 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: (A) The Purchase Contract has been duly authorized, executed and delivered by the District and, assuming due authorization and execution by the Underwriter, is a valid and binding agreement of the District enforceable in accordance with its DRAFT 04-06-2017 13 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; and (B) The statements contained in the Official Statement on the cover page and under the captions “INTRODUCTION,” “THE 2017A BONDS,” “SECURITY FOR THE 2017A BONDS,” “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES,” and “TAX MATTERS” and in Appendix B thereto, insofar as such statements purport to summarize certain provisions of the Bonds, the Indenture, the Installment Purchase Agreement, State law and Bond Counsel’s opinions concerning certain federal tax matters relating to the Bonds, are accurate as of the date of the Official Statement and as of the date of Closing. (iii) District Counsel Opinion. An opinion of Kidman Law LLP, Irvine, California, 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 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 due authorization and execution by the other parties thereto, as applicable, 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) To the best of such counsel’s knowledge based upon information provided by the District and except for the 2012A Bonds, as of the date of the Closing, the District does not and will not have outstanding any indebtedness which indebtedness is secured by a lien on the Net Revenues superior to or on a parity with the lien of the Bonds on the Net Revenues; (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 DRAFT 04-06-2017 14 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) To the best of such counsel’s knowledge based upon information provided by the District, 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 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 (as determined by reference to a certificate of the District identifying material agreements and instruments) or any existing law, regulation, court order or consent decree to which the District is subject (excluding, however, any opinion as to compliance with any applicable federal or state securities laws); (F) To the best of such counsel’s knowledge based upon information provided by the District, 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 a breach of or default under any term or provision of the Constitution of the State or any statute, administrative rule or regulation, judgment, decree, order, license, permit, agreement or instrument to which the District is subject or by which the District or any of its property is bound (excluding, however, any opinion as to compliance with any applicable federal or state securities laws); (G) Based on the information made available to such counsel in his role as general counsel to the District, and without having undertaken to determine independently or assume any responsibility for the accuracy, completeness or fairness of the statements contained therein, the information in the Official Statement under the captions “THE 2017 PROJECT,” “REFUNDING PLAN,” “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) To the best of such counsel’s knowledge based upon information provided by the District, no additional authorization, DRAFT 04-06-2017 15 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 (excluding, however, any opinion as to compliance with any applicable federal or state securities laws); (I) Except as described in the Official Statement, based on information made available to such counsel in his role as general counsel to the District, he knows of 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 his 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 payments of debt service on the Bonds or in any way 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 pay debt service on the Bonds; and (J) Based on the information made available to counsel to the District in their role as general counsel to the District, and 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 his 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 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) Authority Counsel Opinion. An opinion of [Kidman Law LLP, Irvine, California,] counsel to the Authority, 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 Authority is a joint exercise of powers agency, duly created and lawfully existing under the laws and Constitution of the State; DRAFT 04-06-2017 16 (B) The Authority Documents have been authorized by all necessary corporate action on the part of the Authority, have been duly executed and delivered by the Authority and, assuming due authorization, execution and delivery by the other parties thereto, the Authority Documents constitute legally valid and binding obligations of the Authority, enforceable against the Authority in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws or equitable principles relating to or limiting creditors’ rights generally or by the exercise of judicial discretion in appropriate cases or by limitations or legal remedies against public agencies in the State, and expressing no opinion as to the availability of equitable remedies; (C) To the best of such counsel’s knowledge after due inquiry, the execution and delivery of the Authority Documents and compliance with the provisions thereof, under the circumstances contemplated thereby, do not and will not conflict with any existing law, regulation, court order or consent decree to which the Authority is subject or constitute on the part of the Authority a breach of or default under any agreement or other instrument to which the Authority is a party or by which it is bound; (D) The Official Statement has been prepared by, or on behalf of, the Authority and the Official Statement has been executed on its behalf by the Executive Director of the Authority; and (E) Based on the information made available to such counsel, and without having undertaken to determine independently or assume any responsibility for the accuracy, completeness or fairness of the statements contained therein, the information in the Official Statement and relating to the Authority under the captions “INTRODUCTION,” “THE AUTHORITY” and “LITIGATION— The Authority” 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. (v) Opinion of Counsel to Trustee. The opinion of counsel to U.S. Bank National Association (“Trustee”), dated the date of the Closing, addressed to the Underwriter, to the effect that: (A) 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 DRAFT 04-06-2017 17 created under the Indenture and to enter into the Escrow Agreement (collectively with the Indenture, the “Trustee Documents”); (B) The Trustee Documents have been duly authorized, executed and delivered by Trustee and, assuming due authorization, execution and delivery by the other parties thereto, the Trustee Documents constitute the valid and binding obligations of Trustee enforceable in accordance with their respective 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) Trustee has duly authenticated the Bonds upon the order of the District; (D) Trustee’s actions in executing and delivering the Trustee Documents 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 Trustee is a party or any administrative or judicial decision by which 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 Trustee that has not been obtained is or will be required for the authentication and delivery of the Bonds or the consummation by Trustee of its obligations under the Trustee Documents. (vi) Underwriter’s Counsel Opinion. An opinion of Gilmore & Bell, P.C., 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 DRAFT 04-06-2017 18 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, Appendix D or Appendix E 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 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; 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. DRAFT 04-06-2017 19 (viii) Authority Certificate. A certificate of the Authority, dated the date of the Closing, signed on behalf of the Authority by a duly authorized officer of the Authority to the effect that: (ix) The representations, warranties and covenants of the Authority contained in the Purchase Contract are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing and the Authority has complied with all of the terms and conditions of the Purchase Contract required to be complied with by the Authority at or prior to the date of the closing; (x) No event affecting the Authority 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 in the Official Statement, 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 (xi) 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 Authority Documents. (xii) Trustee’s Certificate. A certificate, dated the date of Closing, signed by a duly authorized official of Trustee satisfactory in form and substance to the Underwriter, to the effect that: (A) 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 Trustee Documents; (B) Trustee is duly authorized to enter into the Trustee Documents and has duly executed and delivered the Trustee Documents, and assuming due authorization and execution by the other parties thereto, the Trustee Documents are legal, valid and binding upon Trustee, and enforceable against Trustee in accordance with their terms; (C) 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 Trustee that has not been obtained is or will be required for the authentication and delivery of DRAFT 04-06-2017 20 the Bonds or the consummation by Trustee of its obligations under the Trustee Documents. (xiii) Transcripts. Two transcripts of all proceedings relating to the authorization, execution and delivery of the Bonds. (xiv) 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. (xv) Documents. An original executed copy of each of the District Documents. (xvi) District Resolution. Two certified copies of the District Resolution, certified by the District Clerk. (xvii) Authority Resolution. Two certified copies of the Authority Resolution, certified by the Secretary or Assistant Secretary of the Authority. (xviii) Trustee Resolution. Two certified copies of the general resolution of Trustee authorizing the execution and delivery of certain documents by certain officers and employees of Trustee, which resolution authorizes the execution and delivery of the Trustee Documents. (xix) 8038-G. Evidence that the federal tax information form 8038-G relating to the Bonds has been prepared for filing. (xx) 15c2-12 Certificates of the District and the Authority. Certificates of the District and the Authority “deeming final” the Preliminary Official Statement for purposes of Rule 15c2-12. (xxi) Tax Certificate. A tax certificate in form satisfactory to Bond Counsel. (xxii) CDIAC Statements. A copy of the Notices of Sale required to be delivered to the California Debt Investment and Advisory Commission pursuant to Sections 8855(g) and 53583 of the California Government Code. (xxiii) Rating. Evidence S&P that the Bonds have been assigned a rating of “____” and from Fitch that the Bonds have been assigned a rating of “____.” (xxiv) Continuing Disclosure Certificate. An executed copy of the Continuing Disclosure Certificate. DRAFT 04-06-2017 21 (xxv) Verification Report. A verification report from Grant Thornton LLP, Minneapolis, Minnesota (the “Verification Agent”) together with a letter, dated the date of Closing, from an authorized officer of said firm consenting to the inclusion in the Official Statement of references to the Verification Agent and the verification report. (xxvi) DTC Letter of Representation. One copy of the executed Letter of Representation to The Depository Trust Company from the District. (xxvii) Parity Debt Certificate. A copy of the parity debt certificate prepared in accordance with the Indenture. (xxviii) Additional Documents. Such additional certificates, instruments and other documents as the Underwriter may reasonably deem necessary. If the District or the Authority 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, the District, nor the Authority shall be under further obligation hereunder, except as further set forth in Section 9 hereof. 9. Expenses. (a) Whether or not the Underwriter accepts delivery of and pays for the Bonds as set forth herein, it shall be under no obligation to pay, and the District shall pay or cause to be paid (out of the proceeds of the Bonds or any other legally available funds of the District) all expenses incident to the performance of the obligations of the District and the Authority hereunder, including but not limited to the cost of printing, engraving and delivering the Bonds to the Underwriter; the cost of printing, distribution and delivery of all the agreements and documents contemplated hereby (including but not limited to the Preliminary Official Statement and the Official Statement) and drafts of any thereof in reasonable quantities as requested by the Underwriter; the fees and disbursements of the Trustee, Bond Counsel, accountants, appraisers, economic consultants and any other experts or consultants retained by the District and the Authority in connection with the Bonds; CUSIP Service Bureau fees and charges; expenses (included in the expense component of the Underwriter’s spread) incurred on behalf of officers or employees of the District or the Authority which are directly related to the offering of the Bonds, including, but not limited to, meals, transportation, and lodging of those officers or employees; and any other expenses not specifically enumerated in paragraph (b) of this section incurred in connection with the execution of the Bonds. (b) The Underwriter is required to pay fees to the California Debt and Investment Advisor Commission in connection with the offering of the Bonds. Notwithstanding that such fees are solely the legal obligation of the Underwriter, the District agrees to reimburse the Underwriter for such fees. DRAFT 04-06-2017 22 (c) Whether or not the Bonds are delivered to the Underwriter as set forth herein, the District and the Authority shall be under no obligation to pay, and the Underwriter shall pay, all expenses paid or incurred to qualify the Bonds for sale under any blue sky laws; and all other expenses paid or incurred by the Underwriter in connection with its public offering and distribution of the Bonds not specifically enumerated in paragraph (a) of this section, including the fees and disbursements of its counsel and the fees of Digital Assurance Certification, L.L.C. for a continuing disclosure undertaking compliance review (included in the expense component of the Underwriter’s spread) and fees customarily paid by the underwriters of municipal securities, such as the fees payable to the MSRB. 10. 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, 1717 East Miraloma Avenue, Placentia, California 92870, Attention: General Manager. Any notice or other communication to be given to the Authority under this Purchase Contract may be given by delivering the same in writing to Yorba Linda Water District Financing Authority, 1717 East Miraloma Avenue, Placentia, California 92870, Attention: President. 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., One Sansome Street, 26th Floor, San Francisco, California 94104, Attention: David G. Houston, Managing Director. 11. Entire Agreement. This Purchase Contract, when accepted by the District, shall constitute the entire agreement between the District and the Underwriter 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 representations, warranties and agreements of the District and the Authority 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. 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 provisions hereof. 14. STATE LAW GOVERNS. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS PURCHASE CONTRACT SHALL BE GOVERNED BY THE LAWS OF THE STATE. DRAFT 04-06-2017 23 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 party hereto. 16. No Advisory or Fiduciary Role. The District and the Authority acknowledge and agree that (i) the purchase and sale of the Bonds pursuant to this Purchase Contract is an arm’s-length commercial transaction between the District, the Authority, 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 or fiduciary of the District or the Authority, (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the District or the Authority 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 or the Authority on other matters) and the Underwriter has no obligation to the District or the Authority with respect to the offering contemplated hereby except the obligations expressly set forth in this Purchase Contract and (iv) the District has consulted its own legal, financial and other advisors to the extent it has deemed appropriate. S-1 PURCHASE CONTRACT CITIGROUP GLOBAL MARKETS INC. By: Managing Director Accepted as of the date first stated above: YORBA LINDA WATER DISTRICT FINANCING AUTHORITY By: President YORBA LINDA WATER DISTRICT By: General Manager APPENDIX A APPENDIX A $____________ Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A Maturity (October 1) Principal Amount Interest Rate $ % Stradling Yocca Carlson & Rauth Draft of 4/6/17 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. PRELIMINARY OFFICIAL STATEMENT DATED _____ __, 2017 NEW ISSUE – BOOK-ENTRY ONLY RATINGS: See the caption “RATINGS” $_____* YORBA LINDA WATER DISTRICT FINANCING AUTHORITY REVENUE BONDS, SERIES 2017A Dated: Date of Delivery Due: October 1, as shown on inside front cover page The 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. Individual purchases will be made in denominations of $5,000 and integral multiples thereof and will be in book-entry form only. Purchasers of the Bonds will not receive certificates representing their beneficial ownership in the Bonds but will receive credit balances on the books of their respective nominees. Interest on the Bonds is payable on October 1, 2017 and each April 1 and October 1 thereafter. Payment of the principal of and interest on the Bonds is to be made to Cede & Co., which is to disburse said payments to the Beneficial Owners of the Bonds through their nominees. The Bonds are subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity, all as more fully described herein. The Bonds are being issued to provide funds: (i) to finance the acquisition and construction of certain improvements to the District’s Water System; (ii) to refund all of the currently outstanding Yorba Linda Water District Revenue Certificates of Participation (2008 Capital Improvement Projects) Series 2008; and (iii) to pay costs incurred in connection with the issuance of the Bonds. The Bonds are being issued pursuant to the Indenture of Trust, dated as of _____ 1, 2017, by and between the Yorba Linda Water District Financing Authority and U.S. Bank National Association, as trustee. THE BONDS ARE A SPECIAL LIMITED OBLIGATION OF THE AUTHORITY PAYABLE SOLELY FROM AUTHORITY REVENUES, WHICH CONSIST OF SERIES 2017 INSTALLMENT PAYMENTS TO BE MADE BY THE DISTRICT TO THE AUTHORITY PURSUANT TO THE INSTALLMENT PURCHASE AGREEMENT, DATED AS OF _____ 1, 2017, BY AND BETWEEN THE DISTRICT AND THE AUTHORITY, AND FROM CERTAIN OTHER FUNDS AND ACCOUNTS HELD BY THE TRUSTEE PURSUANT TO THE INDENTURE. NEITHER THE FULL FAITH AND CREDIT NOR ANY OTHER REVENUES OR FUNDS OF THE AUTHORITY ARE PLEDGED TO OR AVAILABLE FOR THE PAYMENT OF DEBT SERVICE ON THE BONDS. THE OBLIGATION OF THE AUTHORITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE AUTHORITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER. The obligation of the District to make the Series 2017 Installment Payments is a special limited obligation of the District payable solely from Net Revenues of the District’s Water System on a parity with approximately $7,230,000 aggregate principal amount of the Yorba Linda Water District Refunding Revenue Bonds, Series 2012A. The District may incur additional obligations payable from Net Revenues on a parity with the obligation to pay principal of and interest on the Bonds, subject to the terms and conditions of the Indenture, as more fully described herein. THE OBLIGATION OF THE DISTRICT TO MAKE SERIES 2017 INSTALLMENT PAYMENTS PURSUANT TO THE INSTALLMENT PURCHASE AGREEMENT 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 MAKE THE SERIES 2017 INSTALLMENT PAYMENTS IS A SPECIAL LIMITED OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES OF THE DISTRICT’S WATER SYSTEM AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. Neither the Installment Purchase Agreement nor the Indenture establishes a debt service reserve fund for the Bonds. ____________________________________ In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, 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 in this Official Statement, interest (and original issue discount) on the 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 (and original issue discount) on the Bonds is exempt from State of California personal income tax. See the caption “TAX EXEMPTION” with respect to tax consequences relating to the Bonds. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY SCHEDULE (See inside front cover page) The 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 Bonds by Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, and certain other conditions. Certain matters will be passed upon for the District by Kidman Law LLP, Irvine, California, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, for the Underwriter by its counsel, Gilmore & Bell, P.C., and for the Trustee by its counsel. It is anticipated that the Bonds will be available for delivery through the facilities of The Depository Trust Company on or about _____ __, 2017. CITIGROUP Dated: ____ __, 2017 _______________________ * Preliminary; subject to change. $_____* YORBA LINDA WATER DISTRICT FINANCING AUTHORITY REVENUE BONDS, SERIES 2017A MATURITY SCHEDULE BASE CUSIP†† _____ $_____ Serial Bonds Maturity (October 1) Principal Amount Interest Rate Yield CUSIP† $ % % $_____ _____% Term Bonds Due October 1, 20__ , Yield: ____%, Price _____, CUSIP† ___ _______________________ * Preliminary; subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2017 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Authority, the District or the Underwriter takes any responsibility for the accuracy of such numbers. YORBA LINDA WATER DISTRICT FINANCING AUTHORITY BOARD OF DIRECTORS J. Wayne Miller, Ph.D, Chair Al Nederhood, Vice Chair Phil Hawkins, Director Andrew J. Hall, Director Brooke Jones, Director YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS J. Wayne Miller, Ph.D, President Al Nederhood, Vice President Phil Hawkins, Director Andrew J. Hall, Director Brooke Jones, Director STAFF Marc Marcantonio, General Manager Delia Lugo, Finance Manager SPECIAL SERVICES General Counsel Kidman Law LLP Irvine, California Bond Counsel and Disclosure 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 Grant Thornton LLP Minneapolis, Minnesota No dealer, broker, salesperson or other person has been authorized by the District or the Authority to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the District or the Authority. 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 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 or Owners of the 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 representations of fact. 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. This Official Statement and the information contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the Authority or any other parties described herein since the date hereof. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the District. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained under the captions “YORBA LINDA WATER DISTRICT,” “WATER SUPPLY,” “THE WATER SYSTEM” and “WATER SYSTEM FINANCIAL INFORMATION.” THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, DEALER BANKS, BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF, AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT, AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. The District maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. TABLE OF CONTENTS Page i INTRODUCTION ................................................................................................................................................ 1 THE 2017 PROJECT ............................................................................................................................................ 2 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................................ 3 THE BONDS ........................................................................................................................................................ 3 General Provisions ......................................................................................................................................... 3 Book-Entry Only System ............................................................................................................................... 4 Transfers and Exchanges Upon Termination of Book-Entry Only System ................................................... 4 Redemption .................................................................................................................................................... 4 Selection of Bonds for Redemption ............................................................................................................... 5 Notice of Redemption .................................................................................................................................... 5 Effect of Redemption ..................................................................................................................................... 6 DEBT SERVICE SCHEDULE............................................................................................................................. 7 SECURITY FOR THE BONDS ........................................................................................................................... 7 General ........................................................................................................................................................... 7 Series 2017 Installment Payments Payable From Net Revenues ................................................................... 8 Rate Covenant ................................................................................................................................................ 9 No Reserve Fund ............................................................................................................................................ 9 Additional Parity Bonds and Contracts .......................................................................................................... 9 Rate Stabilization Fund ................................................................................................................................ 11 YORBA LINDA WATER DISTRICT ............................................................................................................... 12 General ......................................................................................................................................................... 12 Land and Land Use ...................................................................................................................................... 13 Governance and Management ...................................................................................................................... 13 Employees and Employee Benefits .............................................................................................................. 14 Budget Process ............................................................................................................................................. 21 District Insurance ......................................................................................................................................... 21 Outstanding Obligations .............................................................................................................................. 22 Ad Valorem Tax Revenues .......................................................................................................................... 22 WATER SUPPLY .............................................................................................................................................. 25 General ......................................................................................................................................................... 25 Historic and Projected Water Supply ........................................................................................................... 28 Drought Proclamation .................................................................................................................................. 29 THE WATER SYSTEM ..................................................................................................................................... 32 General ......................................................................................................................................................... 32 Historic Water Connections ......................................................................................................................... 33 Historic Water Deliveries ............................................................................................................................. 34 Historic Water Sales Revenues .................................................................................................................... 34 Largest Customers ....................................................................................................................................... 35 Water System Rates and Charges ................................................................................................................ 35 Collection Procedures .................................................................................................................................. 37 Projected Water Connections ....................................................................................................................... 37 Projected Water Deliveries .......................................................................................................................... 38 Projected Water Sales Revenues .................................................................................................................. 38 Future Water System Improvements ............................................................................................................ 39 TABLE OF CONTENTS (continued) Page -ii- WATER SYSTEM FINANCIAL INFORMATION .......................................................................................... 39 Financial Statements .................................................................................................................................... 39 Recovery of Wildfire Settlement Payment................................................................................................... 39 Investment of District Funds ........................................................................................................................ 40 Historic Operating Results and Debt Service Coverage .............................................................................. 41 Projected Operating Results and Debt Service Coverage ............................................................................ 42 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES ......................................... 43 Article XIIIB ................................................................................................................................................ 43 Proposition 218 ............................................................................................................................................ 44 Future Initiatives .......................................................................................................................................... 46 CERTAIN RISKS TO BONDHOLDERS .......................................................................................................... 46 Limited Obligations ..................................................................................................................................... 46 Accuracy of Assumptions ............................................................................................................................ 46 System Demand ........................................................................................................................................... 46 System Expenses .......................................................................................................................................... 46 Limited Recourse on Default ....................................................................................................................... 47 Rate-Setting Process under Proposition 218 ................................................................................................ 47 Statutory and Regulatory Compliance ......................................................................................................... 47 Natural Disasters .......................................................................................................................................... 47 Limitations on Remedies ............................................................................................................................. 48 Loss of Tax Exemption ................................................................................................................................ 48 Secondary Market ........................................................................................................................................ 49 Parity Obligations ........................................................................................................................................ 49 THE AUTHORITY ............................................................................................................................................ 49 APPROVAL OF LEGAL PROCEEDINGS ....................................................................................................... 49 LITIGATION ..................................................................................................................................................... 49 District.......................................................................................................................................................... 49 Authority ...................................................................................................................................................... 50 TAX EXEMPTION ............................................................................................................................................ 50 CONTINUING DISCLOSURE .......................................................................................................................... 52 RATINGS ........................................................................................................................................................... 52 FINANCIAL ADVISOR .................................................................................................................................... 52 UNDERWRITING ............................................................................................................................................. 53 MISCELLANEOUS ........................................................................................................................................... 54 APPENDIX A - DISTRICT FINANCIAL STATEMENTS ............................................................................ A-1 APPENDIX B - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INSTALLMENT PURCHASE AGREEMENT AND 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 TABLE OF CONTENTS (continued) Page -iii- -i- 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 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms that are used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement. Purpose. The Bonds are being issued to provide funds: (i) to finance the acquisition and construction of certain improvements to the District’s Water System, as described under the caption “THE 2017 PROJECT;” (ii) to refund all of the currently outstanding Yorba Linda Water District Revenue Certificates of Participation (2008 Capital Improvement Projects) Series 2008, as described under the caption “REFUNDING PLAN;” and (iii) to pay costs incurred in connection with the issuance of the Bonds. See the caption “ESTIMATED SOURCES AND USES OF FUNDS.” Security for the Bonds. The Bonds are a special limited obligation of the Authority payable solely from Authority Revenues, which consist of Series 2017 Installment Payments to be made by the District to the Authority pursuant to the Installment Purchase Agreement, and from amounts on deposit in certain funds and accounts established by the Indenture. Neither the full faith and credit nor any other revenues or funds of the Authority are pledged to or available for the payment of debt service on the Bonds. THE OBLIGATION OF THE AUTHORITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE AUTHORITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER. The obligation of the District to make Series 2017 Installment Payments is a special limited obligation of the District payable solely from Net Revenues of the District’s Water System, which consist of Revenues of the District’s Water System remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, on a parity with approximately $7,230,000 aggregate principal amount of the Yorba Linda Water District Refunding Revenue Bonds, Series 2012A. See the captions “SECURITY FOR THE BONDS” and “YORBA LINDA WATER DISTRICT—Outstanding Obligations.” The obligation of the District to make the Series 2017 Installment Payments under the Installment Purchase Agreement is absolute and unconditional, and until such time as all payments required thereunder have been paid in full (or provision for the payment thereof has been made as provided for in the Installment Purchase Agreement), the District will not discontinue or suspend any Series 2017 Installment Payments required to be made by it under the Installment Purchase Agreement when due, whether or not the Water System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and whether or not the 2017 Project has been completed, and such payments will not be subject to reduction whether by offset or otherwise and will not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. THE OBLIGATION OF THE DISTRICT TO MAKE SERIES 2017 INSTALLMENT PAYMENTS PURSUANT TO THE INSTALLMENT PURCHASE AGREEMENT 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 MAKE THE SERIES 2017 INSTALLMENT PAYMENTS IS A SPECIAL LIMITED OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES 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. In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund, if established, on the first day of such Fiscal Year is less than the Series 2017 Installment Payments payable in -ii- such Fiscal Year, to the fullest extent permitted by law, the District will fix and prescribe, at the commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues equal to 125% of Debt Service for such Fiscal Year. When calculated for the foregoing purposes, Net Revenues do not include amounts transferred from the Rate Stabilization Fund, if established, pursuant to the Installment Purchase Agreement that are in excess of 25% of Debt Service for such Fiscal Year. In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund on the first day of such Fiscal Year is at least equal to the Series 2017 Installment Payments payable in such Fiscal Year, to the fullest extent permitted by law, the District will fix and prescribe, at the commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Revenues equal to 125% of the sum of Operating and Maintenance Costs and Non-Operating and Maintenance Costs for such Fiscal Year. When calculated for the foregoing purposes, Revenues do not include any amounts transferred from the Rate Stabilization Fund, if established, pursuant to the Installment Purchase Agreement. See the caption “SECURITY FOR THE BONDS—Rate Covenant.” Additional Indebtedness. The Installment Purchase Agreement does not permit the District to make any additional pledge of, or to place any additional lien, on the Revenues, or any portion thereof, which is senior to the pledge and lien securing the payment of the Series 2017 Installment Payments. The Installment Purchase Agreement does permit the District to incur Parity Bonds and Contracts payable on a parity with the Series 2017 Installment Payments provided that certain conditions are satisfied as described herein. Nothing in the Installment Purchase Agreement precludes the District from entering into obligations which are Operating and Maintenance Costs and, therefore, payable from Revenues prior to the Series 2017 Installment Payments, or from issuing any bonds or executing any contracts the payments under which are payable from Net Revenues on a subordinate basis to Parity Bonds and Contracts of the District. See the caption “SECURITY FOR THE BONDS—Additional Parity Bonds and Contracts.” Redemption. The Bonds are subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity. See the caption “THE BONDS—Redemption.” The District. The District was established in 1959 as a county water district under the County Water District Law, Division 12 of the Water Code of the State of California, as the successor to a private water company that was incorporated in or about 1909, 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 78,500 and currently provides water service to approximately 24,864 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 Bonds. Approximately 94% of the operating revenues of the District for Fiscal Year 2016 were 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.” -iii- The District currently has two primary sources of water: (i) groundwater pumped from local wells; and (ii) 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.” 1 $_____* YORBA LINDA WATER DISTRICT FINANCING AUTHORITY REVENUE BONDS, SERIES 2017A INTRODUCTION This Official Statement, including the front cover page, the inside front cover page and the appendices, provides certain information concerning the sale and delivery of the Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A (the “Bonds”). Descriptions and summaries of various documents that are set forth in this Official Statement 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 such document. Capitalized terms that are used and not otherwise defined in this Official Statement have the meanings ascribed thereto in Appendix B. The Bonds are being issued pursuant to an Indenture of Trust, dated as of _____ 1, 2017 (the “Indenture”), by and between the Yorba Linda Water District Financing Authority (the “Authority”) and U.S. Bank National Association, Los Angeles, California, as trustee (the “Trustee”). The Bonds are limited obligations of the Authority payable solely from Authority Revenues, which consist of payments (the “Series 2017 Installment Payments”) to be made by the Yorba Linda Water District (the “District”) to the Authority pursuant to an Installment Purchase Agreement (the “Installment Purchase Agreement”), dated as of _____ 1, 2017, by and between the District and the Authority, and from amounts on deposit in certain funds and accounts established by the Indenture. The obligation of the District to make Series 2017 Installment Payments is a special limited obligation of the District payable solely from Net Revenues of the District’s Water System (as further described in the following sentence), which consist of Revenues of the District’s Water System remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, on a parity with approximately $7,230,000 aggregate principal amount of the Yorba Linda Water District Refunding Revenue Bonds, Series 2012A (the “2012A Bonds”). The obligation of the District to make Series 2017 Installment Payments 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. See the captions “SECURITY FOR THE BONDS” and “YORBA LINDA WATER DISTRICT—Outstanding Obligations.” The Bonds are being issued to provide funds: (i) to finance the acquisition and construction of certain improvements to the District’s Water System (the “2017 Project”), as described under the caption “THE 2017 PROJECT;” (ii) to refund all of the currently outstanding Yorba Linda Water District Revenue Certificates of Participation (2008 Capital Improvement Projects) Series 2008 (the “Series 2008 Certificates”), as described under the caption “REFUNDING PLAN;” and (iii) to pay costs incurred in connection with the issuance of the Bonds. See the caption “ESTIMATED SOURCES AND USES OF FUNDS.” The District regularly prepares a variety of reports, including audits, budgets and related documents. Any Bond Owner may obtain a copy of such report, as available, from the District. The District has also undertaken to provide annual reports to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System (“EMMA”) pursuant to a continuing disclosure certificate. See the caption “CONTINUING DISCLOSURE” and Appendix E. _______________________ * Preliminary; subject to change. -2- THE 2017 PROJECT The 2017 Project consists of the demolition of the District’s existing Fairmont booster pumping station and the construction of a new Fairmont booster pumping station with an ultimate capacity of 13,000 gallons per minute. The 2017 Project will include the construction of facilities for onsite chlorine generation to provide increased chlorine residual in the District’s water distribution system, the conversion of the Fairmont Reservoir from imported water storage to groundwater storage capability, meeting fire suppression capacity and water service demand in the District’s northern and eastern areas and constructing on-site yard piping and approximately 1,000 feet of pipeline under Fairmont Boulevard within the District’s service area. The District expects to use existing reserves to fund any portion of 2017 Project costs that is not funded from Bond proceeds. On February 4, 2015, the District approved a Notice of Determination with respect to the 2017 Project in accordance with State of California (the “State”) law. The District did not receive notice of intent to challenge the Notice of Determination from any party. The District expects to comply with all governmental approval, public bidding and other permitting requirements for each component of the 2017 Project as required by law. Pursuant to the Installment Purchase Agreement, the District may substitute or add additional projects to the Project. See Appendix B under the caption “INSTALLMENT PURCHASE AGREEMENT— Acquisition and Construction of Projects—Changes to the 2017 Project.” REFUNDING PLAN Series 2008 Certificates The District caused the execution and delivery of the Series 2008 Certificates, which are currently outstanding in the aggregate principal amount of $29,070,000, pursuant to a Trust Agreement, dated as of February 1, 2008 (the “2008 Trust Agreement”), by and among the District, Yorba Linda Water District Public Financing Corporation (the “Corporation”) and U.S. Bank National Association, as trustee (the “2008 Trustee”). The Series 2008 Certificates are payable from installment payments made under the Installment Purchase Agreement, dated as of February 1, 2008 (the “2008 Installment Purchase Agreement”), by and between the District and the Corporation. The District plans to apply a portion of the proceeds of the Bonds to refund the Series 2008 Certificates in full. Under an Escrow Agreement (2008 Certificates), dated as of _____ 1, 2017 (the “2008 Escrow Agreement”), by and between the District and the 2008 Trustee, the District will deliver a portion of the proceeds of the Bonds, together with amounts on deposit for the Series 2008 Certificates, to the 2008 Trustee for deposit in the escrow fund established under the 2008 Escrow Agreement (the “2008 Escrow Fund”). The 2008 Trustee will invest a portion of the amounts deposited in the 2008 Escrow Fund in Federal Securities as set forth in the 2008 Escrow Agreement. From the maturing principal of the Federal Securities and related investment income and other moneys on deposit in the 2008 Escrow Fund, the 2008 Trustee will pay on October 1, 2017 the principal of the Series 2008 Certificates maturing on and after October 1, 2017, plus interest accrued to such date, without premium. Sufficiency of the deposits in the 2008 Escrow Fund for such purposes will be verified by Grant Thornton LLP, Minneapolis, Minnesota (the “Verification Agent”). Assuming the accuracy of such computations, as a result of the deposit and application of funds as provided in the 2008 Escrow Agreement, the Series 2008 Certificates will be defeased pursuant to the provisions of the 2008 Installment Purchase Agreement and the 2008 Trust Agreement under which the Series 2008 Certificates were delivered, as of the date of issuance of the Bonds. -3- The amounts held and invested by the 2008 Trustee in the 2008 Escrow Fund are pledged solely to the payment of the Series 2008 Certificates. Neither the funds deposited in the 2008 Escrow Fund nor the interest on the invested funds will be available for the payments of principal of and interest on the Bonds. Verification Upon issuance of the 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 the prepayment price of the Series 2008 Certificates on October 1, 2017; and (b) the computations of yield of the Bonds and the Federal Securities which support Bond Counsel’s opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds in connection with the issuance of the Bonds: Sources(1) Principal Amount of Bonds $ Plus/Less Net Original Issue Premium/Discount Transferred Moneys(2) Total Sources $ Uses(1) Deposit to Acquisition Fund $ Deposit to 2008 Escrow Fund Costs of Issuance(3) Total Uses $ (1) Amounts rounded to the nearest dollar. Totals may not add due to rounding. (2) Reflects moneys transferred from funds and accounts established in connection with the Series 2008 Certificates. (3) Includes certain legal, financial advisory, financing, rating agency, Verification Agent and Trustee fees, Underwriter’s discount and printing costs. THE BONDS General Provisions The Bonds will be issued in the aggregate principal amount of $_____.* The Bonds will bear interest from and be dated the date of initial issuance, and will be payable upon maturity on the dates set forth on the inside front cover page hereof. Interest on the Bonds will be payable on October 1, 2017 and each April 1 and October 1 thereafter. Interest will be calculated at the rates set forth on the inside front cover page hereof and on the basis of a year of 360 days comprised of twelve 30 day months. The Bonds will be delivered 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 Bonds. Ownership interests in the Bonds may be purchased in book-entry form only in denominations of $5,000 or any integral multiple thereof. See the caption “— Book-Entry Only System” and Appendix D. _______________________ * Preliminary; subject to change. -4- In the event that the book-entry only system that is described below is discontinued, the principal of and interest on any Bond will be 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. Such principal and interest will be payable in lawful money of the United States of America. Book-Entry Only System One fully-registered Bond will be issued for each maturity of the Bonds in the principal amount of the Bonds of such maturity. It will be registered in the name of Cede & Co. and will be deposited with DTC. As long as the ownership of the Bonds is registered in the name of Cede & Co., the term “Owner” as used in this Official Statement will refer to Cede & Co. and not to the actual purchasers of the Bonds (the “Beneficial Owners”). The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the 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 Authority cannot and does not give any assurances that DTC participants or others will distribute payments with respect to the 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 for additional information concerning DTC. Transfers and Exchanges Upon Termination of Book-Entry Only System In the event that the book-entry system described above is discontinued, the Bonds will be printed and delivered as provided in the Indenture. Thereafter, any 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 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 is not required to register the transfer of any Bond during the period in which the Trustee is selecting Bonds for redemption and any Bond that has been selected for redemption. Whenever any Bond is surrendered for transfer, the Authority will execute and the Trustee will authenticate and deliver a new Bond or Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee will require the 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 Bonds, the Trustee will cancel and destroy the Bonds it has received. 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 is not required to exchange any Bond during the period in which the Trustee is selecting Bonds for redemption and any Bond that has been selected for redemption. The Trustee will require the 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 Bonds, the Trustee will cancel and destroy the Bonds it has received. Redemption Optional Redemption. The Bonds with stated maturities on or after October 1, 20__, are subject to redemption prior to their respective stated maturities, as a whole or in part as directed by the Authority in a 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) and by lot within each maturity -5- in integral multiples of $5,000, on _____ 1, 20__ or any date thereafter 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 Bonds with stated maturities on October 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on October 1, 20__ and each October 1 thereafter, 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: Redemption Date (October 1) Principal Amount $ * * Final Maturity. Extraordinary Redemption from Net Proceeds of Condemnation or Insurance. The 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 Authority in a 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 in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, the Installment Purchase Agreement, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered and of the same series, interest rate and maturity. Selection of Bonds for Redemption Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee will select the Bonds for redemption as a whole or in part on any date as directed by the Authority and by lot within each maturity in integral multiples of $5,000 in accordance with the provisions set forth above under the caption “—Redemption.” The Trustee will promptly notify the Authority in writing of the numbers of the Bonds or portions thereof so selected for redemption. Notice of Redemption Notice of redemption will be mailed by first class mail not less than 20 days before any Redemption Date, to the respective Owners of any 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, in the case of 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 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 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 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 -6- validity of the redemption of any Bond. Notice of redemption of Bonds will be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority. With respect to any notice of optional redemption of Bonds, such notice may 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 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 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. Effect of Redemption Notice of redemption having been duly given as described above under the caption “—Notice of Redemption,” and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption will become due and payable, interest on the Bonds so called for redemption will cease to accrue, said Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of said Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof. The Trustee will, upon surrender for payment of any of the Bonds to be redeemed on their Redemption Dates, pay such Bonds at the Redemption Price. All Bonds redeemed pursuant to the provisions of the Indenture will be canceled upon surrender thereof. -7- DEBT SERVICE SCHEDULE Set forth below is a schedule of Series 2017 Installment Payments and payments on the 2012A Bonds for each annual period ending on June 30 the years indicated. See the caption “YORBA LINDA WATER DISTRICT—Outstanding Obligations” for further information with respect to the 2012A Bonds. Series 2017 Installment Payments Total Series 2017 Installment Payments and 2012A Bonds Period Ending June 30 Principal Interest Total 2012A Bonds(1) 2017 $ $ $ $ 588,487.50 $ 2018 588,312.50 2019 591,212.50 2020 583,712.50 2021 590,712.50 2022 586,250.00 2023 585,387.50 2024 582,912.50 2025 583,662.50 2026 583,412.50 2027 587,037.50 2028 584,537.50 2029 581,037.50 2030 583,937.50 2031 585,962.50 2032 584,987.50 2033 587,787.50 2034 584,343.75 2035 - 2036 - 2037 - 2038 - Total $ $ $ $10,543,693.75 $ (1) See the caption “YORBA LINDA WATER DISTRICT—Outstanding Obligations.” Source: Underwriter. SECURITY FOR THE BONDS General Each Bond is a special limited obligation of the Authority payable solely from Authority Revenues, which consist of Series 2017 Installment Payments to be made by the District under the Installment Purchase Agreement, and from certain other funds and accounts established pursuant to the Indenture. NEITHER THE FULL FAITH AND CREDIT NOR ANY OTHER REVENUES OR FUNDS OF THE AUTHORITY ARE PLEDGED TO OR AVAILABLE FOR THE PAYMENT OF DEBT SERVICE ON THE BONDS. THE OBLIGATION OF THE AUTHORITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE AUTHORITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER. The Authority has assigned substantially all of its right, title and interest in the Installment Purchase Agreement to the Trustee pursuant to the Indenture, for the benefit of the Owners of the Bonds, including its right to receive Series 2017 Installment Payments and its rights as may be necessary to enforce payment of the Series 2017 Installment Payments when due. -8- Series 2017 Installment Payments Payable From Net Revenues All of the Authority Revenues and any other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund) have been irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the Bonds in accordance with their terms and the provisions of the Indenture, subject only to the provisions of the Indenture permitting the terms and conditions set forth therein. Such pledge constitutes a lien on and security interest in such amounts and will attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and will be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the Authority, irrespective of whether such parties have notice hereof. The obligation of the District to pay the Series 2017 Installment Payments is payable solely from Net Revenues of the District’s Water System (as further described in the following sentence) on a parity with the obligation of the District to make payments with respect to approximately $7,230,000 aggregate principal amount of 2012A Bonds. See the caption “YORBA LINDA WATER DISTRICT—Outstanding Obligations” for a discussion of the 2012A Bonds. The obligation of the District to pay the Series 2017 Installment Payments 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. All Revenues (as such term is defined in Appendix B under the caption “INSTALLMENT PURCHASE AGREEMENT—Definitions”) of the District’s Water System and all amounts on deposit in the Revenue Fund have been irrevocably pledged to the payment of the Series 2017 Installment Payments as provided in the Installment Purchase Agreement. The Revenues will not be used for any other purpose while any of the Series 2017 Installment Payments remain unpaid; provided that out of the Revenues there may be apportioned such sums for such purposes as are expressly permitted in the Installment Purchase Agreement, including but not limited to the payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs of the Water System. Such pledge, together with the pledge created by all other Bonds and Contracts (as such terms are defined in Appendix B under the caption “INSTALLMENT PURCHASE AGREEMENT—Definitions” and referred to in the forepart of this Official Statement as “Parity Bonds and Contracts” or “Parity Bonds or Contracts,” as applicable), constitutes a lien on Revenues and, subject to application of Revenues and all amounts on deposit in the Revenue Fund as permitted in the Installment Purchase Agreement, the Revenue Fund and other funds and accounts created thereunder for the payment of the Series 2017 Installment Payments and all other Parity Bonds and Contracts in accordance with the terms thereof and of the Indenture. Notwithstanding anything contained in the Installment Purchase Agreement, the District is not required to advance any moneys derived from any source of income other than the Revenues and the Revenue Fund for the payment of amounts due under the Installment Purchase Agreement or for the performance of any agreements or covenants required to be performed by it contained therein. The District may, however, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose. THE OBLIGATION OF THE DISTRICT TO MAKE SERIES 2017 INSTALLMENT PAYMENTS PURSUANT TO THE INSTALLMENT PURCHASE AGREEMENT 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 MAKE THE SERIES 2017 INSTALLMENT PAYMENTS IS A SPECIAL LIMITED OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES OF THE DISTRICT’S WATER SYSTEM AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT OR OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF IN -9- CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. Rate Covenant While 2012A Bonds Outstanding. While the 2012A Bonds are outstanding, the District is obligated to comply with the following rate covenant: The District, to the fullest extent permitted by law, will fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of each Fiscal Year, to be at least sufficient to yield during each Fiscal Year Net Revenues equal to 125% 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. When 2012A Bonds No Longer Outstanding. When the 2012A Bonds are no longer outstanding, the District will comply with the following rate covenant set forth in the Installment Purchase Agreement: In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund, if established, on the first day of such Fiscal Year is less than the Series 2017 Installment Payments payable in such Fiscal Year, to the fullest extent permitted by law, the District will fix and prescribe, at the commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues equal to 125% of Debt Service for such Fiscal Year. When calculated for the foregoing purposes, Net Revenues do not include amounts transferred from the Rate Stabilization Fund, if established, pursuant to the Installment Purchase Agreement that are in excess of 25% of Debt Service for such Fiscal Year. In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund on the first day of such Fiscal Year is at least equal to the Series 2017 Installment Payments payable in such Fiscal Year, to the fullest extent permitted by law, the District will fix and prescribe, at the commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Revenues equal to 125% of the sum of Operating and Maintenance Costs and Non-Operating and Maintenance Costs for such Fiscal Year. When calculated for the foregoing purposes, Revenues do not include any amounts transferred from the Rate Stabilization Fund, if established, pursuant to the Installment Purchase Agreement. The District may make, or permit to be made, adjustments from time to time in such rates, fees and charges and may make, or permit to be made, such classification thereof as it deems necessary, but may not reduce or permit to be reduced such rates, fees and charges below those then in effect, unless the Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements. No Reserve Fund Neither the Installment Purchase Agreement nor the Indenture establishes a debt service reserve fund for the Bonds. Additional Parity Bonds and Contracts While 2012A Bonds Outstanding. While the 2012A Bonds are outstanding, the District is obligated to comply with the following covenants in order to issue additional obligations on a parity with the 2012A Bonds and the Bonds: -10- The District may at any time issue or execute any Parity Bonds or Contracts, as the case may be, payable from Net Revenues on a parity with the 2012A Bonds and the Bonds and secured by a pledge of and lien on Revenues as described in the Installment Purchase Agreement, provided that: (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, or the date of the execution of, such Parity Bonds or 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 125% 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 adoption by the Board of the resolution authorizing the issuance of, or the date of the execution of, such Parity Bonds or Contract, 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 125% of the Debt Service for such twelve month period plus the Debt Service which would have accrued on any Parity Bonds or Contracts issued or executed since the end of such twelve month period assuming that such Parity Bonds or Contracts had been issued or executed 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 Parity Bonds or Contract, 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 Parity 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 sum equal to at least 125% of the estimated Debt Service for each of such Fiscal Years, after giving effect to the issuance or execution, as applicable, of all Parity Bonds and Contracts 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 Parity Bonds and Contract have maturities, interest rates and proportionate principal repayment provisions similar to the Parity Bonds or Contracts last issued or executed or then being executed or issued, as applicable, for the purpose of acquiring and constructing any of such uncompleted Projects. Notwithstanding the foregoing, Parity Bonds or Contracts issued or executed to refund Parity Bonds or 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 Parity Bonds or Contracts are issued or executed, as applicable, is not greater than Debt Service would have been in each such Fiscal Year prior to the issuance or execution of such Parity Bonds or Contracts. When 2012A Bonds No Longer Outstanding. When the 2012A Bonds are no longer outstanding, the District will comply with the following covenants set forth in the Installment Purchase Agreement in order to issue additional obligations on a parity with the Bonds: The District may at any time issue or execute any Parity Bonds or Contracts, as the case may be, payable from Net Revenues on a parity with the Bonds and secured by a pledge of and lien on Revenues as described in the Installment Purchase Agreement, provided that: (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 of the resolution -11- authorizing the issuance of, or the date of the execution of, such Parity Bonds or 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, produce a sum equal to at least 125% of the Debt Service for such twelve month period. When calculated for the foregoing purposes, Net Revenues do not include amounts transferred from the Rate Stabilization Fund, if established, to the Revenue Fund pursuant to the Installment Purchase Agreement that are in excess of 25% of Debt Service for such Fiscal Year; and (b) 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 of the resolution authorizing the issuance of, or the date of the execution of, such Parity Bonds or Contract, 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, produce a sum equal to at least 125% of the Debt Service for such twelve month period, plus the Debt Service which would have accrued on any Parity Bonds and Contracts issued or executed since the end of such twelve month period assuming that such Parity Bonds and Contracts had been issued at the beginning of such twelve month period, plus the Debt Service which would have accrued had such proposed additional Parity Bonds or Contract been executed issued at the beginning of such twelve month period. When calculated for the foregoing purposes, Net Revenues do not include amounts transferred from the Rate Stabilization Fund, if established, to the Revenue Fund pursuant the Installment Purchase Agreement that are in excess of 25% of Debt Service for such Fiscal Year; 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 Parity Bonds or Contract, 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, produce a sum equal to at least 125% of the estimated Debt Service for each of such Fiscal Years, after giving effect to the issuance or execution, as applicable, of all Parity Bonds and Contracts 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 Parity Bonds and Contract have maturities, interest rates and proportionate principal repayment provisions similar to the Parity Bonds or Contracts last issued or executed or then being executed or issued, as applicable, for the purpose of acquiring and constructing any of such uncompleted Projects. Notwithstanding the foregoing, Parity Bonds or Contracts issued or executed to refund Parity Bonds or 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 Parity Bonds or Contracts are issued or executed, as applicable, is not greater than Debt Service would have been in each such Fiscal Year prior to the issuance or execution of such Parity Bonds or Contracts. Rate Stabilization Fund The District is authorized but not required to establish a special fund designated as the “Rate Stabilization Fund.” If the District elects to establish a Rate Stabilization Fund, such fund will be held by the District in trust under the Installment Purchase Agreement. The District has agreed and covenanted to maintain and to hold such fund, if established, separate and apart from other funds so long as any Parity Bonds or Contracts remain unpaid. Money transferred by the District from the Revenue Fund to the Rate Stabilization Fund, if established, in accordance the Installment Purchase Agreement will be held in the Rate Stabilization Fund and applied in accordance with the Installment Purchase Agreement. -12- The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund, if established, and transfer such amounts to the Revenue Fund for application in accordance with the Installment Purchase Agreement or, in the event that all or a portion of the Series 2017 Installment Payments are discharged in accordance with the Installment Purchase Agreement, transfer all or any portion of such amounts for application in accordance with the Installment Purchase Agreement. Any such amounts transferred from the Rate Stabilization Fund, if established, to the Revenue Fund in accordance with the Installment Purchase Agreement constitute pledged Revenues; provided, however, that so long as the 2012A Bonds are outstanding, moneys transferred from the Rate Stabilization Fund, if established, to the Revenue Fund, may be applied to pay Debt Service, but may not be counted for purposes of the District’s compliance with the rate covenant that is set forth in the indenture for the 2012A Bonds or the additional debt test that is set forth in the indenture for the 2012A Bonds. See the captions “—Rate Covenant—While 2012A Bonds Outstanding” and “—Additional Parity Bonds and Contracts—While 2012A Bonds Outstanding.” YORBA LINDA WATER DISTRICT General The District was established in 1959 as a county water district under the County Water District Law, Division 12 of the Water Code of the State of California, as the successor to a private water company that was incorporated in or about 1909, 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 78,500 and currently provides water service to approximately 24,864 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 Series 2017 Installment Payments. Approximately 94% of the operating revenues of the District for Fiscal Year 2016 were 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. The District currently has two primary sources of water: (i) groundwater pumped from local wells; and (ii) imported water purchased from the Municipal Water District of Orange County (“MWDOC”) and delivered by The Metropolitan Water District of Southern California (“MWD”). See the caption “WATER SUPPLY.” Prior to May 2014, approximately 26% of the District’s service area was outside of the boundaries of the Orange County Water District (“OCWD”), the agency responsible for managing the Orange County Groundwater Basin. See the caption “WATER SUPPLY—General—Groundwater.” In May 2014, the District’s application to annex such portions of the District’s service area into OCWD was approved. It is anticipated that the annexation will ultimately allow the District to pump a higher percentage of its water supply from the Orange County Groundwater Basin at a lower cost than purchasing the same amount of water from MWDOC, thereby reducing the District’s dependence on drought-sensitive imported water from northern California and the Colorado River. The District expects to be able to take full advantage of the annexation of its entire service area into OCWD after 2018. Currently, there are two limiting factors that prevent the District from achieving the basin -13- production percentage set by OCWD (as described under the caption “WATER SUPPLY—General— Groundwater”): (i) the annexation agreement between OCWD and the District, which limits the District’s BPP to a maximum of 70%; and (ii) the limitations of existing water distribution infrastructure. As described under the caption “THE WATER SYSTEM—Future Water System Improvements,” the District’s capital improvement program includes the construction of pumping, pipeline and well facilities over the next two years that will make it possible for the District to access its full allotment of groundwater. In addition, the District has entered into a Conjunctive Use Program Agreement (the “CUP”) with MWD, which requires the District to withdraw water in excess of the basin production percentage and to pay for such water at current imported water rates after subtracting power and operations and maintenance charges. The CUP authorizes MWD to compel the District to extract water from the Orange County Groundwater Basin in times of drought when MWD’s traditional sources (including the Colorado River and northern California supplies) are less plentiful. Under the CUP, MWD may only call upon such water if it has sufficient storage in the Orange County Groundwater Basin. The maximum amount that the District is obligated to produce under the CUP is approximately 2,000 acre feet in any 12 month period. Land and Land Use The District currently includes approximately 14,475 acres of land. 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 members, the expiration dates of their terms and their occupations are set forth below. In the November 2016 Board election, two members of the previous Board were recalled and two other members of the previous Board were not reelected. The sponsors of the recall effort included the named plaintiffs in the now-concluded legal action related to the District’s rate structure that is described under the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” Board of Directors Member Expiration of Term Occupation J. Wayne Miller, Ph.D, President November 2020 Corporate Executive Al Nederhood, Vice President November 2018 Retired College President Phil Hawkins, Director November 2018 Real Estate Broker Andrew J. Hall, Director November 2020 Sanitation Engineer Brooke Jones, Director November 2018 Engineer Day-to-day management of the District is delegated to the General Manager, Marc Marcantonio. Mr. Marcantonio has served as the District’s General Manager since September 2014. He is responsible for the daily operations of the 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 General Manager, Mr. Marcantonio served as General Manager of the Mt. View-Edgewood Water Company in Washington State and as President of the Regional Water Cooperative of Pierce County, an association of 25 water and wastewater agencies in the greater Seattle area. Mr. Marcantonio retired from the United States Army as a Lieutenant Colonel after 23 years of active duty, including 20 years with the California National Guard. -14- Delia Lugo is the Finance Manager of the District. Ms. Lugo was named Finance Manager in 2013 and manages the Finance Department, which consists of the Accounting, Customer Service and Meter Reading sections. Prior to being named Finance Manager, Ms. Lugo served as Senior Accountant for the District. Ms. Lugo has a Bachelor of Arts degree from California State University, Fullerton, with an emphasis in Financial Management. Employees and Employee Benefits General. As of June 30, 2016, the District had 77 full-time equivalent employees, including 6 employees in the Administration Department, 10 employees in the Engineering Department, 12 employees in the Finance Department, 6 employees in the Human Resources Department, 5 employees in the Information Technology Department and 38 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 expires on June 30, 2018. The District has not experienced any strikes or other labor actions. Of the total District employment, approximately 89% of the associated costs are chargeable to the Water System. Pension Benefits. This caption contains certain information relating to the California Public Employees Retirement System (“CalPERS”). The information is primarily derived from information produced by CalPERS, its independent accountants and its actuaries. The District has not independently verified the information provided by CalPERS and makes no representations nor expresses any opinion as to the accuracy of the information provided by CalPERS. The comprehensive annual financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information concerning benefits and other matters. The textual reference to such Internet website is provided for convenience only. None of the information on such Internet website is incorporated by reference herein. The District cannot guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. The District participates in the 2.0% at 55, 2.0% at 60 and 2.0% at 62 CalPERS Risk Pools, 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. 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. Employees who are enrolled in this plan are responsible for the full amount of the annual required contributions (7% of their annual covered salary) themselves. District employees who were hired on or after December 22, 2011 and prior to January 1, 2013, and employees who are defined as “Classic” members of CalPERS, participate in the 2.0% at 60 Risk Pool Retirement Plan at a contribution rate of 7% of their annual covered salary. Employees who are enrolled in this plan are responsible for the full amount of the annual required contributions (7% of their annual covered salary) themselves. District employees who were hired on and after January 1, 2013, and who are defined as “New” members of CalPERS, participate in the District’s 2.0% at 62 Risk Pool Retirement Plan; such employees are required to make the full amount of required contributions themselves under the California Public Employees’ Pension Reform Act of 2013 (“AB 340”), which was signed by the State Governor on September 12, 2012. AB 340 established a new pension tier (2.0% at 62 formula) with a maximum benefit formula of 2.5% at age -15- 67. Benefits for such participants are calculated on the highest average annual compensation over a consecutive 36 month period. Employees in this plan are required to pay at least 50% of the total normal cost rate, which is set annually by CalPERS. AB 340 also caps pensionable income for 2016 at $117,020 ($140,424 for employees not enrolled in Social Security) subject to Consumer Price Index increases and prohibits retroactive benefits increases, generally prohibiting contribution holidays and purchases of additional non-qualified service credit. CalPERS estimates savings for local agency plans as a result of AB 340 of approximately $1.653 billion to $2.355 billion over the next 30 years, primarily due to increased employee contributions and, as the workforce turns over, lower benefit formulas that will gradually reduce normal costs. Savings specific to the District have not been quantified. Provisions in AB 340 will not likely have a material effect on District contributions in the short term. However, additional employee contributions, limits on pensionable compensation and higher retirement ages for new members will reduce the District’s unfunded pension liability and potentially reduce District contribution levels in the long term. The District is also required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The total minimum required employer contribution is the sum of each plan’s Employer Contribution Rate (express as a percentage of payroll) plus the Employer Unfunded Accrued Liability (“UAL”) Contribution Amount (in dollars). Beginning in Fiscal Year 2016, contributions to each employer’s plan for the UAL portion will be paid either over a 12 month period or as a prepaid lump sum. Employers that opt to prepay each plan’s UAL portion will experience annual cash flow savings. The District’s required Employer Contribution Rates for Fiscal Year 2016 (expressed as a percentage of payroll) were 8.512% for the 2.0% at 55 plan, 7.163% for the 2.0% at 60 plan and 6.237% for the 2.0% at 62 plan. The District opted to prepay in a lump sum the UAL portion of its required Employer Contribution Amounts of $206,605 for the 2.0% at 55 plan, $14 for the 2.0% at 60 plan and $0 for the 2.0 at 62 plan, which resulted in annual cash flow savings to the District of $7,607. 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 2016, 2015, 2014 and 2013, the District’s combined annual employer’s contributions for all of its CalPERS plans were $674,827, $587,176, $537,843 and $505,243, respectively, and were equal to the District’s required and actual contributions for each year. The required employer contribution for Fiscal Year 2016 was determined as part of the June 30, 2013, actuarial valuation of the District’s CalPERS plans using the Entry Age Normal Actuarial Cost Method. The actuarial assumptions for the June 30, 2013 valuation included: (a) 7.50% investment rate of return (net of administrative expenses); (b) projected annual salary increases that vary from 3.30% to 14.20%; and (c) a 2.75% inflation component. The actuarial value of CalPERS assets was determined using a technique that smoothes the effect of volatility in the market value of investments over a fifteen-year period. CalPERS’ initial unfunded liabilities are amortized over a closed period that depends on the plan’s date of entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. 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 2017, the District’s CalPERS annual employer contribution is expected to be $800,098, assuming budgeted salaries. The District’s required Employer Contribution Rates for Fiscal Year 2017, expressed as a percentage of payroll, are 8.880%, 7.612% and 6.555% of annual covered payroll for the 2.0% at 55 plan, 2.0% at 60 plan and 2.0% at 62 plan, respectively; and the required UAL portion of the Employer Contribution Prepayment Amounts is $251,346, $104 and $498 for the 2.0% at 55 plan, 2.0% at 60 plan and 2.0% at 62 plan, respectively. -16- The District had an unfunded accrued liability of $5,926,324 for its CalPERS plan as of June 30, 2015, based on a market value of assets of $26,135,966, as set forth in the most recent actuarial report prepared by CalPERS. 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 dated August 2016 covered the District’s Fiscal Year ended June 30, 2015). 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, 2014 which was delivered in November 2015, affects the District’s Fiscal Year 2017 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 UAL. 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 UAL represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at CalPERS and the present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement. The UAL 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 UAL 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 UAL 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. Commencing with the June 30, 2013 valuation, all new gains or losses are tracked and amortized over a fixed 30-year period with a five year ramp up at the beginning and a five year ramp down at the end of the amortization period. All changes in liability due to plan amendments (other than “golden handshakes,” which are amortized over a five year period), changes in actuarial assumptions, or changes in actuarial methodology are amortized separately over a 20-year period with a five year ramp up at the beginning and a five-year ramp down at the end of the amortization period. 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 (currently 7.50%)). The CalPERS actuary uses a smoothing technique to determine Actuarial Value that is calculated based on certain policies. Certain significant recent changes in assumptions include the following. On December 21, 2016, the CalPERS Board voted to lower its discount rate from the current rate of 7.50% to 7.00% over the next three years according to the following schedule. Fiscal Year Discount Rate 2017-18 7.375% 2018-19 7.250 2019-20 7.000 For public agencies such as the District, the new discount rate will take effect July 1, 2018. Lowering the discount rate means that employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013 will also see their contribution rates rise under AB 340. The three-year reduction of the discount rate will result in average employer rate increases of approximately 1% to 3% of normal cost as a percentage of payroll -17- for most miscellaneous retirement plans such as those of the District. Additionally, many employers will see a 30% to 40% increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring pension funds to a fully funded status over the long-term. On November 17, 2015, the CalPERS Board approved changes that could affect the assumed investment return rate in the future. In years in which CalPERS’ investment returns are more than 2% greater than forecast, the long-term assumed investment return rate will be reduced by a maximum of 0.25%. CalPERS estimates that this change will reduce the assumed investment return rate by approximately 1% (to 6.5%) within 20 years. On February 18, 2014, the CalPERS Board approved changes to actuarial assumptions and methods based upon a recently completed experience study. These changes include: moving from using smoothing of the market value of assets to obtain the actuarial value of assets to direct smoothing of employer contribution rates; increased life expectancy; changes to retirement ages (earlier for some groups and later for others); lower rates of disability retirement; and other changes. On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS amortization and rate smoothing policies. Beginning with the June 30, 2013 valuations (which set the Fiscal Year 2016 rates), CalPERS employs an amortization and smoothing policy that pays for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a five- year period. CalPERS no longer uses the actuarial value of assets and only uses the market value of assets. This direct rate smoothing method is equivalent to a method using a five year asset smoothing period with no actuarial value of asset corridor and a 25-year amortization period for gains and losses. 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 impacted the inflation component of the annual investment return assumption and the long term payroll growth assumption as follows: • The annual assumed investment return decreased from 7.75% to 7.50%. • The long term payroll growth assumption decreased from 3.25% to 3.00%. • The inflation component of individual salary scales decreased from 3.25% to 3.00%. Such contributions have been factored into the District’s contribution rates set by CalPERS. Future changes in CalPERS funding policies and assumptions, including those related to assumed rates of investment return and inflation, could trigger increases in the District’s annual required contributions, and such increases could be material to the finances of the Water System. Reporting obligations under Governmental Accounting Standards Board Statement No. 68 (“GASB 68”) commenced with financial statements for Fiscal Year 2015. Under GASB 68, an employer reports the net pension liability, pension expense and deferred outflows/deferred inflows of resources (as such terms are described in the following paragraph) related to pensions in its financial statements as part of its financial position. As a result of this change in accounting standards, the District’s total net position decreased by approximately $7.2 million in Fiscal Year 2015, primarily due to an adjustment of approximately $6.9 million to the unrestricted net position balance as a result of the adoption of GASB 68. The net pension liability is the plan’s total pension liability based on the Entry Age Normal Actuarial Cost Method less the plan’s fiduciary net position. The pension expense is the change in net pension liability from the previous fiscal year to the current fiscal year, less adjustments. Deferred outflows and deferred inflows of resources related to pensions are certain changes in total pension liability and fiduciary net position -18- that are to be recognized in future pension expense. Under GASB 68, deferred inflows and deferred outflows of resources related to pensions are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year in which the gain or loss occurs. The remaining amounts are categorized as deferred inflows and deferred outflows to be recognized in future pension expense. GASB 68 is a change in accounting reporting standards, but it does not change the District’s CalPERS plan funding obligations. See Note 7 in Appendix A for further information with respect to the District’s Proportionate Share of Net Pension Liability for GASB 68 reporting. The total changes in the net pension liability for the District’s CalPERS plan were as follows: YORBA LINDA WATER DISTRICT CHANGES IN NET PENSION LIABILITY / (ASSET) Increase / (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability / (Asset) Balance at June 30, 2015 $30,007,370 $24,914,744 $5,092,626 Balance at June 30, 2016 $31,776,496 $26,487,174 $5,289,322 Net Changes during Fiscal Year 2015-16 $ 1,769,126 $ 1,572,430 $ 196,696 Source: District. The following table presents the net pension liability of the District’s CalPERS plan, calculated using the discount rate of 7.65%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.65%) or 1 percentage point higher (8.65%) than the current rate. YORBA LINDA WATER DISTRICT SENSITIVITY OF THE NET PENSION LIABILITY TO CHANGES IN THE DISCOUNT RATE Discount Rate – 1% (6.65%) Current Discount Rate (7.65%) Discount Rate + 1% (8.65%) Plan’s Net Pension Liability/(Asset) $9,616,857 $5,289,322 $1,716,439 Source: District. The following table summarizes the District’s annual required contributions for its CalPERS plan for Fiscal Years 2012 through 2016: -19- Fiscal Year Employer Contribution District-Funded Employee Contribution Employee Contribution Annual Pension Cost Percentage of Annual Pension Cost Contributed 2012 $549,308 $333,408 $ 942 $ 883,658 100% 2013 505,243 244,475 103,320 853,038 100 2014 537,843 114,713 246,612 899,168 100 2015 587,176 0 383,504 970,680 100 2016 674,827 0 401,822 1,076,649 100 Source: CalPERS Contribution Summary Report. The following table summarizes the schedule of funding for all District plans as of June 30, 2015. The District’s required Employer Contribution Rates for Fiscal Year 2017, expressed as a percentage of payroll, are 8.880%, 7.612% and 6.555% of annual covered payroll for the 2.0% at 55 plan, 2.0% at 60 plan and 2.0% at 62 plan, respectively; and the required UAL portion of the Employer Contribution Prepayment Amounts is $251,346, $104 and $498 for the 2.0% at 55 plan, 2.0% at 60 plan and 2.0% at 62 plan, respectively. Valuation Date (June 30) Accrued Liability Market Value of Assets Unfunded Liability Funded Ratio Annual Covered Payroll 2010 $25,148,893 $22,392,702 $2,756,191 89.0% $5,643,289 2011 25,412,948 20,098,223 5,314,725 79.1 5,011,006 2012 25,751,755 19,228,607 6,523,148 74.7 5,027,288 2013 26,981,627 21,929,626 5,052,001 81.4 4,907,053 2014 30,605,913 26,178,857 4,427,056 85.5 5,184,402 2015 32,062,290 26,135,966 5,926,324 81.6 5,532,136 Source: CalPERS Actuarial Valuation Report Dated June 30, 2015. For additional information relating to the District’s CalPERS plan, see Note 7 to the District’s audited financial statements for Fiscal Year 2016 attached hereto as Appendix A. CalPERS earnings reports for Fiscal Years 2010 through 2015 report an investment gain in excess of 13.0%, 21.7%, 1%, 12.5%, 18.4% and 2.4%, respectively, with a preliminary return of 0.61% reported for Fiscal Year 2016. 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, have a minimum of 5 years of service with the District and were employed by the District prior to December 8, 2011. 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 -20- provided for the surviving spouse of retired employees for the remaining vested period. The OPEB plan does not provide a publicly available financial report. 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 has established a trust fund to fund future OPEB obligations. In Fiscal Years 2016, 2015 and 2014, the District made contributions of $211,867, $192,919 and $187,756 to the OPEB trust fund. The District has budgeted $217,693 to contribute to the OPEB trust fund in Fiscal Year 2017. 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 Fiscal Year 2016, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation: OPEB ARC $ 211,867 Interest on Net OPEB Obligation (9,989) Adjustment to OPEB ARC 11,500 Annual OPEB Cost (Expense) 213,378 OPEB Contribution (211,867) Actual Contributions Made (135,100) Increase in Net OPEB Obligation 133,589 Net OPEB Asset – Beginning of Year (142,700) Net OPEB Asset – End of Year (276,289) The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the OPEB plan, and the net OPEB obligation for the last five Fiscal Years were as follows: Fiscal Year Ended June 30 Annual OPEB Costs Percentage of Annual OPEB Costs Contributed Net OPEB Obligation (Asset) 2012 $164,390 194.10% $(32,630) 2013 170,501 163.87 (140,364) 2014 189,177 99.25 (138,943) 2015 189,162 101.99 (142,700) 2016 213,378 162.61 (276,289) As of July 1, 2015, the District’s OPEB plan was 34.75% funded. The actuarial accrued liability for benefits was $2,136,644 and the actuarial value of assets was $742,379, resulting in an unfunded actuarial accrued liability (the “OPEB UAL”) of $1,394,265. The covered payroll (annual payroll of active employees covered by the plan) was $5,564,327 and the ratio of the OPEB UAL to the covered payroll was 25.06%. 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 and 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 -21- 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. Valuation Date Actuarial Accrued Liability (a) Actuarial Value of Assets (b) OPEB UAL (a) – (b) Funded Ratio (b) / (a) Annual Covered Payroll OPEB UAL as Percentage of Annual Covered Payroll 6/30/2011 $1,597,488 $164,291 $1,433,197 10.28% $4,773,686 30.02% 7/01/2013 1,896,791 537,913 1,358,878 28.36 5,200,000 26.13 7/01/2015 2,136,644 742,379 1,394,265 34.75 5,564,327 25.06 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, future changes in OPEB funding policies and assumptions, including those related to assumed rates of investment return and inflation, could trigger increases in the District’s annual required contributions, and such increases could be material to the finances of the Water System. 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 the Series 2017 Installment Payments. 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 July 21, 2016, the Board approved the budget for Fiscal Year 2017. Decisions by the Board and the General Manager during the period covered by the budget are flexible so that the District can respond to changing conditions as necessary, while meeting the generally basic budgetary objectives of the Board. Water rates, fees and customer service charges are presented to the Board in June of each year, prior to 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, 2016, 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 $2,000,000 and combined single limit at $2,000,000 per occurrence. ACWA/JPIA purchases additional excess coverage layers as follows: $58 million for general, auto and public officials liability, which increases the limits on the insurance coverage noted above. • 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. -22- • Property loss is paid at the replacement cost for property on file, if replaced within two years after the loss; otherwise, property loss is 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 $100,000, and purchases excess coverage up to $100 million, subject to a $1,000 deductible, except for a $500 deductible on vehicles. Certain portions of the Water System, including underground pipelines, are not covered by the District’s property insurance coverage. • 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 State statutory limits for all work related injuries/illnesses covered by State law. The District maintains earthquake insurance through the ACWA/JPIA risk pool in the amount (shared with other entities in the pool) of $2,500,000. The occurrence of an earthquake or other natural disaster in or near the District’s service area, including, without limitation, wildfire, landslide, high winds, drought or flood, could have an adverse material impact on the economy within the District, the Water System and the Net Revenues available for the payment of the Series 2017 Installment Payments. Portions of the Water System may be at risk of damage or destruction from wildfires or subject to unpredictable seismic activity. Certain portions of the Water System, including underground pipelines, are not covered by insurance, and there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers. See the caption “CERTAIN RISKS TO BONDHOLDERS—Natural Disasters.” Settled claims have not exceeded any of the coverage amounts in any of the last three Fiscal Years. See the caption “WATER SYSTEM FINANCIAL INFORMATION—Recovery of Wildfire Settlement Payment” for a discussion of prior litigation with the District’s excess liability insurers relating to insurance coverage. Outstanding Obligations On September 19, 2012, the District issued the 2012A Bonds for the purpose of refinancing certain capital improvements to the Water System of the District. The 2012A Bonds are currently outstanding in the aggregate principal amount of $7,230,000. The 2012A Bonds are payable from Net Revenues and secured by a lien on and pledge of Revenues on a parity with the Series 2017 Installment Payments. 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. In Fiscal Year 2016, the District received $1,615,454 in 1% ad valorem property tax revenues from the County. Such revenues constitute Ad Valorem Tax Revenues pledged, to the extent remaining after payment of Operating and Maintenance Costs and Non-Operating and Maintenance Costs, as the first source of payment of the Series 2017 Installment Payments. -23- 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’s share. 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 State repaid the portion of the Ad Valorem Tax Revenues that were subject to such shift, totaling $102,192, to the District in Fiscal Year 2013, 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. 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, to the extent received by the District in accordance with State law. Ad Valorem Tax Revenues comprise a portion of Revenues from which Operating and Maintenance Costs and Non-Operating and Maintenance Costs are payable, but the District has no taxing power. See the caption “SECURITY FOR THE BONDS—Series 2017 Installment Payments” for a discussion of the extent to which Ad Valorem Tax Revenues are available to make the Series 2017 Installment Payments. 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. 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 the last five Fiscal Years. The information in the table below has been provided by the County -24- 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 Year Local Secured Unsecured Total 2012 $16,999,386,679 $246,912,352 $17,246,299,031 2013 17,641,280,663 225,542,596 17,866,823,259 2014 18,668,404,485 314,678,102 18,983,082,587 2015 19,954,785,758 288,290,618 20,243,076,376 2016 21,302,966,019 286,272,664 21,589,238,683 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 a 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. The table below sets forth property tax levies and delinquencies in the District as of June 30 for the last five Fiscal Years. -25- TABLE 2 YORBA LINDA WATER DISTRICT PROPERTY TAX LEVIES AND COLLECTIONS Fiscal Year Secured Tax Charge(1) Amount Delinquent June 30 Percent Delinquent June 30 2012 $1,225,270 $16,476 1.34% 2013(2) 1,246,033 12,002 0.96 2014 1,294,007 9,706 0.75 2015 1,390,316 9,654 0.69 2016 1,533,676 35,420 2.28 (1) 1% General Fund apportionment. Includes secured and supplemental rolls. (2) Includes repayment of $102,192 of Ad Valorem Tax Revenues pursuant to Proposition 1A. See the caption “—General.” Source: California Municipal Statistics Inc. In Fiscal Year 2016, Ad Valorem Tax Revenues constituted approximately 4.89% 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: (i) groundwater pumped from ten active wells; and (ii) 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 Facility. Wells 11, 15 and 20 are located in the City of Anaheim adjacent to OCWD’s spreading basins. In 1998, the District renovated Wells 1, 5, 7 and 12, upgrading them to the latest standards and to a single lift operation, which improves operational performance and reliability. The District’s wells draw water from the Orange County Groundwater Basin, which is managed by OCWD. The Orange County Groundwater Basin is estimated to have a total water storage capacity of approximately 66,000,000 acre feet. The District’s wells have been drilled to an average depth of 400 feet and produce high quality water that meets all State and federal drinking water standards in sufficient quantities to supply approximately 70% of annual customer demand within the District. Total average production from the District’s wells for Fiscal Years 2012 through 2016 was approximately 10.74 million gallons per day (“mgd”), and total maximum daily production capacity from the District’s wells is approximately 19.66 mgd. 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. -26- 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, and per statute, OCWD sets a basin production percentage (the “BPP”) for water to be extracted from the Orange County Groundwater Basin. The BPP represents the percentage of each groundwater producer’s (including the District’s) water supply that comes from groundwater pumped from the Orange County Groundwater Basin. It is set both annually and uniformly for all producers. Multiplying the BPP against a producer’s total water demand yields a groundwater production limit (the “BPP formula”), and OCWD imposes an additional assessment on the producer for all groundwater pumped in excess of that limit. 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 is comparable to 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 2016, the District did not pay a BEA to OCWD. For Fiscal Years 2012, 2013, 2014, 2015 and 2016, the BPP was 65%, 68%, 70%, 72% and 75%, respectively; however the annexation agreement between the District and OCWD (as discussed under the caption “YORBA LINDA WATER DISTRICT—General”) restricts the District’s BPP to 70% until 2019. Based on estimated water demands, the District projects that it will pump up to 65% of its water demand from the Orange County Groundwater Basin in Fiscal Year 2017, which equals approximately 11,502 acre feet. The District currently pays OCWD a replenishment assessment of $402 per acre foot for all groundwater pumped and a BEA equal to an additional $571 per acre foot for groundwater pumped in excess of the BPP formula, if any. The replenishment assessment for Fiscal Year 2017 has not yet been determined. See the caption “YORBA LINDA WATER DISTRICT—General” for a discussion of certain limitations on the District’s ability to pump groundwater up to the BPP at the present time. Beginning in Fiscal Year 2016, the District will also pay OCWD an Annual Annexation Charge (as such term is defined in the annexation agreement between the District and OCWD that is discussed under the caption “YORBA LINDA WATER DISTRICT—General”). The Annual Annexation Charge replaces property tax revenues that would otherwise be received by OCWD had the annexation of the land that is the subject of the agreement not taken place. Annual Annexation Charge payments to OCWD are projected to be approximately $350,000. 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 its 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 (collectively, the “OCWD Information”), with 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 BONDS TO PROVIDE OCWD INFORMATION TO THE DISTRICT OR THE OWNERS OF THE BONDS. -27- OCWD HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE ANY 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 OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE DISTRICT OR THE OWNERS OF THE BONDS UNDER RULE 15c2-12. Complaint against OCWD. As discussed under the caption “—Groundwater,” OCWD annually establishes the BPP, which is the amount of groundwater, as a percentage of total water demands, that groundwater producers can pump from the Orange County groundwater basin without incurring additional assessments. Currently, OCWD calculates total water demands without considering recycled water sales. Because OCWD does not consider recycled water sales in calculating a water service provider’s total water demands, OCWD considers the total water demands of a water service provider that sells recycled water to be lower than they would be if recycled water sales were counted. As a result, the amount of groundwater that such water service providers can pump from the Orange County groundwater basin without incurring additional assessments is lower than it would be if recycled water sales were considered. In June 2016, Irvine Ranch Water District (“IRWD”), a water service provider within OCWD boundaries that sells recycled water to its customers, filed a complaint (the “Complaint”) against OCWD in the Superior Court for the State of California, County of Orange, seeking an order determining that OCWD’s BPP calculation methodology is unlawful. In August 2016, OCWD filed an answer to the Complaint denying all substantive allegations. The District, the City of Anaheim, two other local water agencies and one private water company, which all produce groundwater from the Orange County groundwater basin, filed answers in order to join the litigation as interested parties. In September 2016, the parties entered into a stipulation under which: (i) the District amended the Complaint (the “Amended Complaint”) to clarify certain allegations; and (ii) venue was moved from Orange County to Los Angeles County. In addition to the aforementioned interested parties, the cities of Seal Beach and Buena Park answered IRWD’s Amended Complaint in order to join the litigation as interested parties. All seven interested parties, except the City of Seal Beach, as well as OCWD, filed cross-complaints against IRWD, each of which seek relief in opposition to the relief that IRWD seeks in its Amended Complaint. If IRWD’s Amended Complaint is successful and the cross-complaints are unsuccessful, IRWD would be able to pump additional amounts of groundwater, and such additional amounts of groundwater would not be subject to the BEA. Such an outcome could reduce the BPP for all other groundwater pumpers, including the District, and compel the District either to pay a BEA or to purchase more expensive imported water in order to make up the difference of groundwater that would otherwise be included within the District’s BPP. The projected water production expenses that are set forth under the caption “WATER SYSTEM FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage” do not assume any reduction in the BPP as a result of IRWD’s Amended Complaint. 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 both the Colorado River via the Colorado River Aqueduct and 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 such as MWDOC. The District pays for its imported water through MWDOC but takes actual delivery of the water that it purchases through pipelines owned by MWD in the Orange County area. District pipelines used to deliver imported water have a combined capacity of approximately 26 mgd. The District currently has adequate capacity from MWDOC to meet its average daily demands from its customers. MWDOC’s charge to the District consists of four components: (a) MWDOC’s cost to purchase water from MWD; (b) a capacity charge in the current amount of approximately $261,000 per year; (c) a -28- readiness-to-serve charge in the current amount of approximately $552,000 per year; and (d) an annual retail connection charge in the current amount of $10.95 per connection. 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 its outstanding obligations, to file certain annual reports, notices of certain enumerated events as defined under Rule 15c2-12 and annual audited financial statements (collectively, the “MWD Information”) with EMMA. 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 BONDS TO PROVIDE MWD INFORMATION TO THE DISTRICT OR THE OWNERS OF THE BONDS. MWD HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE ANY 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 BONDS UNDER RULE 15c2-12. 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 decreases in water supply in Fiscal Years 2015 and 2016 reflect a combination of conservation initiatives by the District in coordination with MWDOC and the mandatory conservation measures that have been imposed by the State in response to the Statewide drought, as discussed under the caption “—Drought Proclamation.” Although reductions in water supply result in lower Water System Revenues, 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) 2012 10,020 10,812 20,832 N/A% 2013 10,981 10,826 21,807 4.68 2014 12,609 10,005 22,614 3.70 2015(1) 14,181 5,605 19,786 (12.51) 2016(1) 12,368 3,375 15,743 (20.43) (1) Decreases in Fiscal Year 2015 and 2016 reflect the District’s efforts to comply with State conservation mandates relating to drought. See the caption “—Drought Proclamation.” Source: District. Set forth below is a summary of the District’s projected sources of water supply for the current and next four Fiscal Years. -29- TABLE 4 YORBA LINDA WATER DISTRICT PROJECTED WATER SUPPLY IN ACRE FEET PER YEAR Fiscal Year Groundwater Imported Water Total Increase/(Decrease) 2017(1) 11,502 6,194 17,696 12.40%(3) 2018(2) 12,719 5,451 18,171 2.68 2019(2) 12,719 5,451 18,171 0.00 2020(2) 12,719 5,451 18,171 0.00 2021(2) 12,719 5,451 18,171 0.00 (1) Reflects satisfaction of 65% of total water demands by pumping from the Orange County Groundwater Basin. See the caption “—General—Groundwater.” (2) Reflects satisfaction of 70% of total water demands by pumping from the Orange County Groundwater Basin. See the caption “—General—Groundwater.” (3) Increase in Fiscal Year 2017 reflects elimination of State conservation mandates relating to drought. See the caption “— Drought Proclamation.” Source: District. Drought Proclamation State Orders. Precipitation in the Santa Ana River Watershed and the State as a whole has been below average in recent years. On January 17, 2014, the California Governor declared a Statewide drought state of emergency through Proclamation 1-17-2014 (the “Proclamation”) with immediate effect. The Proclamation includes the following orders, among others: (a) local urban water suppliers, including the District, are encouraged to implement their local water shortage contingency plans; the District’s plan is discussed under the caption “—District Response to Drought;” (b) local urban water suppliers, including the District, are encouraged to update their urban water management plans to prepare for extended drought conditions; (c) The State Department of Water Resources (“DWR”) and the State Water Resources Control Board (the “SWRCB”) are directed to expedite the processing of water transfers; (d) the SWRCB is directed to put water rights holders on notice that they may be required to cease or reduce water diversions in the future; (e) the SWRCB is directed to consider modifying requirements for reservoir releases or diversion limitations; and (f) DWR is directed to take necessary actions to protect water quality and supply in the Sacramento-San Joaquin River Delta/San Francisco Bay Estuary (the “Bay-Delta”), including the installation of temporary barriers or temporary water supply connections, while minimizing impacts to aquatic species. The District undertook efforts to comply with the regulations through its conservation ordinances, as discussed under the caption “—District Response to Drought.” MWD also invoked its Water Supply Allocation Plan (the “WSAP”). The WSAP provides for the equitable distribution of available water supplies in case of extreme water shortage within MWD’s service area. On April 14, 2015, MWD approved implementation of WSAP Level 3 (Water Supply Allocation) effective July 1, 2015, which among other things imposes a surcharge of between $1,480 and $2,960 per acre foot of water usage above MWD members’ water allocation. To date, no surcharges have been imposed on the District; any such surcharges would be passed through to customers. As a result of improved hydrologic conditions, primarily in northern California, on May 10, 2016, MWD rescinded the WSAP, declared a Level 2 Water Supply Alert and decided not to implement the WSAP for Fiscal Year 2017. On April 1, 2015, the California Governor issued an Executive Order extending the measures set forth in the Proclamation and adopting the following additional orders, among others: (i) the SWRCB is directed to impose restrictions to reduce potable urban water usage, including usage by commercial, industrial and institutional properties and golf courses, by 25% from 2013 amounts through February 28, 2016; portions of a water supplier’s service area with higher per capita use must achieve proportionally greater reductions than areas with lower per capita use; (ii) DWR is directed to lead a Statewide initiative to replace 50 million square feet of lawns with drought tolerant landscaping; (iii) the California Energy Commission is directed to -30- implement a rebate program for replacement of inefficient appliances; (iv) urban water suppliers are required to provide monthly water usage, conservation and enforcement information; (v) service providers are required to monitor groundwater basin levels in accordance with California Water Code § 10933; (vi) permitting agencies are required to prioritize approval of water infrastructure and supply projects; and (vii) DWR is required to plan salinity barriers in the Bay-Delta. On May 6, 2015, the SWRCB adopted regulations in response to the Governor’s executive order that required the District to effect a 36% reduction from 2013 water usage. On November 13, 2015, the Governor issued Executive Order B-36-15, which calls for an extension of urban water use restrictions until October 31, 2016 should drought conditions persist through April 2016. On February 2, 2016, the SWRCB extended its previous emergency regulations through October 2016 while making available credits and adjustments of up to 8% in urban water suppliers’ conservation mandates based upon climate, water-efficient growth and investments in drought-resilient supply sources. After precipitation improved in California through the winter, on May 9, 2016 the California Governor issued Executive Order B-37-16, which required the SWRCB to adjust its emergency regulations through the end of January 2017 to account for differing water supply conditions across California. It also directed the SWRCB and DWR to develop a long-term framework and requirements for increasing water efficiency, eliminating water waste, and strengthening local resilience. On May 18, 2016 the SWRCB adopted a revised regulation giving water agencies the ability to establish their own conservation standards based on a “stress test” of supply reliability. By June 22, 2016, water agencies were required to submit self-certifications to the SWRCB demonstrating that they have sufficient supplies to withstand three additional years of severe drought. Any identified percentage gap between supplies and demands would become the water agency’s updated mandatory conservation target. As a result of significant investments in water supply reliability as described herein, the District demonstrated that it has more than sufficient supplies to meet its projected demands, even if California endures three more years of drought. Consequently, the District’s mandatory conservation target was eliminated, retroactive to June 1, 2016. Notwithstanding the elimination of mandatory State-imposed conservation orders, the District continues to implement Stage 1 of its Drought Ordinance as described under the caption “— District Response to Drought” and is asking its customers for a voluntary 10% water use reduction relative to use in 2013. In July 2016, the District’s customers collectively achieved a 36% reduction relative to 2013 potable water use. District Response to Drought. Under District Ordinance Nos. 09-01, 15-01 and 16-01 (collectively, the “Drought Ordinance”), the District may take the following actions in response to the mandatory conservation measures imposed by the State. Various stages of the Drought Ordinance were implemented in Fiscal Year 2016. However, currently, the District is only implementing Stage 1: First, the District may implement an allocation-based administrative penalty structure under which potable water customers are subject to the below penalties (per billing cycle) for water use that exceeds the following allocations: -31- YORBA LINDA WATER DISTRICT ADMINISTRATIVE PENALTIES UNDER DROUGHT ORDINANCE(1) Residential Penalty Block 1 1-18 Units $ - Block 2 19-29 Units 10.00 Block 3 30-49 Units 20.00 Block 4 50-74 Units 40.00 Block 5 75-99 Units 80.00 Block 6 100+ Units 160.00 Commercial Penalty Block 1 1-50 Units $ - Block 2 51-75 Units 25.00 Block 3 76-100 Units 50.00 Block 4 100-150 Units 100.00 Block 5 151-200 Units 200.00 Block 6 200+ Units 400.00 Irrigation Penalty Block 1 1-115 Units $ - Block 2 116-200 Units 65.00 Block 3 201-300 Units 130.00 Block 4 301-400 Units 260.00 Block 5 401-500 Units 520.00 Block 6 500+ Units 1,000.00 (1) A unit equals 100 cubic feet (748 gallons) of water. Source: District Ordinance Nos. 15-01 and 16-01. Second, the District may: (1) engage in public outreach and education efforts; (2) offer rebates for turf removal, the installation of rain barrels and smart irrigation meters and high efficiency appliances; (3) and impose the below-described mandatory restrictions on water use (beginning with irrigation and other outdoor uses) and enforcement actions. Third, the District may implement a Stage Three Water Alert, which is intended to reduce water use by up to 35% and includes the following measures, among others: (i) potable water irrigation is prohibited between 9:00 a.m. and 6:00 p.m. and limited to two days a week during summer months and one day a week during winter months for no more than 15 minutes per station; (ii) filling or refilling (more than one foot) of residential swimming pools is prohibited; (iii) potable water irrigation runoff and watering during rain events is prohibited; (iv) cars must be washed with hoses that have shutoff nozzles; and (v) using potable water to wash paved areas is prohibited. Violations of the Drought Ordinance are subject to administrative penalties and/or fines that are collected on customer water bills. See the caption “THE WATER SYSTEM—Collection Procedures.” For initial violations, the District hand delivers a door hanger to the location of the violation and mail a notice to the current billing address. For second violations within one year, the District imposes a $100 fine. For third violations within one year, the District imposes a $250 fine. For additional violations within one year, the District imposes a $500 fine and may install a water flow restrictor or disconnect service for willful violations. -32- With the implementation of the Drought Ordinance, the District was able to achieve a 36% cumulative reduction in water usage compared to 2013, which reflected full compliance with the regulations adopted by the SWRCB on May 6, 2015. The District has maintained communication with the SWRCB to explain the District’s efforts to cause its customers to reduce water usage further. The District is also engaged in a continuing effort to modify the SWRCB’s regulations to reflect the District’s climate, population growth and the danger of wildfire within the District. See the caption “WATER SYSTEM FINANCIAL INFORMATION—Recovery of Wildfire Settlement Payment.” The District believes that implementation of the Drought Ordinance was successful in achieving the mandated conservation requirements in Fiscal Year 2016; however, it also resulted in lower water sales revenues for such Fiscal Year. For Fiscal Year 2017, the District believes that water usage and the corresponding water sales revenue will increase from the prior Fiscal Year. The District has eased many of the requirements associated with the Drought Ordinance in response to the lifting of the mandated conservation by the SWRCB. Customers who heavily conserved water in response to the State mandates and the District rate increases discussed under the caption “THE WATER SYSTEM—Water System Rates and Charges” are anticipated to use additional water in future years, increasing their usage from the “Drought Year” (Fiscal Year 2015) beginning with an initial 10% rebound in Year 1 (Fiscal Year 2017) to a “new normal” in Year 5 (Fiscal Year 2021) of a 15% increase from the “Drought Year.” As discussed under the caption “THE WATER SYSTEM—Water System Rates and Charges,” the District’s rate structure consists of variable and fixed rate components; the rate increase discussed under such caption is intended to allow the District to recover the District’s cost of service. The projected operating results set forth under the caption “WATER AND SEWER SYSTEM FINANCIAL INFORMATION—Projected Operating Results” reflect the assumption of increased water sales via the anticipated 15% rebound in water use through Fiscal Year 2021. The District does not believe that the continued implementation of Stage 1 of the Drought Ordinance will have a material adverse effect on its ability to make the Series 2017 Installment Payments from Net Revenues. The District notes that Net Revenues include Ad Valorem Tax Revenues. See the caption “YORBA LINDA WATER DISTRICT—Ad Valorem Tax Revenues.” While under the restrictions of mandated conservation, the District was able to achieve its conservation goal, the level of restrictions may not be sustainable over the long term. If the Statewide water shortage should persist or worsen, legal issues exist as to whether different State Water Code provisions should be invoked to require reasonable regulations for the allocation of water in time of shortage. Any curtailment pursuant to State orders that is accompanied by an increase in MWD water charges (such as the surcharge under MWD’s WSAP discussed under the caption “—State Orders”) to its member agencies could necessitate an increase in the District’s water rates to District customers. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218” for a discussion of certain restrictions on the District’s ability to raise water rates. 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 19.66 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 -33- 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. 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 22,914 individually metered residential connections, 160 master-metered multifamily residential units, 903 commercial and industrial connections and 887 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, primarily using water to irrigate landscaping in parks, street medians and slopes. The table below illustrates the number of customers in each major category and percent of total as of June 30, 2016. 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 22,914 92.16% 71% Master-Metered Multifamily 160 0.64 2 Commercial and Industrial 903 3.63 8 Irrigation 887 3.57 19 Total 24,864 100.00% 100% 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) 2012 23,979 N/A% 2013 24,479 2.09 2014 24,584 0.43 2015 24,653 0.28 2016 24,864 0.86 (1) Excludes private fire connections. Source: District. -34- 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. TABLE 7 YORBA LINDA WATER DISTRICT HISTORIC WATER DELIVERIES IN ACRE FEET PER YEAR Fiscal Year Water Deliveries(1) Increase/(Decrease) 2012 20,656 N/A% 2013 20,642 0.07 2014 21,085 2.15 2015(2) 17,849 (15.35) 2016(2) 14,354 (19.58) (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. (2) Decreases in Fiscal Years 2015 and 2016 reflect the District’s efforts to comply with State conservation mandates relating to drought. See the caption “WATER SUPPLY—Drought Proclamation.” 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) 2012 $24,998,673 N/A% 2013 26,369,940 5.49 2014 28,372,296 7.59 2015(1) 26,446,618 (6.79) 2016(2) 27,820,638 5.20 (1) Decrease in Fiscal Year 2015 reflects the District’s efforts to comply with State conservation mandates relating to drought. See the caption “WATER SUPPLY—Drought Proclamation.” (2) Increase in Fiscal Year 2016 reflects rate restructuring, including increase in base fixed service charge, effective October 1, 2015. See the caption “—Water System Rates and Charges.” Source: District. -35- Largest Customers The following table sets forth the ten largest customers of the Water System as of June 30, 2016, 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 $1,903,365 5.76% Placentia-Yorba Linda USD Government 259,641 0.79 The Hills at Yorba Linda Homeowners Association 143,875 0.44 RRE Yorba Linda Holdings Manufacturer 126,312 0.38 Yorba Linda Villages Homeowners Association 109,975 0.33 Aspetic Tech Manufacturer 108,087 0.33 Fairmont Hill Community Association Homeowners Association 85,110 0.26 Lake Park Mobile Home Community Homeowners Association 74,207 0.23 Cartel Electronics Manufacturer 64,384 0.19 Cal Water Manufacturer 60,935 0.18 TOTAL $2,935,891 8.89% Source: District. These ten largest customers accounted for approximately 8.89% of total Water System Revenues of $33,042,847 for Fiscal Year 2016. 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 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 Series 2017 Installment Payments. The District has adopted a policy whereby the Board, at its option and determination, may pass through increased water costs to its customers. Any costs passed through to customers must be approved in advance by the Board. Pursuant to the policy, “increased costs of purchased wholesale water costs which are charged to the District by the Orange County Water District and the Metropolitan Water District of Southern California via the Municipal Water District of Orange County 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 District customers for any increased water costs resulting from any of such pass-throughs. On September 17, 2015, 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 implementing water rate increases effective October 1, 2015, with stepped increases tied to the Consumer Price Index (not to exceed 5% per annum) to take effect each July 1 thereafter through July 1, 2019 upon Board approval. The monthly base service charge (as described below) was reduced in Fiscal Year 2017 as a result of the elimination of the -36- mandatory State conservation orders relating to the drought. See the caption “WATER SUPPLY—Drought Proclamation.” The Board has also indicated a willingness to explore the feasibility of further rate reductions and/or rate rebates should water sales increase in the future. The projected water revenues for Fiscal Years 2019 and thereafter set forth under the caption “WATER SYSTEM FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage” assume additional increases to the monthly capacity charge (above the approved stepped rate increases through Fiscal Year 2020) of approximately 12% per annum in accordance with the recommendations that were set forth in a financial plan update that was prepared for the District by Raftelis Financial Consultants, Inc. All 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 additional rate increases in the future or that currently adopted rate increases will not be overturned in accordance with the provisions of Proposition 218 in the future. Water Service Charges. The District requires water meters for all of its customers. Since July 1, 2014, the District’s water consumption charge has been $2.70 per 100 cubic feet (748 gallons) (a “unit”) of water use. See the caption “WATER SUPPLY—Drought Proclamation—District Response to Drought” for a description of additional charges that can be imposed on customers for water use in excess of certain tier levels in light of the Statewide drought. In addition to consumption charges, customers are charged the following monthly capacity charge based on meter size: TABLE 10 YORBA LINDA WATER DISTRICT MONTHLY CAPACITY CHARGES Meter Size Monthly Capacity Charge 5/8” and 3/4”(1) $ 19.45 1”(1) 32.49 1½” 64.78 2” 103.69 3” 227.04 4” 408.55 6” 907.95 (1) Approximately 92% of District connections, representing approximately 72% of Water System Revenues in Fiscal Year 2016, were to residential customers with 5/8”, 3/4” or 1” meters. Source: District. -37- 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 July 1, 2016. All amounts reflect the billing for 18 units of water use per month: TABLE 11 YORBA LINDA WATER DISTRICT WATER SERVICE CHARGE COMPARISON Water Purveyor Total Bill Golden State Water Company $111.94 East Orange County Water District 102.31 Serrano Water District 99.71 Mesa Water District 90.93 Yorba Linda Water District 81.09(1) City of Brea 77.74 (1) The water service charge for a single family residential user consuming 18 units per month is approximately $81.09 ($2.70 per unit multiplied by 18 units ($48.60) plus a $32.49 capacity charge for a 1” meter). Source: District. Collection Procedures The District is on a monthly billing cycle for Water Service, sending out bills every 28 to 36 days for the preceding month’s service. If payment is not received within 27 days, a late notice is rendered and a 10% late charge (capped at $10) is assessed. Eight days after the generation of a late notice, a 7-day shut-off (yellow tag) door hanger is posted at the location(s) of all unpaid accounts. If any account remains unpaid after such 7-day period, water is turned off and the meter is locked until all balances are paid. As of June 30, 2016, 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 billing cycle. All accounts not paid in full at the end of the billing cycle will be discontinued until full payment is made plus a $225 deposit and an $80 reconnection assessment. 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 Increase/(Decrease) 2017 24,950 0.35% 2018 25,100 0.60 2019 25,250 0.60 2020 25,400 0.59 2021 25,550 0.59 Source: District. -38- 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 continued drought or other limiting conditions. See the caption “WATER SUPPLY” for a discussion of factors that could affect the District’s water supply. Differences between projected water deliveries and projected supplies set forth under the caption “WATER SUPPLY—Historic and Projected Water Supply” reflect water losses and other non-revenue water use. TABLE 13 YORBA LINDA WATER DISTRICT PROJECTED WATER DELIVERIES IN ACRE FEET PER YEAR Fiscal Year Deliveries Increase/(Decrease) 2017 15,926 10.95% 2018 16,353 2.68 2019 16,353 0.00 2020 16,353 0.00 2021 16,353 0.00 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) 2017(1) $28,556,064 2.64% 2018 29,446,683 3.12 2019 30,745,185 4.41 2020 32,208,709 4.76 2021 33,858,419 5.12 (1) Increase reflects District projections of increased water use, as described under the caption “—Projected Water Deliveries,” increased connections, as described under the caption “—Projected Water Connections,” and a full year of higher revenues from the rate restructuring described under the caption “—Water System Rates and Charges—General.” 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 Year 2017 and projected increases to the monthly capacity charge (above the approved stepped rate increases through Fiscal Year 2020) of approximately 12% per annum beginning in Fiscal Year 2019. Projected water rate increases for Fiscal Years 2019 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. There can be no assurance that the projected water sales revenues set forth above will be achieved. -39- Future Water System Improvements The District projects total capital improvements to the Water System (in addition to the 2017 Project that is discussed under the caption “THE 2017 PROJECT”) of approximately $15,082,000 over the next five Fiscal Years, including the construction of new wells and pipelines, among others. 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. Completion of certain of the above-described capital improvements is expected to enable the District to pump groundwater from the Orange County Groundwater Basin up to the full BPP. See the caption “YORBA LINDA WATER DISTRICT—General.” 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 dated September 30, 2016 is set forth therein. 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 performed any post-audit analysis of the financial condition of the District, nor has the Auditor 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, including adjustments to reflect the receipt of certain development fees in a given Fiscal Year that the District’s audited financial statements display on an amortized basis over a 40-year period on the advice of the District’s Auditor). The summary operating results contained under the caption “—Historic Operating Results and Debt Service Coverage” 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. The District accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to governmental agencies such as the District (“GAAP”). In certain cases, GAAP requires or permits moneys collected in one Fiscal Year to be recognized as revenue in a subsequent Fiscal Year and requires or permits expenses paid or incurred in one Fiscal Year to be recognized as expenses in a subsequent Fiscal Year. See Appendix A. Except as otherwise expressly noted herein, all financial information derived from the District’s audited financial statements reflects the application of GAAP. Recovery of Wildfire Settlement Payment 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. In 2012, after the District’s excess liability insurers denied coverage for the Freeway Complex Fire lawsuit, the District, with no admission of liability, paid $5,000,000 (the “Settlement Amount”) from District reserves as part of a settlement with the plaintiff-homeowners. Under the settlement, the District joined with the plaintiff-homeowners in separate litigation against the District’s excess liability insurers (the “Coverage Litigation”) to recover the settlement amount. See the caption “YORBA LINDA WATER DISTRICT— District Insurance.” In 2014, the $5,000,000 Settlement Amount was fully reimbursed to the District after a -40- partial settlement of the Coverage Litigation. The claims of the District and its primary insurance provider were fully satisfied by the Coverage Litigation settlement and they were dismissed from the litigation, which continued between the plaintiff-homeowners and the excess insurance carriers. The District is protected from any further financial liability arising from the Freeway Complex Fire litigation and the Coverage Litigation. The historic Water System operating results set forth in Table 15 under the caption “—Historic Operating Results and Debt Service Coverage” do not reflect the payment of the Settlement Amount in Fiscal Year 2012 because the Settlement Amount was not paid from operating Revenues or Net Revenues of the Water System. Investment of District Funds The District invests its funds in accordance with Resolution No. 16-18 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 16-06” adopted on October 13, 2016 (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, 2016 (excluding reserves for the Series 2008 Certificates and for conservation), the District had funds invested in the amount of $37,531,735 in authorized investments under the District Investment Policy, summarized as follows: money market securities ($552,474), government securities of the Federal Home Loan Bank ($2,002,580), certificates of deposit ($5,285,663), investment trusts in CalTrust -41- Short Term ($4,642) and CalTrust Medium Term ($19,831,487) and the State of California Local Agency Investment Fund ($9,854,889). As of June 30, 2016 (excluding reserves for the Series 2008 Certificates and for conservation), approximately 81% of the $33,995,384 in District reserves was attributable to the Water System, including an operating reserve ($4,132,257), an emergency reserve ($1,042,888), a capital project reserve ($25,524,730), a debt service reserve ($2,723,509), an employee liability reserve ($372,000) and a maintenance reserve ($200,000). 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) 2012 2013 2014 2015(4) 2016(5) Revenues Water Sales $ 24,998,673 $ 26,369,940 $ 28,372,296 $ 26,446,618 $ 27,820,638 Ad Valorem Tax Revenues 1,273,855 1,340,916 1,394,722 1,496,489 1,615,454 Interest Income 253,478 121,210 131,833 168,872 265,006 Other(1) 1,292,298 1,259,340 2,192,153 2,027,257 3,341,749 Total Revenues $ 27,818,304 $ 29,091,406 $ 32,091,004 $ 30,139,236 $ 33,042,847 Operating and Maintenance Costs Variable Water Costs $ 12,275,853 $ 13,509,336 $ 14,673,144 $ 12,733,762 $ 10,470,181 Personnel Services 6,125,692 6,390,207 6,728,455 6,885,991 7,244,718 Supplies & Services 3,461,250 3,890,552 3,451,602 3,482,354 3,895,962 Total Operating and Maintenance Costs $ 21,862,795 $ 23,790,095 $ 24,853,201 $ 23,102,107 $ 21,610,861 Net Operating Revenues $ 5,955,509 $ 5,301,311 $ 7,237,803 $ 7,037,129 $ 11,431,986 Non-Operating and Maintenance Costs $ 90,485 $ 35,954 $ 47,948 $ 116,528 $ 7,273 Net Revenues $ 5,865,024 $ 5,265,357 $ 7,189,855 $ 6,920,601 $ 11,424,713 Debt Service Series 2003 Installment Payments(2) $ 672,383 $ 461,488 $ - $ - $ - Series 2008 Installment Payments(3) 2,132,796 2,131,096 2,128,396 2,129,596 2,129,596 2012A Bonds 174,327 584,263 593,913 591,963 Total Debt Service $ 2,805,179 $ 2,766,911 $ 2,712,659 $ 2,723,509 $ 2,721,559 Remaining Revenues $ 3,059,845 $ 2,498,446 $ 4,477,196 $ 4,197,092 $ 8,703,154 Debt Service Coverage 2.09 1.90 2.65 2.54 4.20 (1) Includes customer service charges, rental and royalty income and other miscellaneous revenues. Also includes certain development fees earned in each Fiscal Year that the District’s audited financial statements display on an amortized basis over a 40-year period on the advice of the District’s Auditor. See the caption “—Financial Statements.” (2) This obligation was refunded from proceeds of the 2012A Bonds. (3) This obligation is being refunded from proceeds of the Bonds. See the caption “REFUNDING PLAN.” (4) Decrease in Fiscal Year 2015 reflects the District’s efforts to comply with State conservation mandates relating to drought. See the caption “WATER SUPPLY—Drought Proclamation.” (5) Increase in Fiscal Year 2016 reflects rate restructuring, including increase in base fixed service charge, effective October 1, 2015. See the caption “—Water System Rates and Charges.” Source: District. -42- Projected Operating Results and Debt Service Coverage The following table sets forth the projected operating results of the Water System of the District for the current and next four Fiscal Years, 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 and the assumed continuation of the current conservation efforts under the Drought Ordinance described under the caption “WATER SUPPLY—Drought Proclamation” through Fiscal Year 2017, All of such assumptions are material in the development of the District’s financial projections, and variations 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) 2017(1) 2018 2019 2020 2021 Revenues Water Sales(2) $ 28,556,064 $ 29,446,683 $ 30,745,185 $ 32,208,709 $ 33,858,419 Ad Valorem Tax Revenues(3) 1,660,025 1,629,000 1,653,435 1,686,504 1,703,369 Interest Income(4) 278,887 175,000 145,000 120,000 123,600 Other(5) 965,768 867,936 916,187 941,192 902,609 Total Revenues $ 31,460,744 $ 32,118,619 $ 33,459,807 $ 34,956,404 $ 36,587,996 Operating and Maintenance Costs Variable Water Costs(6) $ 12,539,476 $ 13,968,855 $ 14,248,233 $ 14,533,197 $ 14,823,861 Personnel Services(7) 7,940,446 8,692,988 9,127,637 9,584,019 10,063,220 Supplies & Services(8) 3,520,580 3,564,578 3,609,744 3,631,605 3,737,479 Total Operating and Maintenance Costs $ 24,000,502 $ 26,226,421 $ 26,985,614 $ 27,748,821 $ 28,624,560 Net Operating Revenues $ 7,460,242 $ 5,892,198 $ 6,474,193 $ 7,207,584 $ 7,963,436 Non-Operating and Maintenance Costs(9) $ 23,285 $ 23,000 $ 23,000 $ 23,000 $ 23,000 Net Revenues $ 7,436,957 $ 5,869,198 $ 6,451,193 $ 7,184,584 $ 7,940,436 Debt Service Series 2008 Installment Payments(10) $ 2,128,396 $ - $ - $ - $ - 2012A Bonds(11) 588,488 588,313 591,213 583,713 590,713 Series 2017 Installment Payments* - 2,231,814 2,237,375 2,239,000 2,233,500 Total Debt Service* $ 2,716,884 $ 2,820,127 $ 2,828,588 $ 2,822,713 $ 2,824,213 Remaining Revenues* $ 4,720,073 $ 3,049,071 $ 3,622,606 $ 4,361,871 $ 5,116,223 Debt Service Coverage* 2.74 2.08 2.28 2.55 2.81 (1) Reflects Fiscal Year 2017 budgeted amounts with certain adjustments to reflect year-to-date information. 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 rates for Fiscal Year 2017 and projected increases to the monthly capacity charge (above the approved stepped rate increases through Fiscal Year 2020) of approximately 12% per annum beginning in Fiscal Year 2019, as described under the caption “THE WATER SYSTEM—Water System Rates and Charges.” Future water rate increases for Fiscal Years 2018 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. _______________________ * Preliminary; subject to change. -43- (3) Projected to decrease slightly in Fiscal Year 2018, reflecting conservative budgeting, and to increase approximately 1.5% from Fiscal Year 2018 amount in Fiscal Year 2019, approximately 2% from Fiscal Year 2019 amount in Fiscal Year 2020 and approximately 1% per annum thereafter. (4) Projected to vary as a result of the expenditure of reserves on capital improvements. (5) Based on District projections. 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.” Projected to increase approximately 11% from Fiscal Year 2017 amount in Fiscal Year 2018 and approximately 2% per annum thereafter. (7) Projected to increase approximately 9.5% per annum from Fiscal Year 2017 amount in Fiscal Year 2018 and approximately 5% per annum thereafter. (8) Based on District projections. (9) Projected to remain at just under Fiscal Year 2017 budgeted amount. (10) Expected to be refunded from proceeds of the Bonds. See the caption “REFUNDING PLAN.” (11) Reflects scheduled payments. See the caption “YORBA LINDA WATER DISTRICT—Outstanding Obligations.” 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, special district 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: (a) the financial responsibility for a service is transferred to another public entity or to a private entity; (b) the financial source for the provision of services is transferred from taxes to other revenues; or (c) the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations that are 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 the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the provision of existing services more costly. The District is of the opinion that its charges for Water Service do not exceed the costs that it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The District has covenanted in the Installment Purchase Agreement, to the fullest extent permitted by law, to fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Water Service which are reasonably expected, at the commencement of each Fiscal Year, to be at least sufficient to yield during each Fiscal Year Net Revenues equal to 125% of Debt Service on the Bonds and other Parity Bonds and Contracts for such Fiscal Year. See the caption “SECURITY FOR THE BONDS—Rate Covenant.” -44- Proposition 218 General. An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Articles XIIIC and 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.” On January 12, 2016, Kent Ebinger, an individual, and the Yorba Linda Taxpayers Association, a nonprofit association (collectively, the “Plaintiffs”), filed a complaint and petition for writ of mandate (collectively, the “Petition”) against the District in the Superior Court of California, County of Orange (the “Superior Court”). The Petition sought to obtain a writ of mandate to compel the District to comply with the terms of a purported referendum petition challenging the water rate restructuring that was adopted on September 17, 2015, as discussed under the caption “THE WATER SYSTEM—Water System Rates and Charges.” The purported referendum petition sought to require the District either to repeal the District’s rate restructuring or to submit the rate restructuring to the voters of the District to accept or repeal. The Petition did not seek court determination of the procedural or substantive validity of the District’s water rate structure, per se, under State law. On August 5, 2016, the Superior Court denied the Petition and entered judgment in favor of the District, holding that the District’s rate restructuring is not subject to a referendum because such a referendum would interfere with the District’s revenue necessary to provide essential government services (i.e. water and sewer service) and because the rate restructuring was adopted as an urgency measure in response to the Statewide drought that is described under the caption “WATER SUPPLY—Drought Proclamation.” The deadline for the Plaintiffs to appeal the ruling expired on October 4, 2016 with no appeal being filed. There can be no assurance that other challenges to the District’s rate structure will not be filed in the future. 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 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: (a) revenues derived from the fee or charge may not exceed the funds required to provide the property-related service; (b) such revenues may not be used for any purpose other than that for which the fee or charge was imposed; (c) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership may not exceed the proportional cost of the service attributable to the parcel; and (d) 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. -45- Based upon the California 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 State Supreme Court rule 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 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 in the Bighorn Case, since 2007. On April 20, 2015, the California Court of Appeal, Fourth District, issued an opinion in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (2015) (the “SJC Case”) upholding tiered water rates under Proposition 218 provided that the tiers correspond to the actual cost of furnishing service at a given level of usage. The opinion was specific to the facts of the case, including a finding that the City of San Juan Capistrano did not attempt to calculate the actual costs of providing water at various tier levels. The District’s water rates, which are described under the caption “THE WATER SYSTEM—Water System Rates and Charges,” do not currently include tiered rates based on usage. See the caption “WATER SUPPLY—Drought Proclamation—District Response to Drought” for a description of additional charges that are currently imposed on customers for water use in excess of certain tier levels in light of the Statewide drought. The District does not currently expect the decision in the SJC Case to affect its water rate structure. The District believes that its current water rates comply with the requirements of Proposition 218 and expects that any future water rate increases will comply with Proposition 218’s procedural and substantive requirements to the extent applicable thereto. Article XIIIC. Article XIIIC provides that the initiative power may 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 is 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 (whether by initiative under Article XIIIC or otherwise, or by referendum, which is not authorized under Article XIIIC) to repeal or reduce rates and charges for the Water Service in a manner that would interfere with the contractual obligations of the District or the obligation of the District to maintain and operate the Water System. However, there can be no assurance as to the availability of particular remedies adequate to protect the Beneficial Owners of the Bonds. Remedies that are available to Beneficial Owners of the 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. So long as the Bonds are held in book-entry form, DTC (or its nominee) will be the sole registered owner of the Bonds and the rights and remedies of the Bond Owners will be exercised through the procedures of DTC. In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the Bonds, the Indenture and the Installment Purchase Agreement 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, and to the exercise of judicial 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. -46- 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. CERTAIN RISKS TO BONDHOLDERS The following information should be considered by prospective investors in evaluating the Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations may be relevant to making an investment decisions with respect to the Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. Limited Obligations The obligation of the District to pay the Series 2017 Installment Payments is a limited obligation of the District and is not secured by a legal or equitable pledge or charge or lien upon any property of the District or any of its income or receipts, except the Net Revenues. The obligation of the District to pay the Series 2017 Installment Payments does not constitute an obligation of the District to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation. Accuracy of Assumptions To estimate the Net Revenues available to pay the principal of and interest on the Bonds, the District has made certain assumptions with regard to future development within the District and increases in revenues resulting therefrom, the rates and charges to be imposed in future years, the expenses associated with operating the Water System and the interest rate at which funds will be invested. The District believes these assumptions to be reasonable, but to the extent that any of such assumptions fail to materialize, the Net Revenues available to pay the principal of and interest on the Bonds will, in all likelihood, be less than those projected herein. See the caption “WATER SYSTEM FINANCIAL INFORMATION—Projected Operating Results and Debt Service Coverage.” The District may choose, however, to maintain compliance with the rate covenant set forth in the Installment Purchase Agreement in part by means of contributions from available reserves or resources, including the Rate Stabilization Fund. In such event, Net Revenues may generate amounts which are less than 1.25 times Debt Service in any given Fiscal Year. See the captions “SECURITY FOR THE BONDS—Rate Covenant” and “SECURITY FOR THE BONDS—Rate Stabilization Fund.” System Demand There can be no assurance that the demand for water services will occur as described in this Official Statement. Reduction in levels of demand could require an increase in rates or charges in order to comply with the rate covenant. See the caption “SECURITY FOR THE BONDS—Rate Covenant.” Demand for water services could be reduced as a result of reduced levels of development in the District’s service area, hydrological conditions, conservation efforts or mandatory State conservation orders and other factors. System Expenses There can be no assurance that the District’s expenses will be consistent with the descriptions in this Official Statement. Water System Operating and Maintenance Costs may vary with groundwater conditions and the quality and amount of local supplies as well as treatment costs, regulatory compliance costs, labor -47- costs (including costs related to pension and other postretirement benefits) and other factors. Increases in Operating and Maintenance Costs could require an increase in rates or charges in order to comply with the rate covenant. See the caption “SECURITY FOR THE BONDS—Rate Covenant.” Limited Recourse on Default If the District defaults on its obligation to pay the Series 2017 Installment Payments, the Trustee has the right to declare the total unpaid principal amount of the Series 2017 Installment Payments, together with the accrued interest thereon, to be immediately due and payable. However, in the event of a default and such acceleration, there can be no assurance that the District will have sufficient funds to pay such accelerated amounts from Net Revenues. Rate-Setting Process under Proposition 218 Proposition 218, which added Articles XIIIC and XIIID to the State Constitution, affects the District’s ability to maintain existing Water System rates and impose rate increases, and no assurance can be given that future Water System rate increases will not encounter majority protest opposition or be challenged by initiative action authorized under Proposition 218. In the event that future proposed Water System rate increases cannot be imposed as a result of majority protest or initiative, the District might thereafter be unable to generate Net Water System Revenues in the amounts required by the Installment Purchase Agreement to pay the Series 2017 Installment Payments. The District believes that the current Water System rates approved by the Board were effected in accordance with the public hearing and majority protest provisions of Proposition 218. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” Statutory and Regulatory Compliance Laws and regulations governing treatment and delivery of water are enacted and promulgated by federal, State and local government agencies. Compliance with these laws and regulations is and will continue to be costly, and, as more stringent standards are developed, such costs will likely increase. Claims against the Water System for failure to comply with applicable laws and regulations could be significant. Such claims may be payable from assets of the Water System and constitute Operating and Maintenance Costs or from other legally available sources. In addition to claims by private parties, changes in the scope and standards for public agency water systems such as that operated by the District may also lead to administrative orders issued by federal or State regulators. Future compliance with such orders can also impose substantial additional costs on the District. No assurance can be given that the cost of compliance with such laws, regulations and orders would not adversely affect the ability of the District to generate Net Revenues sufficient to pay the Bonds. Natural Disasters The occurrence of any natural disaster in the District, including, without limitation, earthquake, wildfire, drought, high winds or flood, could have an adverse material impact on the economy within the District and the revenues available for the payment of the Bonds and result in substantial damage to and interference with the operations of the Water System. Portions of the District’s service area may be subject to unpredictable seismic activity. The Installment Purchase Agreement does not require the District to maintain earthquake insurance. The District maintains liability insurance for the Water System and property casualty insurance (for losses other than from seismic events) for certain portions of the Water System. See the caption “YORBA LINDA WATER DISTRICT—District Insurance.” However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers. Furthermore, significant -48- portions of the Water System, including underground pipelines, are not covered by property casualty insurance. Damage to such portions of the Water System as a result of natural disasters would result in uninsured losses to the District. See the caption “WATER SYSTEM FINANCIAL INFORMATION—Recovery of Wildfire Settlement Payment” for a discussion of a 2008 wildfire within District boundaries. Limitations on Remedies The ability of the District to comply with its covenants under the Installment Purchase Agreement and to generate Net Revenues sufficient to pay the Series 2017 Installment Payments may be adversely affected by actions and events outside of the control of the District and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay assessments, fees and charges. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” Furthermore, the remedies available to the owners of the Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition, usual equity principles may limit the specific enforcement under State law of certain remedies, as may the exercise by the United States of America of the powers delegated to it by the federal Constitution and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy , insolvency, reorganization, arrangement, fraudulent conveyance, moratorium proceedings and other laws relating to or affecting creditors’ rights, or the exercise of powers by the federal or State government, if initiated, could subject the Beneficial Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations, or modification of their rights. Remedies may be limited because the Water System serve an essential public purpose. The opinion to be delivered by Bond Counsel concurrently with the execution and delivery of the Bonds will be subject to such limitations and the various other legal opinions to be delivered concurrently with the issuance of the Bonds will be similarly qualified. See Appendix C. In the event that the District fails to comply with its covenants under the Installment Purchase Agreement or fails to pay the Series 2017 Installment Payments, which secure the payments of principal of and interest on the Bonds, there can be no assurance of the availability of remedies adequate to protect the interest of the holders of the Bonds. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the Authority and the District have covenanted in the Indenture and the Installment Purchase Agreement, respectively, to comply with the applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and not to take any action or fail to take any action if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds thereunder. Interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of such Bonds as a result of acts or omissions of the Authority or the District in violation of this or other covenants in the Indenture or the Installment Purchase Agreement. The Bonds are not subject to redemption or any increase in interest rates should an event of taxability occur and will remain outstanding until maturity or prior redemption in accordance with the provisions contained in the Indenture. See the caption “TAX EXEMPTION.” -49- Secondary Market There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that the Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Parity Obligations The Installment Purchase Agreement permits the District to enter into Parity Bonds and Contracts payable from Net Revenues of the Water System on a parity with the Bonds, subject to the terms and conditions set forth therein. The entry into of additional Parity Bonds and Contracts could result in reduced Net Revenues available to pay the principal of and interest on the Bonds. The District has covenanted to maintain coverage of 125% on the Bonds and all Parity Bonds and Contracts, as further described under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS—Additional Parity Bonds and Contracts.” THE AUTHORITY The Authority is a public body that is duly organized and existing under the Joint Exercise of Powers Agreement, dated April 11, 2017 (the “JPA Agreement”), by and between the District and California Municipal Finance Authority, and under the Constitution and laws of the State. The Authority was formed for the purpose of assisting in the financing and refinancing of capital improvement projects of the District and to finance working capital for the District by exercising the powers referred to in the JPA Agreement, including the power to issue bonds to pay the costs of public improvements. Neither the District nor California Municipal Finance Authority is responsible for repayment of the obligations of the other. The members of the Board of Directors of the Authority are the members of the Board of Directors of the District. APPROVAL OF LEGAL PROCEEDINGS The valid, legal and binding nature of the 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 as Appendix C, and such legal opinion will be attached to each Bond. Certain matters will be passed upon for the District by Kidman Law LLP, Irvine, California, general counsel to the District, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, for the Underwriter by its counsel, Gilmore & Bell, P.C., and for the Trustee by its counsel. LITIGATION District At the time of delivery of and payment for the Bonds, the District will certify that 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 delivery of the Bonds, the application of the proceeds thereof in accordance with the Installment Purchase Agreement and the Indenture, or that would have a material adverse effect on the District’s ability to pay the Series 2017 Installment Payments, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture, the Installment Purchase Agreement, or any action of the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the District or its authority -50- with respect to the 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. Authority At the time of delivery of and payment for the Bonds, the Authority will certify that 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 Authority, threatened against the Authority affecting the existence of the Authority or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Installment Purchase Agreement and the Indenture, or that would have a material adverse effect on the Authority’s ability to pay the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture, the Installment Purchase Agreement, or any action of the Authority 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 Authority or its authority with respect to the Bonds or any action of the Authority contemplated by any of said documents, nor to the knowledge of the Authority, is there any basis therefor. TAX EXEMPTION 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 (and original issue discount) on the 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 (and original issue discount) on the Bonds is exempt from State personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 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 Bond (the first price at which a substantial amount of the 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 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the Bond Owner will increase the Bond Owner’s basis in the Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the 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 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 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 Code; such amortizable bond premium reduces the Bond Owner’s basis in the applicable 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 Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Owner. Purchasers of the 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 Bonds is based upon certain representations of fact and certifications made by the Authority and the District and is subject to the condition that the Authority and the District comply with all requirements of the -51- Code that must be satisfied subsequent to the issuance of the Bonds to assure that interest (and original issue discount) on the 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 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The Authority and the District have covenanted to comply with all such requirements, as applicable. 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 Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the 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 Bonds to the extent that it adversely affects the exclusion from gross income of interest on the Bonds or their market value. SUBSEQUENT TO THE ISSUANCE OF THE 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 BONDS OR THE MARKET VALUE OF THE BONDS. TAX REFORM PROPOSALS ARE BEING CONSIDERED BY CONGRESS. IT IS POSSIBLE THAT LEGISLATIVE CHANGES MIGHT BE INTRODUCED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME OR STATE TAX BEING IMPOSED ON OWNERS OF TAX- EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE BONDS SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE 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 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. Bond Counsel’s engagement with respect to the Bonds terminates upon their issuance and Bond Counsel disclaims any obligation to update the matters set forth in its opinion. The Indenture, the Installment Purchase Agreement and the Tax Certificate relating to the 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) on the Bonds for federal income tax purposes with respect to any 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 Bonds is excluded from gross income for federal income tax purposes provided that the Authority continues to comply with certain requirements of the Code, the ownership of the Bonds and the accrual or receipt of interest (and original issue discount) on the 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 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Bonds. Should interest (and original issue discount) on the Bonds become includable in gross income for federal income tax purposes, the Bonds are not subject to early redemption or an increase in interest rates and will remain outstanding until maturity or until redeemed in accordance with the Indenture. -52- A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C. CONTINUING DISCLOSURE The District has covenanted in a Continuing Disclosure Certificate for the benefit of the Owners and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District by not later than each April 1 following the end of the District’s Fiscal Year (currently its Fiscal Year ends on June 30) (the “Annual Report”), commencing April 1, 2018 with the Annual Report for the Fiscal Year ending June 30, 2017, 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 enumerated events is set forth in Appendix E. These covenants have been made in order to assist the Underwriter in complying with Section (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission. [DISCUSSION OF PRIOR COMPLIANCE TO COME] Except as set forth in the previous sentence, the District has not failed to comply with the terms of its prior continuing disclosure undertakings in the last five years in any material respect. In late 2016, the Board adopted a Statement of Debt Management Policy that establishes certain disclosure procedures for the District. RATINGS The Authority expects that S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”), and Fitch Ratings, Inc. (“Fitch”) will assign the Bonds the ratings of “___” and “___”, respectively. There is no assurance that any credit rating given to the 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 if, in the judgment of S&P or Fitch, respectively, circumstances so warrant. Any downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 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, respectively. Generally, rating agencies base their ratings on information and materials furnished to them (which may include information and material from the District that is not included in this Official Statement) and on investigations, studies and assumptions by the rating agencies. The District has covenanted in the Continuing Disclosure Certificate to file notices of any rating changes on the Bonds with EMMA. See the caption “CONTINUING DISCLOSURE” and Appendix E. Notwithstanding such covenant, information relating to rating changes on the Bonds may be publicly available from the rating agencies prior to such information being provided to the District and prior to the date by which the District is obligated to file a notice of rating change. Purchasers of the Bonds are directed to the rating agencies and their respective websites and official media outlets for the most current ratings with respect to the Bonds after the initial issuance of the Bonds. In providing a rating on the Bonds, certain rating agencies may have performed independent calculations of coverage ratios using their own internal formulas and methodology which may not reflect the provisions of the Indenture or the Installment Purchase Agreement. The District makes no representations as to any such calculations, and such calculations should not be construed as a representation by the District as to past or future compliance with any financial covenants, the availability of particular revenues for the payment of debt service or for any other purpose. FINANCIAL ADVISOR The District has retained Fieldman, Rolapp & Associates, Irvine, California (the “Financial Advisor”) as financial advisor in connection with the sale of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained herein. -53- The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. UNDERWRITING The Bonds are being purchased by Citigroup Global Markets Inc. (the “Underwriter”) pursuant to a Purchase Contract, dated the date hereof, by and among the Authority, the District and the Underwriter. The Underwriter will purchase the Bonds from the Authority at an aggregate purchase price of $_____, representing the principal amount of the Bonds, plus/less $_____ of net original issue premium/discount and less $_____ of Underwriter’s discount. 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 Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. The Underwriter has entered into a retail distribution agreement with each of TMC Bonds L.L.C. (“TMC”) and UBS Financial Services Inc. (“UBSFS”). Under these distribution agreements, the Underwriter may distribute municipal securities to retail investors through the financial advisor network of UBSFS and the electronic primary offering platform of TMC. As part of this arrangement, the Underwriter may compensate TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect to the Bonds. The Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The Underwriter and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the District for which they received or will receive customary fees and expenses. In addition, certain affiliates of the Underwriter are lenders, and in some cases agents or managers for the lenders, under credit and liquidity facilities. In the ordinary course of their various business activities, the Underwriter and its respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the District. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -54- 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 Bonds. The execution and delivery of this Official Statement have been duly authorized by the Authority and the District. YORBA LINDA WATER DISTRICT FINANCING AUTHORITY By: Executive Director YORBA LINDA WATER DISTRICT By: General Manager A-1 APPENDIX A DISTRICT FINANCIAL STATEMENTS B-1 APPENDIX B DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INSTALLMENT PURCHASE AGREEMENT AND THE INDENTURE The following is a summary of certain provisions of the Installment Purchase Agreement and the Indenture that are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the applicable document for a full and complete statement of the provisions thereof. [TO COME] C-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL Upon issuance of the Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: _____ __, 2017 Yorba Linda Water District Financing Authority c/o Yorba Linda Water District 1717 East Miraloma Avenue Placentia, California 92870 Re: $_____ Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A Members of the Board of Directors: We have acted as Bond Counsel to the Yorba Linda Water District Financing Authority (the “Authority”) in connection with the issuance of $_____ aggregate principal amount of Yorba Linda Water District Financing Authority Revenue Bonds, Series 2017A (the “Bonds”). The Bonds have been issued by the Authority pursuant to the terms of the Indenture of Trust, dated as of _____ 1, 2017 (the “Indenture”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). The Bonds are limited obligations of the Authority payable solely from payments to be made by the Yorba Linda Water District (the “District”) to the Authority pursuant to an Installment Purchase Agreement, dated as of _____ 1, 2017 (the “Installment Purchase Agreement”), by and between the District and the Authority, and from certain funds and accounts established under the Indenture. In connection with our representation we have examined a certified copy of the proceedings relating to the Bonds. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigations. Based upon the foregoing and after examination of such questions of law as we have deemed relevant in the circumstances, but subject to the limitations set forth herein, we are of the opinion that: 1. The proceedings of the Authority show lawful authority for the issuance and sale by the Authority of the Bonds under the laws of the State of California (the “State”) now in force, and the Indenture has been duly authorized, executed and delivered by the Authority, and, assuming due authorization, execution and delivery by the Trustee, as appropriate, the Bonds and the Indenture are valid and binding obligations of the Authority enforceable against the Authority in accordance with their respective terms. 2. The obligation of the Authority to make the payments of principal and interest on the Bonds from Authority Revenues (as such term is defined in the Indenture) is an enforceable obligation of the Authority and does not constitute an indebtedness of the Authority 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 (and original issue discount) on the 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 C-2 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 (and original issue discount) on the Bonds is exempt from State personal income tax. 5. The difference between the issue price of a Bond (the first price at which a substantial amount of the 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 Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the Bond Owner will increase the Bond Owner’s basis in the Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of the 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. 6. The amount by which a Bond Owner’s original basis for determining loss on sale or exchange in the applicable 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 Bond Owner’s basis in the applicable 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 Bond premium may result in a Bond Owner realizing a taxable gain when a Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Owner. Purchasers of the 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 Bonds are based upon certain representations of fact and certifications made by the District and the Authority and are subject to the condition that the District and the Authority comply with all requirements of the Code that must be satisfied subsequent to issuance of the Bonds to assure that interest (and original issue discount) on the 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 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The Authority 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. Our engagement with respect to the Bonds terminates on the date of their issuance. The Indenture, the Installment Purchase Agreement and the Tax Certificate relating to the 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 Bonds for federal income tax purposes 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 Bonds. Our opinion is limited to matters governed by the laws of the State and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, 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, the Installment Purchase Agreement and the Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent C-3 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. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds and expressly disclaim any duty to advise the Owners of the Bonds with respect to matters contained in the Official Statement. Respectfully submitted, D-1 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 Authority, the District and the Underwriter believe to be reliable, but neither the Authority, the District nor the Underwriter takes any responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 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 Bonds. The 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 bond will be issued for each annual maturity of the 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 has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“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 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 certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all 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 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 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts D-2 such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the 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 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 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 Authority 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 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 Authority 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 Authority, 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 Authority 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 Bond Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant’s interest in the Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Bonds to the Trustee’s DTC account. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority 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 Authority may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, bonds will be printed and delivered to DTC. THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE 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 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE Upon the issuance of the Bonds, the District proposes to enter into a Continuing Disclosure Certificate in substantially the following form: [TO COME]