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19-0820_SANTA MARGARITA WATER DISTRICT_F1a_Agenda Report8t20t2019 F1a TO City of San Juan Capistrano Agenda Report Honorable Mayor and Members of the City Council Ær ^in Sieget, City ManagerFROM SUBMITTED BY: Ken Al-lmam, Chief Financial Officer Ø Steve May, Director of Public Works and Utilities DATE: August 20,2019 SUBJECT: .Å,Y1-- Memorandum of Understanding Pertaining to Transfer of the City's Water and Sewer Utility Systems to the Santa Margarita Water District RECOMM ENDATION Adopt a Resolution (Attachment 1) approving a Memorandum of Understanding that sets forth the major deal points associated with transfer of ownership and operation of the City's water and sewer utility systems to the Santa Margarita Water District, and makes a determination of exemption under the California Environmental Quality Act (CEQA). EXECUTIVE SUMMARY On February 19, 2019, the City Council selected the Santa Margarita Water District (SMWD) for further negotiation to be the successor agency to provide water and sewer service to City utility customers. Since that date, the staff of the City and SMWD have worked to develop a Memorandum of Understanding (MOU) that addresses major deal points and provides a framework for a future annexation. Approval of the attached MOU would allow the agencies to continue to work together to develop a comprehensive annexation agreement and an application to the Orange County LocalAgency Formatíon Commission (LAFCO). ION/ANALYSIS The major deal points of the MOU are as follows SMWD to use best efforts to invest $25 million over the next ten years in infrastructure rehabilitation and improvement for the direct benefit of San Juan Capistrano ratepayers ; a City Council Agenda Report August 20,2019 Page 2 of 5 a a o a o a Provision that, on average, there will be a modest initial rate reduction in the total amount (water and sewer combined) charged for service; Long-term service charges to be determined by rate studies that take into account all costs associated with the delivery of utility services, as required by law; San Juan Capistrano ratepayers to participate in at-large elections for SMWD board members. Should SMWD transition to by-district elections, SMWD commits to drawing voting district boundaries in a manner that will not dilute the voting power of San Juan Capistrano residents, to the extent allowed by law; City to transfer to SMWD all assets (including water rights) and related liabilities associated with the City's water and sewer systems; City to transfer the rights and obligations of joint venture memberships to SMWD; SMWD assumption of water and sewer related pension costs by making either a lump sum payment or a series of payments to the City to reimburse the City for such costs that are due to the Orange County Employees Retirement System; Continued cooperation between the two agencies as a comprehensive annexation agreement is developed and a LAFCO application prepared. This includes continued sharing of information, providing access to records, developing a list of assets to be transferred to SMWD and discussing capital expenditures over $25,000 with SMWD management prior to expenditure; City to transfer 16 of 20 fulltime employees to SMWD. Four full-time Utilities employees are anticipated to be laid off as part of the transfer. Details regarding the impacts of the transfer are currently under discussion with SMWD and the City's employee associations; a a a a Provision for local payment of utility bills at City Hall, the continued need for which is to be reevaluated after two years; a No exchange of property tax revenues in connection with the utilities systems transfer; SMWD to assume the rights and obligations of utility-related settlement agreements in effect as of the date of the transfer; SMWD indemnification of the City, commencing on the transfer date, with respect to any and all obligations, claims and liabilities stemming from the utilities systems, except for those that arose from the City's operation of the utilities systems before the transfer and are covered under the City's risk pool insurance. City Council Agenda Report August 20,2019 Page 3 of 5 The MOU is scheduled for consideration by the SMWD Board of Directors on August 23. lf the City Council and SMWD Board approve the MOU, the City and SMWD will work together to develop an annexation agreement that would accompany an application to LAFCO to transfer ownership and operation of the water and sewer systems to SMWD. All efforts are being made to complete the development of these documents by late falllearly winter. The annexation agreement will be presented to the City Council and the SMWD Board before it and the LAFCO application are submitted to LAFCO staff for review and subsequent submission to the LAFCO Board. lf approved by the LAFCO Board, the reorganization will be submitted to voters and property owners within the service area for an opportunity to protest transfer of the utility systems to SMWD. Barring unforeseen difficulties or setbacks, the reorganization is expected to be completed iñ Spring 2020. FISCAL IMPACT: There is no fiscal impact associated with the recommended action of adopting a resolution approving the MOU. Each party will be responsible for its own costs associated with the reorganization, and each party has the right to cancelthe MOU at any time after providing thirty days written notice to the other party. ln the event of such cancellation, neither party will be required to make any reimbursement to the other agency, except for City reimbursement to SMWD for costs incurred to create a comprehensive register of real property interests, which record would have continuing value to the City in the event that the reorganization did not move forward. ENVIRONMENTAL IMPACT City staff has reviewed the recommended action in accordance with the California Environmental Quality Act (Public Resources Code Section 21000 et seq.) ('CEQA"). Pursuant to the State CEQA Guidelines (14 Cal Code Regulations 15000 et seq.), City staff believes that the approval of the MOU is not a project pursuant to CEQA and is exempt from CEQA because it is an organizational or administrative activity of government that will not result in direct or indirect physical changes in the environment (CEOA Guidelines Section 15378(bX5)). The MOU constitutes a pre-approval agreement. ln accordance with CEQA Guidelines Section 15004, the MOU does not bind any party, or commit any party to any definite course of action that may result in a direct or indirect change in the environment. Further environmental review will be performed as part of the parties' consideration of the transfer and annexatíon before any party takes any action that binds any party or may result in direct or indirect change in the environment. City staff recommends that the City Council adopt the resolution which includes a finding that approval of the MOU does not constitute a project and is exempt under CEQA. City Council Agenda Report August 20,2019 Page 4 of 5 PRIOR CITY COUNCIL REVIEW: February 19, 2019: City Council selected SMWD for further consideration and negotiation of terms related to the potential transfer of the City's water and sewer utility system. February 5, 2019: City Council received presentations from the three qualified special districts as well as input from the public with respect to the selection of one of the districts for further consideration and negotiation of terms related to the potential transfer of the City's water and sewer utility system. December 5, 2017: City Council appropriated $50,000 from the Water Fund to supplement funding for the LAFCO Municipal Services Review. August 2, 2016: City Council approved the "Criteria for Evaluating a Potential Change in Utility Organization" and directed staff to fonruard to LAFCO an application for a focused Municipal Service Review for the City's water and sewer utility. April 5, 2016: City Council concluded the reorganization study, appropriated $150,000 for costs associated with the Municipal Service Review, and directed staff to convene one or more workshops with the Utilities Commission and the public to develop specific criteria that should guide the City's consideration of a potential change in organization. a a a a a March 3,2015: City Council approved an agreement with Brownstein Hyatt Farber Schreck to study the potential benefits and optíons for a utility reorganization. OMMITTEE/BOARD REVIEW AND Not applicable NOTIFICATION Daniel R. Ferons, General Manager, Santa Margarita Water District Carolyn Emery, Executive Officer, Orange County LocalAgency Formation Commission Utilities Commission Chamber of Commerce Roger Butow Thomas Whaling Richard Gardner Joanne Marquez Management and Professional Em ployees Association Classified Employees Association Utilities Employees a City Council Agenda Report August 20,2019 Page 5 of 5 ATTACHMENTS: Attachment 1 - Resolution Approving Memorandum of Understanding RESOLUTION NO. 19.08-20-XX A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN JUAN CAPISTRANO, CALIFORNIA, APPROVING A MEMORANDUM OF UNDERSTANDING WITH THE SANTA MARGARITA WATER DISTRICT REGARDING THE WATER DISTRICT'S PROPOSED ANNEXATION OF THE CITY'S WATER AND SEWER SYSTEMS, MAKING A DETERMINATION OF EXEMPTION UNDER THE CALIFORNIA ENVIRONMENTAL QUALITY ACT, AND TAKING RELATED ACTIONS WHEREAS, the City of San Juan Capistrano (the "City") owns and operates utilities systems (the "Utilities Systems") consisting of (i) a potable water system and a recycled water system and (ii) a wastewater system; WHEREAS, in 2015, the City began to evaluate options to re-organize the Utilities Systems; WHEREAS, based on such evaluation, in August 2016, the City submitted an application to the Orange County Local Agency Formation Commission ("OCLAFCO") pursuant to Government Code Section 56430 for a Municipal Service Review, to assess the potential transfer of the operation and facilities of the Utilities Systems to another public agency; WHEREAS, OCLAFCO received and filed a final Focused Municipalservice Review report on October 10,2018 (the "MSR"); WHEREAS, the MSR assessed the potential transfer of the Utilities Systems to one or a combination of two or three independent special districts with service boundaries adjacent to the City: Moulton Niguel Water District ('MNWD'), South Coast Water District ("SCWD") and Santa Margarita Water District (the "SMWD"); WHEREAS, after additional discussions with MNWD, SCWD and SMWD, the City expressed its intention on February 19, 2019, to proceed by focusing its negotiation with SMWD with respect to the transfer of the Utilities Systems while leaving other options open, until the negotiation with SMWD has concluded in accordance with the terms of a Memorandum of Understanding (the "Memorandum"); WHEREAS, the transfer of the Utilities Systems to SMWD will require an annexation of the service area of the Utilities Systems to SMWD (the "Annexation"), which will constitute a reorganization and/or change of organization within the meaning of the Cortese-Knox Hertzberg Local Government Reorganization Act of 2000, California Government Code Section 56000 et seq.; WHEREAS, the Annexation will require SMWD to submit to OCLAFCO an application and a plan for services for a sphere of influence amendment and annexation (collectively, the "LAFCO Application"), and OCLAFCO may impose terms and conditions as part of any such re-organization and/or change of organization; ATTACHMENTl-Page1of3 WHEREAS, the City and SMWD contemplate that, before the submission of the LAFCO Application to OCLAFCO, the City and SMWD will enter into an agreement (the "Annexation Agreement") which will set forth: (i) certain key terms to be incorporated into the LAFCO Application, and (ii) certain agreements pertaining to matters after the Annexation; WHEREAS, the City and SMWD intend for the Memorandum to memorialize the parties' mutual understanding with respect to certain terms to be incorporated into the Annexation Agreement and the LAFCO Application, and other related matters; and, WHEREAS, the Memorandum, in its substantial final form, is attached to this Resolution as Exhibit A. NOW, THEREFORE, BE lT RESOLVED, by the City Councilof the City of San Juan Capistrano that: 1. The above recitals are true and correct and are a substantive part of this Resolution. 2. The Memorandum has been reviewed by City staff and the City Councilwith respect to the applicability of the California Environmental Quality Act (Public Resources Code Section 21000 et seq.) ("CEQA'). Pursuant to the State CEQA Guidelines (14 Cal Code Regs 15000 et seq.)(the "Guidelines"), the City Council has determined that the approval of the Memorandum is not a prolect pursuant to CEQA and is exempt from CEQA because it is an organizational or administrative activity of government that will not result in direct or indirect physical changes in the environment (Guidelines Section 15378(b)(5)). The Memorandum constitutes a pre-approval agreement for the purposes of CEQA and the CEQA Guidelines. ln accordance with Section 15004 of the CEQA Guidelines, the Memorandum does not bind any party, or commit any party to any definite course of action that may result in a direct or indirect change in the environment. 3. City Staff is hereby directed to prepare and post a notice of exemption pursuant to Guidelines Section 15062. 4. The Memorandum, in the form attached as Exhibit A, is hereby approved. The City Manager is hereby authorized to execute and deliver, for and in the name of the City, the Memorandum, in substantially such form, with changes therein as the City Manager may approve (such approval to be conclusively evidenced by the execution and delivery thereof). 5. The officers of the City are hereby authorized, jointly and severally, to do all things which they may deem necessary or proper to effectuate the purposes of this Resolution and the Memorandum, and any such actions previously taken are hereby ratified and confirmed. 6. This Resolution shall be effective upon adoption ATTACHMENTl-Page2of3 PASSED, APPROVED AND ADOPTED this 20th day of August, 2019 BRIAN L. MARYOTT, MAYOR ATTEST MARIA MORRIS, CITY CLERK STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF SAN JUAN CAPISTRANO l, Maria Morris, appointed City Clerk of the City of San Juan Capistrano, do hereby certify that the foregoing Resolution was adopted at a regular meeting of the City Council of the City of San Juan Capistrano, held on the 20th day of August, 2019, by the following vote: ) ) ) SS AYES: NOES: ABSENT: ABSTAIN COUNCIL MEMBERS COUNCIL MEMBERS COUNCIL MEMBERS COUNCIL MEMBERS Maria Morris, City Clerk ATTACHMENTl -Page3of3 A. B. C. MEMORANDUM OF' UNDERSTANDING This Memorandum of Understanding, dated as of 2019 (this "Memorandum"), is entered into by and between the City of San Juan Capistrano, a municipal corporation duly organized and existing under the laws of the State of California (the "City"), and the Santa Margarita \ilater District, a water district duly organized and existing under the California Water District Law (California Water Code Section 34000 et seq.) ("SMWD"). The City and SMWD are, together, referred to in this Memorandum as the "Parties" and, individually, as a "Part5/." RECITALS The City owns and operates utilities systems (the 66Utilities Systems") consisting of (i) a potable water system and a recycled water system (together, the "Water System") and (ii) a wastewater system (the "Wastewater System"). In2015, the City began to evaluate options to re-organizethe Utilities Systems. Based on such evaluation, in August 2016,the City submitted an application to the Orange County Local Agency Formation Commission ("OCLAFCO") pursuant to Government Code Section 56430 for a Municipal Service Review, to assess the potential transfer of the operation and facilities of the Utilities Systems to another public agency. After a period of study and the undertaking of a study session and then a public hearing, OCLAFCO received and filed the final Focused Municipal Service Review report on October 10, 2018 (the "MSR"). The MSR assessed the potential transfer of the Utilities Systems to one or a combination of two or three independent special districts with service boundaries adjacent to the City: Moulton Niguel ìWater District ("MNWD"), South Coast Water District ("SCWD") and SMWD. F.After additional discussions with MNWD, SCWD and SMWD, the City expressed its intention on February 19,2019, to proceed by focusing its negotiation with SMWD with respect to the transfer of the Utilities Systems, while leaving other options open until the negotiation with SMWD has concluded in accordance with the terms of this Memorandum. G The transfer of the Utilities Systems to SMWD will require an annexation of the service area of the Utilities Systems to SMWD (the "Annexation"), which will constitute a reorganization and/or change of organization within the meaning of the Cortese-Knox Hertzberg Local Government Reorganization Act of 2000, California Government Code Section 56000 et seq. The Annexation will require SMWD to submit to OCLAFCO an application and a plan for services for a sphere of influence amendment and annexation (collectively, the "LAFCO Application"), and OCLAFCO may impose terms and conditions as part of any such re- or ganization and/or change of organization. D E H. EXHIBITA-Page1of20 I. J The Parties contemplate that, before the submission of the LAFCO Application to OCLAFCO, the Parties will enter into an agreement (the "Annexation Agreement") which will set forth: (i) certain key terms to be incorporated into the LAFCO Application, and (ii) certain agreements pertaining to matters after the Annexation. This Memorandum memorializes the Parties' mutual understanding with respect to certain terms to be incorporated into the Annexation Agreement and the LAFCO Application, and other related matters. NOW, THEREF'ORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND CONDITIONS CONTAINED HEREIN, AND OTHER VALUABLE CONSIDERATION, THE ADEQUACY OF' WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES AGREE AS F'OLLOWS: 1. PURPOSE The Parties intend that the provisions of this Memorandum: (i) will form the basis for the development of the Annexation Agreement and (ii) address how other matters pertaining to the Annexation will be carried out by the Parties. 2. DEFINITIONS Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Memorandum have the meanings herein specifìed: 2.1. "20-14-S.lB-Bonds" means the $20,361,090 (original principal amount) San Juan Basin Authority Lease Revenue Bonds (Ground Water Recovery Project), Issue of 2014. 2.2."20144 Refundine Boú" means theSl9,922,77l (original principal amount) City of San Juan Capistrano Water Revenue Refunding Bonds, Series 2014A. 2.3. "2017 Installment Purchase Agreement" means the Installment Purchase Agreement, dated as of December 1,2017, by and between the City and the Public Property Financing Corporation of California, pursuant to which the City is obligated to make certain Installment Payments (as dehned therein, with an original principal component of $8,4 I 0,000). "Aunex4tþn" means SMWD's annexation of the Service Area, as contemplated herein. "Annexation Aereemffi" means the agreement to be entered into by the City and SMWD, which will set forth: (i) certain key terms to be incorporated into the LAFCO Application, and (ii) certain agreements pertaining to matters after the Annexation. 2.4. 2.5. EXHIBITA-Page2of20 2.6. (cAssets" means the assets owned by the City that are accounted for in the Asset Register and that are used in connection with and for purposes of operating the Water System or the Wastewater System, as applicable, including but not limited to the City Water Rights, physical facilities, real property interests, personal property, cash or cash equivalents or other funds. 2.7."Asset Register" means a database or registry that documents all of the Assets of the Water System or the Wastewater System, as applicable. 2.8.*ÇEQA" means the California Environmental Quality Acq set forth in California Public Resources Code Sections 21000 et seq. "ÇEQA_Guidelineg" means regulations implementing CEQA, set forth in Title 14 of the California Code of Regulations Sections 15000 et seq. 2.10. (6çi1y" means the City of San Juan Capistrano, California. 2.9. 2.13. "CitylMatq ßlghlg" means all water rights controlled, exercised, applied for or held by the City, including, without limitation, pueblo, appropriative, riparian, overlying, or prescriptive right, or any other right, allocation or entitlement to divert, produce, or use surface water or groundwater, whether existing at common law or pursuant to any permit, agreement, contract, adjudication, or any judicial or administrative action. 2.14. "City Water Rights T " means the agreement between the City and SMWD regarding the transfer of City Water Rights developed pursuant to Section 7.1. 2.15. "Çeunjy" means the County of Orange, California 2.16. "Çu$e!qe$" means ratepayers of the Service Area. 2.11. 2.12. 2.17. 2.18. 2.19. "City Council" means the City Council of the City. "Çily_X4glgge¡" means the City Manager (or in the absence of the City Manager, the Assistant City Manager) of the City. "GWIUt" means the Groundwater Recovery Plant operated by the City "G.]ilRP Land" means the City-owned land on which the GWRP is situated. 6(ID 9r' means the new improvement district (currently contemplated to be designated "Improvement DistrictNo. 9") proposed to be formed by SMWD, which will consist of only the Service Area and until the formation of such new improvement district, UID 9" shall refer to the teritory currently served by the City's Utilities Systems. EXHIBITA-Page3of20 2.20. 'oJoint Venture" means a joint powers authority or joint venture to which the City is member for the operation of the Water System or the Wastewater System. 2.21. "LAFCO Application" means the application and plan for services for a sphere of influence amendment and annexation to be submitted to OCLAFCO with respect to the Annexation. 2.22. "LAFCO Approval" means the action to be taken by the OCLAFCO Commission to approve the Annexation. 2.23. "Litigation Disclosure List" means a list of all litigation which affects the Utilities Systems and which is: (a) on-going and of which the City is a party, or (b) threatened and actually known to the City. 2.24. "MSR" means the fìnal Focused Municipal Service Review report received and filed by the LAFCO Commission on October 10, 2018, assessing the potential transfer of the operation and facilities of the Utilities Systems to another public agency. 2.25. "New Easements" means easement or access licenses, or other similar real property interests to any Retained Property or any other City-owned property, which are proposed to be created in favor of SMWD, to enable SMWD's operation of the Utilities Systems after the Transfer Date. 2.26. 2.27. 2.31. 2.32. 2.28. "QÇERS-QþLgatien" means the additional payment required to be made as the result of the Annexation, pursuant to the OCERS 6/17/19 Determination. 2.29. "OCLAFCO" means the Local Agency Formation Commission of Orange County, California. 2.30. "Outstandine Bond Oblisations" means, collectively, the 2014 SJB Bonds, the 2014A Refirnding Bonds and the 2017 Installment Purchase Agreement. "OCEB$" means the Orange County Employees Retirement System. "OCERS 6/17119 Det " the determination by the Board of Retirement (which administers OCERS) on June 17,2019 regarding the OCERS Obligation. 6(ruy" means, as context requires, either the City or SMWD. "Pending SCWD Comp 'means the complaint to the SWRCB filed by SCWD on August 13,2015, against the SJBA and the City regarding the City's diversion and use of water pursuant to SWRCB Permit No. 21074 and all related matters, which complaint is pending. 2.33. "Post-Transfer Liab " means all obligations, claims and liabilities stemming from the Utilities Systems, unless such obligations, claims or liabilities arose during EXHIBITA-Page4of20 the City's operation of the Utilities Systems prior to the Transfer Date and are covered under the City's risk pool insurance. 2.34. "Prosþective Emplo " means current City employees of the Utilities Systems who become SMWD employees upon Annexation. 2.35. "Real Propert)¡ Inventor)¡ Report" means the report regarding real property interests to be prepared pursuant to Section 5.a(a). 2.36. "Retained means all of the real property interests identified in the Real Property Inventory Report that are proposed to be retained by the City after the Annexation. 2.37. 2.38. 2.39. 2.46. 2.47. 2.40. "South Coast Farms R " means all payments payable by South Coast Farms, Inc., or Ecocenter, Inc. (d/bla The Ecology Center) (or their successors or assigns) to the City under the Agreement Establishing a Payment Schedule for Outstanding Water Charges, dated as of February 7,2017, as previously amended, and the LetterAgreement, dated August2l,2018, by and between the City and Ecocenter, Inc. 2.41. 2.42. 2.43. "Sj4lg" means the State of California. "SWRCB" means the California State Water Resources Control Board "Transfer Date" means the date on which the Utilities Systems are transferred to SMWD as specified in the OCLAFCO Certificate of Completion for the Annexation or as otherwise agreed to by the Parties. 2.44. "Transferred Properties" means all of the real property interests that are proposed' to be transferred by the City to SMWD in connection with the Annexation. 2.45. "SCWD" means the South Coast Water District. (($JBA" means the San Juan Basin Authority, a California joint powers authority. "SeIvjce Area" means the territory served by the City's Utilities Systems, and as described in the MSR. "ËeIvQL_Eund" means the fund established and held by the City for Wastewater System (identified as the "Municipal Sewer Enterprise Fund" in the City's most recent audited financial statements). "SMWD" means the Santa Margarita Water District. "SMWD Board" means the Board of Directors of SMWD. EXHIBITA-Page5of20 2.48. "SMWD Representati " means, with respect to a specified purpose, the person(s) (which may be employees, agents or consultants of SMWD) designated by SMWD General Manager, in writing, as authorized representatives of SMWD. 2.49. "SMWD General Manaqer" means the General Manager (or in the absence of the General Manager, the Deputy General Manager) of SMWD. 2.50. "Utilities S)¡stems" means, together, the Water System and the Wastewater System. 2.51. "Wate1-Sptelq" means the potable water system and the recycled water system of the City, to be transfemed to SMWD. 2.52. "Watel-Eu4fl" means the fund established and held by the City for Water System (identified as the "Water Enterprise Fund" in the City's most recent audited financial statements). 2.53. "WaslgwatelSy$gm" means the wastewater system of the City, to be transferred to SMWD. 3. ANNEXATION AGREEMENT; LAFCO APPLICATION 3.1. Cooperation in Good Faith; Target Date. (a) Each Party shall proceed in good faith to cooperate with the other Party to develop the Annexation Agreement, in a manner consistent with this Memorandum. During the term of this Memorandum, City shall not engage, negotiate with, solicit or accept proposals regarding the transfer of the Utilities Systems from, any third party. (b) Until the termination of this Memorandum, the City shall continue to operate the Utilities Systems in a reasonable manner consistent with past practices. The City shall not engage in any transaction outside of the ordinary course of business that materially adversely affect the principal financial elements of transfer of the Utilities Systems to SMWD as contemplated herein. All Assets of the City shall be conveyed in their "as-is" condition. In addition, and notwithstanding the limitations of this paragraph, nothing herein shall preclude the City from entering into agreements or undertaking pro.jects during the term of this Memorandum that the City, in its sole independent judgment, determines to be necessary for the safe and effective operation of the Utilities Systems. (c) The Parties shall strive to have a frnal draft of the Annexation Agreement, presented to the City Council and the SMWD Board, respectively,by January 2020. (d)Conditions in Agreement.The Annexation Agreement shall include customary conditions precedent generally applicable to an acquisition of the nature and size of the transfer of the Utilities Systems contemplated by this Memorandum, each of which must be satisfied or waived prior to the Transfer Date. In general, the transfer and the obligations of each Party under the Annexation Agreement will be subject to the satisfaction or waiver of EXHIBITA-Page6of20 certain conditions precedent, which shall include the following general concepts with specific terms and provisions to be specified in the Annexation Agreement: Satisfactorl¿ Results of Due Dilisence. The satisfactory completion of due diligence investigation and acquisition audit by SMWD showing that the Assets and any actual or contingent liabilities against those Assets, and the prospective business operations of the Utilities Systems by SMWD are substantially the same as currently understood by SMWD as of the date of this Memorandum. ll.Compliance. Satisfactory determination by SMWD that the acquisition and prospective operations of the Utilities Systems by SMWD will comply with all applicable laws and regulations, including, but not limited to approval by OCLAFCO. Consents and Approvals. The approval of the Annexation Agreement by the SMWD Board and the City Council and the receipt of the approvals from all governmental entities, including OCLAFCO, and other parties that are necessary or appropriate to the City's transfer of the Assets by SMWD. lv.Ahsence of Meferial I.ifiocfinn nr Àd VETSE f-hqn cp There must be no pending, notice of which has been received by the City, or to the City's knowledge, threatened material claims or litigation, other than those claims disclosed by City in this Memorandum or disclosed to SMWD outside of this Memorandum, involving City's Utilities Systems, and no material adverse change in the Utilities Systems, which shall be further defined in the Annexation Agreement. Bonds. SMWD must obtain approval from OCLAFCO and the holders of the Outstanding Bond Obligations in order to assume the Outstanding Bond Obligations. vl.Environmental. An environmental inspection by SMWD's staff or consultant must show the Assets and Transfered Properties to be free from significant environmental liabilities. SMWD shall be given access during normal business hours or other times acceptable to City, with advance notice, to the property of City and documents as necessary for SMWD and its agents to conduct the inspection and prepare any necessary environmental reports. The Assets and Transferred Properties will be transferred in their "as is" condition. EXHIBITA-Page7of20 3.2. LAFCOApplication. (a) SMWD shall submit the LAFCO Application to the LAFCO Commission as soon as practicable after the Parties' execution and delivery of the Annexation Agreement. (b) The LAFCO Application shall be consistent with the Parties' agreements set forth in this Memorandum and the Annexation Agreement. The City agrees to support the LAFCO Application and take all reasonably necessary action in support of the LAFCO Application, including, but not limited to, providing letters, documents or statements of support if necessary, and attending public hearings. 4.CEQA 4.1. SMWD to be Lead Agency for CEQA Compliance. (a) SMWD shall be the lead agency for purposes of any CEQA compliance in connection with the Annexation and the LAFCO Application, pursuant to Section 15051(a) and Section 15051(d) of the CEQA Guidelines. (b) SMWD shall comply with CEQA and the CEQA Guidelines before committing to undertake any action that will result in .a direct or indirect change in the environment, as required by CEQA. This Memorandum shall not restrict SMWD, if required to do so, from considering any feasible mitigation measures and alternatives, at SMWD's cost, including the "no project" alternative, nor restrict SMWD from denying any "project" altogether. 4.2. Pre-Approval Agreement for CEQA Purposes. (a) This Memorandum constitutes a pre-approval agreement for the purposes of CEQA and the CEQA Guidelines. In accordance with Section 15004 ofthe CEQA Guidelines, this Memorandum shall not bind any party, or commit any party to any definite course of action that may result in a direct or indirect change in the environment. (b) In light of the foregoing, the Parties agree that this Memorandum will not have an impact on the environment, and is not a "project" for CEQA purposes. 5.ASSET REGISTERS; DUE DILIGENCE; TRANSFER WORI( PLAN; TRANSFER OF ASSETS 5.1. Asset Registers. (a) The City will develop an Asset Register for each of the Water System and the Wastewater System. The Asset Registers shall include the real property interests identified in the Real Property Inventory Report prepared pursuant to Section 5.4 (b) The City shall continuously review and update each Asset Register before the Transfer Date. EXHIBITA-Page8of20 (c) To the extent that an item (or a category of items) on an Asset Register is to be excluded from the transfer ofthe Utilities Systems to SMWD, such exclusion shall be specified in the Annexation Agreement. 5.2. Review by SMWD; Due Diligence. (a) The City shall promptly notify SMWD General Manager upon the completion of the Asset Registers and, thereafter, make the Asset Registers available to SMWD Representatives for review. (b) Upon reasonable notice and subject to any legal or public safety restrictions, the City shall allow SMWD Representatives access to the facilities and records of the Utilities Systems for inspection and due diligence purposes. (c) From the date of this Memorandum until the termination of this Memorandum, City will give SMWD Representatives full access and opportunity to inspect, investigate, and audit the books, records, contracts, and other documents of City as they relate to City's operation and management of the Utilities Systems and all of City's assets and liabilities (actual or contingent), including, without limitation, inspecting City's property and conducting additional environmental inspections of property and reviewing financial records, contracts, operating plans, and other business records for the purposes of evaluating issues related to the operation of the Utilities Systems. The City further agrees to provide SMWD Representatives with such additional information as may be reasonably requested pertaining to the Utilities Systems, Transferred Properties and Assets. Any such access shall be subject to the provisions of paragraph (b) ofthis Section related to reasonable advance notice and shall not include access to attorney-client privileged communications, which communications shall not be subject to access or inspection by SMWD. 5.3. Work Plan for Operational Transfer. (a) SMWD shall specifr to the City any mechanical, software or other incompatibilities which would cause an interruption to continuous and efficient operation and upgrading of the Utilities Systems upon their transfer to SMWD. (b) A draft work plan shall be prepared and completed by SMWD by October l, 2019, with a final plan completed by SMWD by Decemb er 17, 2019. The work plan shall include, but not be limited to, the following matters: Proposed Water System Capital Improvement Program (CIP), 5 year and 10 year; ll.Proposed Wastewater System CIP, 5 year and l0 year; Proposed South Orange County rüastewater Authority (SOCV/A) CIP, 5 year and 10 year; I ll. iv. Proposed Recycled Water System CIP, 5 year and l0 year; EXHIBITA-Page9of20 Integration Plan for City employees transitioning into SMWD; Integration Plan for including Customers into SMWD's billing system; Plan for transfer of City owned property, easements, and Water Rights to SMWD; and vlll.Plan for City assigning licenses, permits, agreements and contracts to SMWD. (c) The City agrees to cooperate with SMWD in SMWD's development of a work plan to avoid or minimize any such intemuptions. 5.4.Real Property Inventory Report; Title Review and Environmental Assessment. (a) SMWD shall retain a consultant acceptable to the City to prepare the Real Property Inventory Report, which shall identi$r: (i) all of the City's real property interests which are cunently part of the Utilities Systems; (ii) the Transferred Properties, (iii) the Retained Properties and (iv) the New Easements. (b) The City or the consultant shall prepare the draft Real Property Inventory Report and the list of Transferred Properties. The City shall review the accuracy of the Real Property Inventory Report and the list of Transferred Properties and shall provide SMWD with information as to any material deficiencies or omissions, known to City staff, in that Report or list. (c) The property currently identifred by the City as the "Utilities Administration Builcling" shall be one of the Retained Properties. (d) The Real Property Inventory Report shall be finalized only when it has been reviewed by the City and is in the form acceptable to both Parties. (e) With respect to each Transferred Property, the City shall provide to SMWD copies of the following materials to the extent the same are in the City's possession: (i) the deed or othcr instrument showing City's ownership or other interest in such property, (ii) the most recent title report, and (iii) the most recent environmental and physical condition report (e.g., Phase I Environmental Site Assessment) and notices. The City shall cooperate with SMWD and provide any information or other documentation related to the Transferred Property, that is currently in the possession of the City and which is not otherwise subject to the attorney-client privilege, for purposes of evaluating the Transferred Property. (Ð SMWD may, at its own expense, obtain one or more title reports or conduct environmental reviews with respect to the Transferred Property, provided, that SM.WD shall obtain the City's prior written consent in accordance with Section 5.2 (b). (g) The City and SMWD shall jointly review the encumbrances identified on title reports for Transferred Property. With respect to any encumbrance which the Parties agree V vi vll. EXHIBIT A - Page 10 of 20 should and can be removed before the transfer of the property to SMWD, the City will provide such assistance (including the execution of instruments) as SMWD reasonably requests to remove the encumbrance. (h) The City and SMWD shall cooperate to develop the forms of instrument to effect the transfer of the Transferred Properties and the creation of the New Easements. To the extent that, after the Transfer Date, SMWD proposes to create a new easement, an access license or a lease with respect to any City-owned property in order to effectively operate the Utilities Systems, the City shall cooperate with SMWD in good faith to consider, and develop the appropriate instruments for, such creation. (Ð SMWD shall provide notice to the City of any work performed on the Utilities Systems within City limits by SMWD. The City shall not impose any permit or application fees andlor costs that the City charges to other utility operators, which fees or costs relate to SMWD's operation of the Utilities Systems, including but not limited to, encroachment permits and historic, archaeological and paleontological resource permits. C) SMWD will accept City's current standard trench paving requirements that City applies to other utility operators for any Water System or Wastewater System related work within City right of way, including any additional paving requirement beyond SMWD standards. 5.5. Utilities Systems Accounts Payable and Receivable. The City and SMWD agree that, effective on the Transfer Date, SMWD shall acquire all Utilities Systems accounts payable and receivables, including, but not limited to, South Coast Farms Receivables, receivables related to loans paid to the City's redevelopment agency and any other accounts receivables pertaining to the City's Utilities Systems. 5.6. Acceptance of Assets "As-Is." Except as specifically identified in the Annexation Agreement, SMWD shall accept all facilities, properties and other Assets of the Utilities Systems on an "as is" basis as of the Transfer Date. 6. CITY PROPERTY TAX RETENTION 6.1. The Parties agree that there will be no exchange of property tax revenues in connection with or arising from the Annexation. 6.2. The Parties shall cooperate to take such action as necessary or appropriate to effectuate Section 6. l. 7. CITY WATER RIGHTS 7.1. The Parties shall cooperate to develop the City Water Rights Transfer Agreement, pursuant to which SMWD shall obtain the City Water Rights or the right to use the City's Water Rights, individually and collectively, as applicable and as may be permitted by law. The Parties acknowledge that it is their intent that SMWD receive all of the City Water Rights. EXHIBIT A - Page 11 of 20 7.2. The City Water Rights Transfer Agreement may be: (i) a stand-alone document or (ii) in the form of identifiable provisions of the Annexation Agreement. 7.3. The City agrees that after the Transfer Date all water service or water rights within the City will be provided by SMWD and that SMWD will exercise and manage, to the extent permitted by applicable law, all of the City's water rights for the benefit of the City or its residents, except as otherwise identified in the City Water Rights Transfer Agreement. 7.4. SMWD will exercise best efforts to protect, maintain and fully exercise each and all of the City's Water Rights for the benefit of City Customers. 7.5. Riding Park. The parties agree to continue to discuss water service for the Riding Park and agree to memorialize such discussions in the Annexation Agreement. 8. PAYMENT OF CITY RETAINED PENSION COSTS 8.1. Recognition of City Retained Pension Cost. The Parties recognize that, because of the Annexation, the City will incur the OCERS Obligation. 8.2. Payment by SMWD. To address this retained cost, SMWD agrees to pay the OCERS Obligation and shall, in its discretion, pay the OCERS Obligation in either a lump payment or in level annual installments as prescribed by the OCERS 6l17l19 Determination. 9. CITY RESERVES AND CAPITAL EXPENDITURT,S 9.1. All unexpended cash balances in the Water Fund and the Sewer Fund shall be transferred to SMWD on the Transfer Date. 9.2. Notwithstanding the provisions of Section 9.1 above, nothing contained herein shall preclude the City from using City reserves related to its Utilities Systems during the term of this Memorandum consistent with Section 3.1 (b). In addition, prior to the Transfer Date, the City may use City reserves related to its Utilities Systems to pay any valid claim, demand, liability or judgment relating to or otherwise arising out of the City's operation of the Utility Systems. The City agrees that during the term of this Memorandum, no capital expenditures related to the Utilities Systems in excess of $25,000 per project shall be made without at least five (5) calendar days advance notice to SMWD General Manager. EXHIBIT A - Page 12 oT 20 10.OUTSTANDING BOND OBLIGATIONS 10.1. Transfer of Outstanding Bond Obligations. (a) SMWD acknowledges that the City has provided such documents as SMWD has deemed necessary for its review ofthe Outstanding Bond Obligations. The City agrees to provide any additional documentation, except attorney-client privileged communications, SMWD may deem reasonably necessary for purposes of evaluating and understanding the Outstanding Bond Obligations. (b) The Parties agree to jointly negotiate with the respective holders of the Outstanding Bond Obligations to accomplish the successful transfer of such bonded debt to SMWD. SMWD shall pledge the revenue necessary for such transfer. SMWD shall retain its own Bond Counsel and the City shall be included as an addressee of each of such Bond Counsel's opinions, except attorney-client privileged communications, regarding no adverse effect ofthe tax- exempt status of the Outstanding Bond Obligations created by the transfer of the Outstanding Bond Obligations. SMWD shall indemniS' the City for any non-compliance with applicable laws (including but not limited to federal tax law) and debt covenants arising on or after the Transfer Date. SMWD may choose to retire such Outstanding Bond Obligations by other means, including, but not limited to, the issuance of bonds (or incurence of other debt) secured by SMWD's fevenues. 10.2. No Outstanding Wastewater System Bond Obligations. The City represents and warrants that there is no outstanding bond debt secured by a lien on or pledge of Wastewater System revenues. 10.3. No Additional Bonds Without SMWD Consent. The City shall not incur any additional debt secured by a lien on or pledge of any funds or assets of the Utilities Systems without SMWD's prior written consent. 11. ASSUMPTIONOF LIABILITIES; INDEMNIFICATION 11.1. Settlement Agreements Obligations. (a) As part ofthe Annexation, and effective on the Transfer Date, the City shall delegate to SMWD, and SMWD shall assume, all of the City's rights and obligations underthe stipulated judgments and related settlement agreements pertaining to the following: (i) SanJuan Hills Golf Club, LP, v. City Of San Juan Capístrano, et al. (Orange County Sup. Court Case No. 30-2014-00742347-CU-CO-CJC) filed 08/28/2014; stipulated judgment entered 06/21/2016); and (ii) Jrffr"y Cotton und Shannon Cotton, As Trustees Of The Cotton Family Trust Dated September 9, 2002 v. The City Of San Juan Capistrano, et al. (Orange County Sup Court Case No. 30-2015-00778655) filed 03/23/2015; stipulated judgment entered r r/03/2016). EXHIBIT A - Page 13 of 20 (b) The City and SMWD shall cooperate to obtain such consents or approvals as necessary to accomplish such delegation and assumption. 11.2. Pending SCWD Complaint. (a) Prior to the Transfer Date, the City shall continue to be responsible for its defense, from whatever resources the City deems appropriate, with respect to the Pending SCWD Complaint; provided, that the City shall not enter into any resolution of the matter or agree to a settlement term that will materially adversely affect SMWD's operation of the Utilities Systems without consulting SMWD and obtaining SMWD's prior written consent. (b) After the Transfer Date, SMWD shall assume the City's role with respect to the Pending SCWD Complaint and become responsible for the defense thereof from resources of SMWD; provided, that SMWD shall not enter into any resolution of the matter or agree to a settlement term affecting the City without consulting with the City and obtaining the City's prior written consent; provided, further, that SMWD shall reimburse the City all liabilities, costs and expenses incuned in connection with the Pending SCWD Complaint after the Transfer Date (recognizing that such liabilities, costs and expenses would have been appropriately allocated to the Water System regardless of the transfer). 11.3. SMWD Assumption of All Other Obligations and Liabilities. (a) The City agrees to take all reasonable efforts to exhaust any and all available coverage from the City's risk pool insurance authority as it relates to any claims arising out of the City's operation of the Utilities Systems prior to the Transfer Date. (b) On and after the Transfer Date SMWD shall be responsible for all Post- Transfer Liabilities. 11.4. Indemnification. From and after the Transfer Date, SMWD shall defend, indemnifr and hold City harmless from all Post-Transfer Liabilities. The intent of the foregoing is for SMWD to assume responsibility for all Post-Transfer Liabilities and not expand any liability of SMWD that would not have been the City's liability during the City's operation of the Utilities Systems prior to the Transfer Date. 11.5. Disclosure of Pending Litigations. The Annexation Agreement shall include a Litigation Disclosure List. In the Annexation Agreement, the City shall represent and wamant that, except as disclosed in the Litigation List, no ligation is: (a) on-going and of which the City is a pafty, or (b) threatened and actually known to the City. 12.JOINT POWERS AUTHORITIES AND OTHER JOINT VENTURT, MEMBERSHIP; GROUNDWATER RECOVERY PLANT PROPERTY AND OTHER CITY OWNED ASSETS INVOLVED IN JOINT VENTURE PROJECTS 12.1. Transfer of City Joint Venture Rights and Obligations. The City is a member of several Joint Ventures for the operation of the Utilities Systems, including SJBA, the South Orange County Wastewater Authority, the Joint Regional Water Supply System and the Municipal EXHIBIT A - Page 14 o'Í 20 Water District of Orange County. The City and SMWD agree to jointly negotiate with each Joint Venture to provide for the transfer of the City's rights and obligations as a member to the Joint Venture or as a counterparty to any contract with the Joint Venture. 12.2. GWRP Land. The City has leased the GWRP Land, which includes important facilities which are related to the Utilities Systems and associated with the 2014 SJBA Bonds, to SJBA for construction of the GWRP. The City and SMWD shall cooperate to negotiate with SJBA to modifo existing documents to provide for SMWD's operation of the GWRP and account for the transfer of GWRP Land from the City to SMWD as of the Transfer Date or as soon thereafter as is practicable. 13. GOVERNANCE 13.1. City Voters Participation in SMWD District-Wide Elections. After the Annexation, registered voters of the City shall be eligible to vote in any at-large election for SMWD governing board membership and any other elections involving SMWD district-wide measures. In the event that SMWD governing board transitions from at-large elections to by- district elections, the boundaries of each electoral district shall be drawn in a manner that shall not dilute the voting strength of the voters of the City, except to the extent necessary to comply with applicable law. 13.2. Proposed Improvement District No. 9. The City understands that SMWD contemplates a new improvement district, ID 9, which will include only the Service Area. 14. INFRASTRUCTURE INVESTMENT 14.1. Capital Improvement Budget. SMWD shall use its best effort to include in the budget for its Capital Improvemcnt Program cxpenditures of no less than $25,000,000 over the next ten years fbr improvements in ID 9 or for the direct and principal benef,rt of ID 9. 14.2. Capital Improvement Projects Already in Progress. After the Annexation, SMWD shall use its best efforts to timely and efficiently complete the capital improvement projects relating to the Utilities Systems already in progress before the Annexation. 15. RATE SETTING 15.1. Rate Study. As soon as practicable after the Transfer Date, SMWD shall initiate a rate study of the water and wastewater rates for the Customers. 15.2. Interim Billing Reduction. For the initial period after the Annexation, before the completion of the rate study and the subsequent proceedings to establish rates, SMWD will, consistent with legal requirements and procedures, charge the Customers in a manner that on average, there will be a modest overall reduction in the charges payable by the Customers that are billed each month for water and wastewater services (relative to the rates charged by the City immediately before the Annexation). EXHIBIT A - Page 15 o'Í 20 15.3. Long-Term Rate Setting. SMWD shall use its best efforts to establish rates and charges such that the Customers shall pay water and wastewater rates and charges that are no higher than the rates and charges charged by SMWD to other customers of SMWD outside the Service Area for their water and wastewater service. 15.4. Contingency Adjustments. Notwithstanding the foregoing, SMWD may adjust the rates and charges to be paid by the Customers to the extent necessary to cover the payments for liabilities, costs and expenses made pursuant to Section ll.3(a), Section 11.3(b) or Section 11.4. At the time of the 2020 rate setting process or other rate setting process, the District may include in the rates an amount to recover any unforeseen and/or uninsurable liabilities that might arise out of the City's operation of the Utilities Systems. Such will be adopted through and consistent with the Proposition 218 requirements and process. The City agrees to support SMWD's effort to address the recovery.of any unforeseen andlor uninsurable liabilities arising out of the City's operation of the Utilities Systems in the rate setting process. 16. CUSTOMER PAYMENT AT CITY HALL AFTER TRANSFER 16.1. Maintenance of Bill-Pay Presence at City Hall. SMWD and the City shall cooperate to make available to the Customers a means to pay their water and wastewater bills at City Hall for a minimum of two years. 16.2. Designated City Employees; SMWD On-Line Access. The City shall make available one or more designated City employees to assist with the collection of such payments. SMWD shall provide on-line access to such designated employees in connection with the processing of such payments. 16.3. SMWD to Reimburse City Costs and Expenses. The Annexation Agreement shall establish an amount for SMWD's reimbursement to the City for reasonable costs and cxpcnses relating to the provision of Customers' bill-paying access and assistance including, but not limited to, half of the personnel cost of one designated full-time City employee providing such service for no less than two years from the Transfer Date. 17. STAFFING 17.1. Personnel to be Transferred. SMWD provided a list to the City identifying the sixteen anticipated new positions that would result from the Annexation. Based on the list developed, SMWD shall extend initial offers of employment to current City employees of the Utilities Systems in positions deemed comparable by SMWD. Offers of employment shall be contingent upon the following: (a) final approval of the Annexation Agreement by the City and SMWD and the transfer of the Utilities Systems; (b) re-verifrcation of minimum qualifications; and (c) pre-employment background check and medical examination. 17.2. Benefits and Compensation. The starting salary for Prospective Employees shall be offered at the applicable SMWD salary step for the position that is closest to, but not less than, their base salary at the City at the time of the Annexation. Prospective Employees shall be considered newly hired SMWD employees for purposes of SMWD employment terms, benefits and compensation, except as otherwise expressly agreed to and duly authorizedby SMWD. EXHIBIT A - Page 16 of 20 18. MISCELLANEOUS 18.1. Notice. Any notice, request, demand or other communication under this Memorandum shall be given by first class mail or personal delivery to the Party entitled thereto at its address set forth below, by overnight mail, as a ".pdf' attachment to electronic mail, or by telecopy or other form of telecommunication, confirmed by telephone at its number set forth below. Notice shall be effective either (i) upon transmission by telecopy or other form of telecommunication, (ii) 48 hours after deposit in the United States mail, postage prepaid, (iii) in the case of overnight mail, upon delivery to the addressed destination, or (iv) in the case of personal delivery to any person, upon actual receipt. Each Party may, by written notice to the other Party, from time to time modifr the address or number to which communications are to be given under this Memorandum: If to the City:City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attention: City Manager Telephone: (949) 443-6315 E-mail: bsiegel@sanjuancapistrano.org If to SMWD Santa Margarita Water District 26lll Antonio Parkway Rancho Santa Margarita, CA 92688 Attention: General Manager Telephone: (949) 459-6590 E-mail: danf@smwd.com 18.2, Termination. (a) This Memorandum shall be terminated upon the earliest of the following: (i) 30 days after a written notice of termination by one Party to the other Party; (ii) the official announcement by either Party of its abandonment ofthe transfer of the Utilities Systems, or (iii) the execution and delivery of the Annexation Agreement by the Parties (at which time, the Annexation Agreement shall supersede this Memorandum in all respects). (b) In the event that either Party decides to terminate the Annexation for any reason, each Party shall bear its own costs and expenses, including professional fees and attorneys' fees, incurred in connection with all matters related to the preparation, analysis, drafting and evaluation of the Memorandum, the Annexation Agreement and the Annexation; except that the City shall reimburse SMWD for the cost of the Real Property Inventory Report. 18.3. No Binding of Party to Any Action Which Would Result in Environment Change. The Parties do not intend to, and this Memorandum shall not be construed to, create a commitment by either Party to any action that would result in a change in the environment. This Memorandum constitutes a pre-approval agreement for the purposes of CEQA and the CEQA Guidelines. EXHIBIT A - Page 17 of 20 18.4. Nonliability of City and SMWD Officerso Employees or Consultants. No official, officer, employee, agent, representative, consultant or independent contractor of the City or SMWD, acting in his or her official capacity, shall be personally liable to the City or SMWD, or any successor or assign, for any loss, costs, damage, claim, liability, or judgment, arising out of or in connection with this Memorandum, or for any act or omission on the part of the City or SMWD. 18.5. InterimOperationsAgreements. Nothing in this Memorandum shall be construed to prohibit the City and SMWD from entering into any limited operations or service agreements, with each other or with other outside consulting firms and entities, related to the Utilities Systems prior to the execution and delivery of the Annexation Agreement. 18.6. Construction. (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 sections in this Memorandum are solely for convenience of reference, do not constitute a part of this Memorandum and shall not affect the meaning, construction or effect of the provisions of this Memorandum. 18.7. Not Construed Against Drafter. This Memorandum has been negotiated and prepared by the Parties and their respective counsel. The Parties agree that the rule of construction that a contract be construed against the drafter shall not apply. In the event of any ambiguity with respect to a term of condition of this Memorandum, such ambiguity shall not be construed for or against a Party on the basis that such Party did or did not authored the same. 18.8. Governing Law and Venue. This Memorandum has been negotiated and executed in the State and shall be governed by and construed under the laws ofthe State, except that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in interpreting this Memorandum. Any action at law or in equity brought by any Party hereto arising out of this Memorandum shall be brought in the Superior Court of the State in and for the County of Orange. 18.9. Severability. If any term of this Memorandum is held by a court of competent jurisdiction to be invalid or void, each of the remainder of the provisions shall continue in full force and effect, unless the rights and interests of a Party under a provision have been materially altered or abridged by such invalidation or voiding. 18.10. No Assignment. No part of this Memorandum may be assigned by a Party to another person or entity without the prior written consent of the other Party. EXHIBIT A - Page 18 of 20 18.11. No Third Party Beneficiary. This Memorandum is not intended nor shall it be construed to create any third-party beneficiary rights in any person or entity other than the Parties. Nothing in this Memorandum, expiessed or implied, is intended to give to any person other than the City and SMWD any right, remedy or claim under or by reason of this Memorandum. 18.12. Execution in Counterparts. This Memorandum may be executed in counterparts, each of which, when the Parties have signed this Memorandum, shall be deemed to be an original, and such counterparts shall constitute one and the same instrument. EXHIBIT A - Page 19 of 20 IN WITNESS WHEREOF, the Parties to this Memorandum have caused the same to be executed by each of their duly authorized officers as follows: CITY OF SAN JUAN CAPISTRANO Benjamin Siegel City Manager ATTEST: Maria Morris City Clerk APPROVED AS TO FORM: Kevin G. Ennis Special Counsel SANTA MARGARITA \ryATER DISTRICT Saundra F. Jacobs President of Board of Directors ATTEST: Kelly Radvansky Board Secretary APPROVED AS TO FORM: DeeAnne Gillick Special Counsel By: By EXHIBIT A - Page 20 ot 20