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09-0903_ECO RESOURCES, INC_Agenda Report_C1
1. RESOLUTION NO. CVWD 02-09-03-01 ADOPTED AWARDING AGREEMENT WITH ECO RESOURCES, INC., FOR DESIGN, CONSTRUCTION, FINANCING AND OPERATION AND EXECUTION GUARANTY AGREEMENT WITH SOUTHWEST WATER COMPANY; CHAIRMAN AUTHORIZED TO EXECUTE AGREEMENTS, TAX EXEMPT PUBLIC FINANCING CONCEPT APPROVED THROUGH SAN JUAN BASIN AUTHORITY AND STAFF TO PROCEED WITH BOND ISSUANCE; SITE PREPARATION FOR RELOCATION OF ORANGE COUNTY HEADSTART FACILITY APPROVED, $650,000 APPROPRIATED TO PAY FOR CONTRACT SERVICES AND FINANCIAL NEGOTIATION WORK, COSTS TO BE REIMBURSED BY ECO (600n) Project Description: On September 18, 2001, the Capistrano Valley Water District Board of Directors authorized the General Manager to enter into negotiations with ECO Resources, Inc.to design,construct,finance and provide long-term operations of the San Juan Basin Phase I Groundwater Recovery Plant. In the Agreement, ECO will agree to build and operate a 5.14 mgd plant that will produce 4,800 of/y of drinking water for a fixed guaranteed maximum purchase price of $24,090,607 and a fixed annual service fee of $1,094,900. The project will provide the District with approximately 50%of its annual production requirements through local ground water and provide emergency storage capacity. Staff recommends approval of the Service Contract with ECO Resources Inc.; the Service Contract Guaranty Agreement, a long-term financing concept with San Juan Basin Authority; and, authorize staff to proceed with the issuance of debt. The execution of the Service Contract will require the relocation of the Orange County Headstart operation to the vicinity of the San Juan Capistrano Regional Library and Serra Continuation School. Staff also recommends the Board to authorize the commencement of the site preparation in anticipation of this relocation. Written Communications: Report and Supplement Report dated September 3,2002, prepared by Amy Amirani, Public Works Director. Presentation: Amy Amirani, Public Works Director, reviewed the staff recommendation. Council Comment:: Council Member Swerdlin stated he was not comfortable with the level of risk involved and did not support the project. Board Action: Moved by Director Hart, seconded by Vice Chairman Gelff and carried 3-1 to adopt Resolution CVWD No. 02-09-03-01 entitled "A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CAPISTRANO VALLEY WATER DISTRICT, CALIFORNIA, AUTHORIZING AWARD AND EXECUTION OF A SERVICE CONTRACT WITH ECO RESOURCES, INC. FOR THE DESIGN, CONSTRUCTION, FINANCING AND OPERATION OF THE SAN JUAN BASIN CVWD Minutes 2 9-3-02 DESALTER PROJECT AND THE FORM AND EXECUTION OF A GUARANTY AGREEMENT WITH SOUTHWEST WATER COMPANY AS GUARANTOR OF THE PERFORMANCE OF THE OBLIGATIONS OF ECO RESOURCES, INC, UNDER THE SERVICE CONTRACT;" Chairman authorized to execute the appropriate Service Contract and Service Guaranty Agreement;Tax-exempt Public Financing Concept approved through the San Juan Basin Authority and Staff authorized to proceed with issuance of bonds to provide funding for the project; commencement of site preparation for relocation of the Orange County Headstart Facility approved, and the City Manager authorized to execute any necessary agreement; $650,000 appropriated from Water Enterprise Fund to the Project CIP #758 to pay for services of Hawkins, Delafield & Wood and Malcolm Pirnie for additional contract services and financial negotiation work, costs to be reimbursed by Eco. ROLL CALL AYES: BOARD MEMBERS: Hart, Gelff and Chairman Bathgate NOES: BOARD MEMBERS: Vice Chairman Gelff ADJOURNMENT There being no further business, Chairman Bathgate adjourned the meeting at 9:47 p.m. to Tuesday, October 1, 2002, at 5:30 p.m. for Closed Session and 7:00 p.m. for the Public Business Session, in the City Council Chamber. Respectfully submitted, M ARET R. MONAHAN, CLERK OF THE BOARD Approved: October 1, 2002 ATTEST: `,n Z 'LAb CHAIRMAN BATHGAT CVWD Minutes 3 9-3-02 ' CVWD 9/3/2002 AGENDA ITEM v 1 TO: George Scarborough, General Manager FROM: Amy Amirani, Public Works Director SUBJECT: Consideration of Approval of Design Build Operate and Finance Agreement for the Phase I Groundwater Recovery Project (CIP# 758) (ECO Resources, Inc. and Southwest Water Company) RECOMMENDATION By motion, A. Approve the negotiated Service Contract between ECO Resources, Inc. and Capistrano Valley Water District for the design, construction, financing, and long-term operation of the Capistrano Valley Water District Phase I Groundwater Recovery Plant Project (Project); and, B. Approve the negotiated Service Contract Guaranty Agreement between Southwest Water Company and the Capistrano Valley Water District to provide certain financial guarantees as required under the Service Contract; and, C. Authorize the Chairman to execute the appropriate Service Contract and the Service Contract Guaranty Agreement; and D. Approve the tax-exempt public financing concept through the San Juan Basin Authority and authorize staff to proceed with the issuance of bonds to provide funding for the project; and, E. Approve the commencement of site preparation for the relocation of the Orange County Headstart Facility and authorize the City Manager to execute any necessary agreements. F. Appropriate $650,000 from Water Enterprise fund to the Project Number CIP 758 to pay for services of Hawkins, Delafield & Wood and Malcolm Pirnie for additional contract services and financial negotiation work (costs will be reimbursed by ECO). FOR CITY COUNCIL AGEN GRP Award • 2 • September 3, 2002 SITUATION: A. Summary & Recommendation On September 18, 2001, the Capistrano Valley Water District (CVWD) Board of Directors authorized the General Manager to enter into negotiations with ECO Resources, Inc. (ECO) to design, construct, finance and provide long-term operation of the San Juan Basin Phase I Groundwater Recovery Plant (Project). In the Agreement, ECO will agree to build and operate a 5.14 mgd plant that will produce 4,800 of/y of drinking water, comparable in taste and total dissolved solids to the water currently purchased from Metropolitan Water District (MWD) for a fixed guaranteed maximum purchase price of $24,090,607 and a fixed annual service fee of $1,094,900, escalated by 90% of CPI for 20 years. The cost of electricity to operate the plant will be borne by the District as a pass-through. The Project will provide the District with approximately 50% of its annual production requirements through local groundwater. Additionally, and of greater value is the emergency storage capacity provided by the Project. The plant will provide 5.14 mgd, which is approximately 57% of the District's average daily demand. Essentially, if the District were cut off from its imported supply, we would rely on the water from this project and the storage identified in the adopted Domestic Water Master Plan to provide 5 days of emergency storage. If the plant is not build, we would need to construct 22.5 MG of additional storage at a significantly greater cost to the rate payers than the cost of the Ground Water Recovery Project. On February 19, 2002, the Board was presented with and accepted results of the negotiations with ECO to that point and approved: the negotiated deals points of the Service Contract; a tax-exempt lease concept for the long-term financing of the Project; the agreements in concept with other local agencies; and, directed staff to return with final documents for all transactions. Over the past few months, staff has been essentially working to finalize the agreement and develop a new financing strategy. Our goal was to develop a financing plan that used public financing and that would still reflect the proposed risk structure as outlined in the Request for Proposal (RFP). The groundwater Recovery Program Subsidy Agreement (up to $250/AF) is between MWD through MWDOC with the San Juan Basin Authority (SJBA). CVWD as a member of SJBA, and, subject to approval of an agreement, will be able to design, construct and operate this Project. SJBA also holds the water rights to this Project. Based on the SJBA relationship to this project, they have shown interest in issuing the debt under the negotiated financing structure. The SJBA would issue the debt, own the plant and lease it back to the District for operation and use of the product water generated. Additionally, we would benefit from traditional tax-exempt, public financing rates. The big issue would be to ensure that the District would have the ultimate rights to operate the plant, and to control the product water for the benefit of the District upon completion of the lease payments. We are paying for it GRP Award • 3 • September 3, 2002 and we need to retain the benefit of the ultimately less costly and locally generated water permanently. Staff recommends that the District Board of Directors approve the Service Contract, Service Contract Guaranty Agreement, long-term financing concept with San Juan Basin Authority and authorize staff to proceed with the issuance of debt. Additionally, the execution of this Service Contract will require the relocation of the Orange County Headstart operation to the vicinity of the San Juan Capistrano Regional Library and Serra Continuation School. Staff is also recommending that the Board authorize the commencement of the site preparation in anticipation of this relocation. B. BACKGROUND The San Juan Basin Authority (SJBA) was formed in 1971 for the purposes of managing the San Juan Groundwater Basin and jointly funding water system facilities to make water resources available to areas within the San Juan Creek Watershed serviced by SJBA. Approximately eighty-five percent of CVWD's water supply is imported. CVWD's main water supplier, the Metropolitan Water District of Southern California (MWD), recognizing the importance of alternative supplies, entered into an agreement with Municipal Water District of Orange County and SJBA under MWD's Groundwater Recovery Program in December of 1998. The Groundwater Recovery Program agreement recognizes that recovered groundwater is more costly than MWD water, and provides a subsidy from MWD to CVWD (through SJBA) of up to $250/acre-foot (AF) of groundwater recovered above the cost of purchased water from MWD. SJBA formed Project Committee No. 4 (PC-4) for the sole purpose of constructing and operating the San Juan Basin Groundwater Recovery Project. The District's domestic water master plan (DWMP) was prepared with an assumption that the Project would be constructed. From a service reliability viewpoint, the local source water provides the District with a more accessible source of water and avoids the cost of importation. By providing this local water supply, the District will avoid approximately $12 million in costs to purchase additional import capacity and the pipelines to bring this water into the system. C. PROJECT DESCRIPTION The project is located at the City Hall Site and will occupy the current location of the Head Start trailers and the existing parking lot. The project proposes to design, finance, build and operate the plant for a period of 20 years. The preliminary objectives considered assume two primary objectives; 1) reliability, both in terms of quality and quantity of water; and, 2) environmental compliance with the supplement to the 1995 expanded mitigated negative declaration for the Project. GRP Award • 4 • September 3, 2002 The facilities included in the Project include at the minimum; the water wells, pipelines to convey water to the groundwater recovery plant site, the groundwater recovery plant itself, pump station, and necessary pipelines to convey water to the water distribution system, and pipeline to convey the desalting process concentrate to a point of connection with the SERRA outfall for disposal. Due to the soils condition of the site, it will require an extensive foundation work. There are two options for foundation construction methodology Driving Piles or poured in place concrete pile methods are under study at this point. Based on the preliminary studies prepared by the company's engineering firm and our consultants Malcolm Pirnie, the pile driving method is much more efficient and less expensive. The poured in place method however, will have less noise and vibration impact but it will take nearly twice as long to complete. CVWD has the option to decide between the two methods of construction by October 15, 2002. Staff is hoping that sites that use such construction methods become available for the city council to visit before October 15, 2002. The following describes some elements of the scope of work to be performed by ECO and summarizes the principal negotiated items of the Service Contract. These items are described in more detail in Attachment A: Scope of services: A. Permitting, design and construction of 5.14+ million gallons per day (MGD) brackish water treatment facility, wells and pipelines. B. The Project will produce approximately 4,800 acre-feet per year of water for our use. C. 20-year operation and maintenance term, with District convenience termination provisions at years 10, 12, 14, 16 and 18. D. ECO has made a non-refundable payment of $100,000 to the District for the additional expenses caused by the failure of PFG Energy Capital, Inc. to provide an adequate and timely financing arrangement. E. ECO will reimburse the District for an additional $1.86 million in procurement and transaction costs incurred to date. Key components of risk allocation: A. ECO is responsible for securing all required permits for the Project. B. ECO is responsible for operating the facilities in accordance with all applicable laws and performance requirements as described in the Service Contract and the MWD GRP Agreement. C. Southwest Water Company, parent company to ECO, will guaranty performance of the obligations of ECO under the Service Contract. D. ECO, at its sole risk, must design and construct the facility by the MWD GRP Agreement deadline of 12/2004. Should it fail to begin operations of the facility GRP Award 5 • September 3, 2002 by this time, the GRP subsidy is at risk and ECO will be financially responsible for the subsidy amount. E. District responsible for changes in law, degradation of source water quality and reduction of source water quantity. F. District assumes risk of interest rate and inflationary fluctuations and electricity price increases. D. OTHER RELATED ISSUES San Juan Basin Authority Agreement: One of the provisions of the MWD agreement is for CVWD to secure an agreement with San Juan Basin Authority to design, build and operate the facility in order to receive the MWD subsidy. We have not been able to reach an agreement with SJBA on this issue thus far and therefore the Service Contract includes a provision requiring the District to obtain such agreement by December 31, 2002. Metropolitan Water District Agreement: The Service contract has a provision for the CVWD to extend the MWD deadline to December 1, 2004. This will require an amendment to the existing MWD agreement and will be dependent upon signed agreement between SJBA and CVWD as described above. Relocation of Orange County Headstart: The plant site for the Project is sited on the south end of the City Hall parcel. This area is currently occupied by a portion the City/District Public Works Corporate Yard and an Orange County Headstart Facility. The City has provided this space to the Orange County Headstart program for approximately 20 years. As part of this Project, the Headstart program facility will need to be relocated. In June 2002, the City Council approved the relocation of the facility to Community Redevelopment Agency-owned property on the west of EI Camino Real between the San Juan Capistrano Regional Library and Serra Continuation School. The approval of the contract triggers the commencement of this relocation. The estimated total cost of the relocation is between $100,000-$150,000. In an effort to keep this project moving along its current schedule, the site preparation needs to begin on September 4, 2002. This will allow the actual moving of the Headstart program to occur on or around November 1, 2002. The site preparation is estimated to range between $40,000 and $50,000. The balance of the project entails the relocation of the Headstart Tot Lot, and landscaping. These costs are not anticipated to exceed the amount noted above. Staff is currently obtaining proposals for this work to be funded as part of the Project. Staff is recommending the Board approve this work and authorize the City Manager to execute any necessary agreements for site preparation, moving of GRP Award • 6 • September 3, 2002 the Tot Lot, landscaping and other items necessary for the relocation within the figures state above. COMMISSION/BOARD REVIEW AND RECOMMENDATIONS: The Water Advisory Commission (WAC) has been apprised of the status of these negotiations. The WAC is meeting on August 27, 2002 to consider the deal points of the service contract and financing plan. FINANCIAL CONSIDERATIONS: Project Costs The cost of water from the Project is made up of three components, a capital charge, operations and maintenance costs (the "service fee") and power costs. The capital cost of the facilities including design, construction, equipment, permitting and District procurement management costs is approximately $24 million. Staff is proposing a 30-year financing to fund the projects. The San Juan Basin Authority would be issuing the debt and have ownership of the plant. ECO Resources, Inc., through its parent company, Southwest Water, will provide a guarantee to the financing during the first 20-years of the term of the bond. During the last ten years, the District would be solely responsible. The cost components for the first year to produce 4800 acre-feet of water per year are broken down as follows: Capital Costs (Annual Debt Service) $2,150,531 Annual Service Fee $1,094,900 Electricity @ $0.125/KwHr $1,035,000 Total Costs $4,365,431 Cost per Af $909 The Annual Debt Service is fairly consistent over the first twenty years and steps down by $1.2 million in year 21 to reflect the completion of the MWD grant funds described below. The annual debt service cost for years 21 through 30 is approximately $1 million annually. The Annual Service Fee is adjusted annually based on a formula indexed to a fraction (90%) of the Consumer Price Index (CPI) increase. For purposes of modeling this Project, staff has used an adjustment factor of 3%. Electricity costs are projected at 8,280,000 KwHr annually at a rate of$0.125 per KwHr. This is a direct pass-through to the District. The Company is responsible for the annual guarantee maximum usage of 8,280,000 KwHr. If the Project uses more than that maximum ECO is responsible to absorb that additional cost. As an GRP Award • 7 • September 3, 2002 incentive to operate as efficiently as possible, the District and ECO share in any savings below a certain amount. The District is solely responsible for risk of any electrical rate increases. The total project cost is offset by two components. The first component is the MWD grant funds of$250/Af or $1,200,000 annually based on 4,800 AF/y. yhe second component is the avoided cost of imported water. At 4,800 AF/y, the avoided cost of imported water is $2,091,600 ($435.75/Af x 4,800). The annual cost increase to the District after these offsets is $1,073,831 or approximately 50% of the annual debt service or capital cost. The amount represents an increase of$223/Af in the cost of this water. The impact of the increase on the District's water rates would be approximately 14%-15%. GWRP vs. Additional Import Capacity and Emergency As stated earlier, the primary purpose of the MWD GRP is to provide incentives to their member agencies to develop more local sources of supply. This program is attractive to the District in our efforts to meet a goal of increasing our local supply to approximately 50%. Another, more important goal of the District, is to increase our emergency storage capacity. Currently, the District storage capacity provides 1.82 average daily demand at our ultimate capacity of 8.5 mgd average days demand. Additionally, the District is peaking off the MWD system to meet its demand. In order to bring our emergency storage capacity to 5 average days demand, the District would need to build approximately 22.5 MG of storage capacity. Additionally, the District would need to acquire additional import capacity and build lines to bring in that additional import to meet our ultimate demand. The cost of this alternative would be approximately $33 million. Although this alternative would allow the District to meet its emergency storage goals, the need to develop local sources of water would not be met. In addition, we would not save the cost of imported water and MWD would not provide subsidies under this scenario. The entire $33 million or $3.3 million annually would be absorbed by the rate payers through a rate increase of approximately 43.5% as opposed to 14%-15%. 1. Financing Structure Analysis The District anticipated utilizing private sector financing provided by the selected vendor to fund the capital improvements. The RFP required the proposers to provide a financing proposal that identified the financing terms and structure required for the DBOF concept. This structure put the risk of the capital investment on the vendor. Basically, should the vendor fail to meet the performance requirements of the Service Contract, the capital financing portion of the service fee would be forfeited along with the operating portion. While the DBOF concept provides benefits to the District in terms of risk transfer, the financial premium associated with private sector financing is significant, requiring a higher increase in user rates. In an effort to reduce the cost of the project, staff considered traditional public financing. Although public financing would save the District 3.68% in the GRP Award • 8 • September 3, 2002 financing rate, this structure would shift the capital risk to the District. Specifically, the District would be required to continue its bond payments for the Project regardless of the performance of the vendor. The District would need to pursue legal action to recover funds expended to repay the bonds should ECO default. In an effort to reduce costs, meet the requirements of the DBOF process and still maintain the risk structure contemplated in the RFP, staff had been working to secure long-term financing through a tax-exempt capital lease type financing arrangement. This arrangement would have had financing costs of 141 bps above the 25-year bond rate. In May 2002, Southwest Water Company (SWC) indicated that the financial institution contemplated to provide the tax-exempt capital lease scenario could not come through with the funding. SWC and the District worked together to develop a financing strategy which provides for the issuance of tax- exempt revenue bonds. The San Juan Basin Authority would be the issuer of the bonds and owner of the Project. The Project would be lease to the District to operate under the Service Contract and take the product water. The lease payments to the Authority would be the source of funds for the repayment of the debt. The risk structure to the District fundamentally remains the same. The District can terminate its lease agreement with the Authority should ECO default on the Service Contract. In that event, the bond insurer would look to SWC to pay off the debt as the guarantor. This structure is very attractive to the District because the District would have absolutely no obligation to the bondholders and, should something go wrong, the reputation risk would lie with the SJBA. Additionally, we would benefit from traditional tax-exempt, public financing rates. Although some costs might be higher due to the "split credit' nature of the deal, it would still be more cost effective than the private lender proposal. The big issue will be to ensure that the District will be the beneficiary of the product water during and upon completion of the lease payments or debt service on the plant. We are paying for it and we need to retain the benefit of the ultimately less costly and locally generated water in the future. NOTIFICATION ECO Resources, Inc." Southwest Water Company" EarthTech Inc. San Juan Basin Authority Metropolitan Water District Santa Margarita Water District Moulton Niguel Water District South Coast Water District GRP Award • 9 September 3, 2002 ALTERNATE ACTIONS 1. By motion, A. Approve the negotiated Service Contract between ECO Resources, Inc. and Capistrano Valley Water District for the design, construction, financing, and long- term operation of the Capistrano Valley Water District Phase I Groundwater Recovery Plant Project (Project); and, B. Approve the negotiated Service Contract Guaranty Agreement between Southwest Water Company and the Capistrano Valley Water District to provide certain financial guarantees as required under the Service Contract; and, C. Authorize the Chairman to execute the appropriate Service Contract and the Service Contract Guaranty Agreement; and D. Approve the tax-exempt public financing concept through the San Juan Basin Authority and authorize staff to proceed with the issuance of bonds to provide funding for the project; and, E. Approve the commencement of site preparation for the relocation of the Orange County Headstart Facility and authorize the City Manager to execute any necessary agreements. F. Appropriate $650,000 from Water Enterprise fund to the Project Number CIP 758 to pay for services of Hawkins, Delafield & Wood and Malcolm Pirnie for additional contract services and financial negotiation work (costs will be reimbursed by ECO). 2. Request additional information from staff. GRP Award • 10 • September 3, 2002 RECOMMENDATION By motion, A. Approve the negotiated Service Contract between ECO Resources, Inc. and Capistrano Valley Water District for the design, construction, financing, and long- term operation of the Capistrano Valley Water District Phase I Groundwater Recovery Plant Project (Project); and, B. Approve the negotiated Service Contract Guaranty Agreement between Southwest Water Company and the Capistrano Valley Water District to provide certain financial guarantees as required under the Service Contract; and, C. Authorize the Chairman to execute the appropriate Service Contract and the Service Contract Guaranty Agreement; and D. Approve the tax-exempt public financing concept through the San Juan Basin Authority and authorize staff to proceed with the issuance of bonds to provide funding for the project; and, E. Approve the commencement of site preparation for the relocation of the Orange County Headstart Facility and authorize the City Manager to execute any necessary agreements. F. Appropriate $650,000 from Water Enterprise fund to the Project Number CIP 758 to pay for services of Hawkins, Delafield & Wood and Malcolm Pirnie for additional contract services and financial negotiation work (costs will be reimbursed by ECO). Respectfully submitted, t jw4 — �Yy�L4�t vim. Amy Amirani Public Works Director Attachment: Contractual Considerations Location Map GRP Award • September 3, 2002 Contractual Considerations The Service Contract establishes several important phases during which the Company and the District will have certain specific rights and obligations. The principal payment and termination provisions during the Development Period, Construction Period and Operation Period are set forth below. Capitalized terms, unless otherwise defined herein, are as defined in the Service Contract. DEVELOPMENT PERIOD The District has no obligation to pay the Service Fee prior to Acceptance. The payment and termination provisions during the Development Period are as follows: 1. Transaction Cost Reimbursement Payment (Sections 3.1(B) and 4.10(C)). The Transaction Cost Reimbursement Payment is to be paid by the Company in two installments. The first installment, in the amount of$330,000, is to be paid by the Company no later than 14 days following the Contract Date. The second installment, in the amount of$830,000, is to be paid by the Company no later than January 7, 2003 or the Construction Date; whichever is earlier. 2. Initial Construction (Section 4.4). Assuming that the District does not elect to terminate the Service Contract based upon the results of the source water pilot test in accordance with Section 13.5, the Company will be required to commence initial construction consisting of all construction work necessary to be performed in order to avoid termination by Metropolitan of the Metropolitan Agreement. The Company will be required to pay for all such initial construction work prior to the Construction Date, and will not be entitled to reimbursement therefore in the event that the Construction Date never occurs (unless the Service Contract is terminated by the District pursuant to Sections 4.11 (or 13.7). Upon the occurrence of the Construction Date, the Company will be compensated for such initial construction work from the Bond proceeds in accordance with the milestone payment schedule. 3. Construction Permitting (Section 4.6) - The Company will be required to pay all fees, costs and charges relating to obtaining and maintaining all Governmental Approvals, including the Health Department Approval. The District will be required to provide reasonable permitting assistance to the Company up to a maximum expense of $10,000, measured using the standard timekeeping records and hourly rates of District personnel and outside consultants. 4. Examination of Title Conditions (Section 4.8). The Company will provide the District with a list of all title issues with respect to the Sites prior to September 30, ATTACHMENT 1 GRP Award • • September 3, 2002 2002. The District will review the title issues and respond to the Company on or before October 8, 2002. In the event that title issues exist that would have a material and adverse impact on the ability of the Company to perform the Contract Services and the District is either unable or unwilling to correct such title issues, the Company will have a right to terminate the Service Contract. The Company must exercise this right prior to October 15, 2002. After October 15, 2002, the Company will bear the risk of any such title issues. In the event of a termination pursuant to Section 4.8, the District would be required to repay the Company the first installment of the Transaction Cost Reimbursement Payment. The parties would otherwise be responsible for the costs incurred up to the date of termination and neither party would have any further liability to the other. 5. Second Look Window - Company Development Period Termination Right Lection 4.10(A)). The Company may terminate the Service Contract without cause at any time prior to December 31, 2002 upon 30 days prior written notice to the District. Each party would be responsible for its own costs and expenses incurred in seeking to satisfy the Construction Date Conditions prior to any such termination. The District would not be required to repay the first installment of the Transaction Cost Reimbursement Payment. If, however, the Company terminates pursuant to this Section after December 15, 2002 and the District has not yet secured the necessary agreements with Metropolitan and the San Juan Basin Authority, the Company will be entitled to its costs up to the date of such termination in addition to the first installment of the Transaction Cost Reimbursement Payment. 6. Source Water Pilot Test (Section 4.7) - The Company will pay the costs of the source water pilot test intended to determine the efficacy of the Plant process for removal of TDS, iron, manganese, flavor, color and aroma. The District will be required to provide a 120 VAC diesel generator, temporary fencing around the pilot plant, Well water and disposal of all water resulting from the pilot plant operation. If the District exercises its right to terminate the Contract pursuant to Section 13.6 on the basis of the results of the pilot test, it will be required to repay the Company the first installment of the Transaction Cost Reimbursement ($330,000) and 100% of the Company's Reimbursable Expenses relating to performance of the Design/Build Work up to the date of termination. 7. District Termination Right Relating to Certain Principal Agreements (Section 4.11) - The District will have the right to terminate the Service Contract on or before December 31, 2002 in the event that it is unable to secure the necessary agreements with Metropolitan and the San Juan Basin Authority. If the District exercises this right prior to October 15, 2002, it will only be required to pay the Company the first installment of the Transaction Cost Reimbursement Payment. After October 15, 2002, the District will be required to pay all costs of the Company up to the date of any such termination in addition to the Transaction Cost Reimbursement Payment. GRP Award • • September 3, 2002 CONSTRUCTION PERIOD The payment and termination provisions during the Construction Period are as follows: 1. San Diego Gas & Electric Interconnection (Section 5.4(D)) - The Company has included an amount in its Design/Build Price to cover the San Diego Gas & Electric interconnection costs. In the event that such costs exceed $50,000, the District will be required to pay 25% of such excess amount over $50,000, and 50% of such excess amount over $100,000. The Service Contract provides for an increase in the Design/Build Price as the mechanism for payment of such amounts in the event that San Diego Gas & Electric requires payment to be made on an upfront basis. If San Diego Gas & Electric requires payment to be made through electric rates over time, the Company will be required to reimburse the District for a portion of the electricity payments paid by the District in accordance with Section 8.7 so as to bear the same portion of the cost of the interconnection that the Company would have borne had the cost been paid on an upfront basis. 2. The Design/Build Price (Sections 5.4 and 5.5) - The Company will pay all costs and expenses incurred in the performance of the Design/Build Work of any kind or nature whatsoever. The Design/Build Price represents the entire compensation and reimbursement to the Company for the performance of the Design/Build Work. The Design/Build Price will be paid to the Company by the Trustee through the Bond proceeds on a milestone basis throughout the Construction Period. The District will be obligated to pay the debt service on the Bonds through Lease Payments in accordance with the Lease Agreement. Each milestone payment to be made to the Company will be subject to a 10% retainage holdback, which shall be released to the Company only upon Final Completion of the Design/Build Work. 3. _Delay Liquidated Damages (Section 7.9) - The District will be responsible for debt service on the Bonds beginning on the Bond Issuance Date in accordance with the Lease Agreement. In the event that the Company fails to achieve either Acceptance or Provisional Acceptance by December 4, 2004, the Company will be required to pay liquidated damages to the District in an amount equal to the Lease Payments accrued by the District on a daily basis up to the end of the Extension Period and thereafter until any termination of the Service Contract for an Event of Default by the Company. 4. Unexcused Delay and the Metropolitan Agreement (Section 7.13) - The Company will be required to pay liquidated damages to the District in the event that the Metropolitan Agreement is terminated due to a failure of the Company to commence construction by December 4, 2002, or to produce Allowable Yield by December 4, 2004. The amount payable by the Company for each Contract Year will be equal to the amount, expressed in dollars per acre foot, that the Final GRP Contribution would have been in such Contract Year had the Metropolitan Agreement not been terminated, multiplied by the total number of acre feet of Finished Water actually demanded by the District in such Contract Year. The Company will not be required to pay such liquidated GRP Award • September 3, 2002 damages in the event that termination of the Metropolitan Agreement is due to Uncontrollable Circumstances or District Fault. 5. District Right of Termination for Significant Uncontrollable Circumstances during the Construction Period (Section 13.8). The District may terminate the Service Contract in the event that significant Uncontrollable Circumstances occur during the Construction Period. The District would be required to pay the Company an amount equal to the sum of (1) all Reimbursable Expenses, and (2) an amount equal to 10% of all Reimbursable Expenses (but not less than $250,000 nor more than $2,000,000). OPERATION PERIOD 1. Company Disposal of Brine (Section 9.11) - The District will pay a one- time fee to the Santa Margarita Water District in the amount of approximately $599,640 for the disposal of Brine. 2. Service Fee (Section 12.1) - The District will pay the Company the Service Fee as compensation for the performance of the Operation Services by the Company. In accordance with Section 7.18, the District will have no obligation to pay the Service Fee prior to Acceptance or Provisional Acceptance. The District anticipates that the maximum amount of Finished Water it will require in any Contract Year will be 4,800 acre-ft. The required Plant capacity, however, is 5,321 acre-ft per year. The amount of the Fixed Component of the Service Fee is based upon the anticipated maximum District demand of 4,800 acre-ft per year. Accordingly, in the event that the District determines that it can accept more than 4,800 acre-ft per year, it will pay the First Water Demand Adjustment Element of the Variable Component of the Service Fee in an amount equal $151 per acre foot of Finished Water delivered in a Contract Year in excess of 4,800 acre feet, but less than 5,231 acre feet. If the District requests, and the Company is able to deliver, Finished Water in excess of the anticipated Plant capacity of 5,231 acre-ft per year, the District will pay the Second Water Demand Adjustment Element of the Variable Component of the Service Fee in an amount equal to $228 per acre foot of Finished Water delivered in a Contract Year in excess of 5, 231 acre-ft. 3. Liquidated Damages payable by the Company for failure to meet the Water Delivery Guarantee (Section 9.3(F)). The Company will be required to pay liquidated damages to the District in the event that it fails to deliver the amount of Finished Water demanded by the District in a Contract Year. The amount of such liquidated damages for each acre foot of Finished Water delivery shortfall will be equal to the sum of (1) Metropolitan's Prevailing Full Service Treated Water Rate (expressed in dollars per acre foot) plus, (2) the Final GRP Contribution with respect to such Contract Year (expressed in dollars per acre foot), plus (3) the administrative and operation and maintenance charge (expressed in dollars per acre foot) imposed by MWDOC on the District with respect to such Contract Year. 4. General District Buy-out rights during the Operation Period (Section 13.9). The District may buy-out the Company on the tenth, twelfth, fourteenth, sixteenth and GRP Award • • September 3, 2002 eighteenth anniversaries of the Acceptance Date in accordance with the following schedule: Buy-Out-Date Basic Fee Tenth Anniversary $1,000,000 Twelfth Anniversary 800,000 Fourteenth Anniversary 700,000 Sixteenth Anniversary 400,000 Eighteenth Anniversary 200,000 5. District Right of Termination for Significant Uncontrollable Circumstances during the Operation Period (Section 13.9). The District may terminate the Service Contract in the event that significant Uncontrollable Circumstances occur during the Operation Period. The District would be required to pay the Company an amount equal to $1,000,000, reduced by 1/120 of such sum for each month which has elapsed following the tenth anniversary of the Acceptance Date to and including the month in which the Termination Date occurs. Aw THE CITY OF SAN JUAN CAPISTRANO N A 5 am 9 Q � p J Qo Ogg 04ry 7 Np Project Location c� City Boundary o } Creeks jJ l 0 2 0 _ 4000 Feet ATTACHMENT 2 RESOLUTION NO. CVWD 02- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CAPISTRANO VALLEY WATER DISTRICT, CALIFORNIA, AUTHORIZING AWARD AND EXECUTION OF A SERVICE CONTRACT WITH ECO RESOURCES, INC. FOR THE DESIGN, CONSTRUCTION, FINANCING AND OPERATION OF THE SAN JUAN BASIN DESALTER PROJECT AND THE FORM AND EXECUTION OF A GUARANTY AGREEMENT WITH SOUTHWEST WATER COMPANY AS GUARANTOR OF THE PERFORMANCE OF THE OBLIGATIONS OF ECO RESOURCES, INC. UNDER THE SERVICE CONTRACT WHEREAS, the Capistrano Valley Water District (the "District') is a county waterworks district organized and existing under the laws of the State of California authorized to establish, maintain, equip, own and operate water treatment projects within the District and to contract for water project services; and WHEREAS,the District plans to implement a new water treatment project consisting of a water treatment plant, wells, a raw water pumping station and related transmission line, a brine disposal line and a finished water pumping station and related transmission line to serve its potable water supply needs (the 'Project'); and WHEREAS, the District is authorized under the laws of the State of California, including Title 1, Division 6, Chapter 14 of the California Government Code (Section 5956 etseq.), as amended, to utilize a competitive procurement proposal process in contracting for water treatment services and to contract with a single firm on a full service, long-term basis for the design, permitting, financing, construction, start-up, acceptance testing, operation, maintenance, repair, replacement or management of the Project (the 'Project Services"); and WHEREAS, the District issued a pre-request for proposals dated September 22, 2000 to companies interested in providing the Project Services; and WHEREAS, the District, on November 20, 2000, based on the technical and financial qualifications set forth in the pre-request for proposals, determined all of the three firms that responded to the pre-request for proposals to be qualified; and WHEREAS, the District issued a request for proposals on February 1, 2001, as amended (the 'RFP"), to the pre-qualified firms to provide the Project Services, and set forth in the RFP the criteria for selection of the preferred proposer; and WHEREAS, proposals submitted in response to the RFP were received in July, 2001 from Eco Resources, Inc. and Earth Tech, Inc. A proposal clarification process was conducted commencing in July 2001 and post-proposal clarification submittals were received from each of the proposers in July 2001; and ATTACHMENT WHEREAS, based on further evaluation by its selection committee utilizing the evaluation factors and selection criteria and following the review and selection process identified in the RFP, the District on September 18, 2001 selected the proposal by or on behalf of ECO Resources, Inc., a corporation organized and existing underthe laws of the State of Texas and authorized to do business in the State of California(the"Company"), as the most advantageous proposal received in response to the RFP; and WHEREAS, based on the evaluation report of the proposals prepared in September 2001 by the selection committee, the District designated the Company as the Selected Proposer Team, as defined in the RFP, and authorized the selection committee by resolution of the Board of Directors of the District dated September 18, 2001 to proceed with negotiations with the Company for a proposed service contract forthe Project Services (the "Service Contract"); and WHEREAS, negotiations with the Company have proven to be successful in the development of a Service Contract which has a 20 year initial operating term following the development and construction periods; and WHEREAS, Southwest Water Company, an affiliate of the Company, has agreed to act as the guarantor of the Service Contract on behalf of the Company and to provide the District with an unconditional and unlimited guaranty of the Company's performance of its obligations under the Service Contract,for the term of the Service Contract, in the form of a guaranty agreement with the District (the "Guaranty Agreement"); and WHEREAS, the Project is expected to be financed by revenue bonds of the San Juan Basin Authority pursuant to a lease arrangement between the San Juan Basin Authority and the District under which the District will lease the Project from the San Juan Basin Authority and pay the debt service on the bonds for the term of the Service Contract. The District will have no obligation to pay debt service on the bonds in the event the Service Contract is terminated due to an event of default by the Company and the failure of the trustee or insurer of the bonds to cure such event of default in accordance with the terms of the Service Contract; and WHEREAS,the Company is expected to provide additional financial support to the trustee or insurer of the bonds in order to cover payment of the debt service on the bonds in the event of a default or breach by the Company under the Service Contract; and WHEREAS,the negotiated Service Contract and Guaranty Agreement will provide a comprehensive framework which will result in a public-private partnership that is advantageous to the interests of the residents of the District; and WHEREAS,the proposed Service Contract and Guaranty Agreement incorporate all provisions which are required to be included as provided for in the RFP. NOW, THEREFORE, BE ITRESOLVED, by the Board of Directors of the District that the [General Manager] is hereby authorized to execute and deliver the Service Contract with the Company for the provision of the Project Services. The Service Contract shall be substantially in the form presented at this meeting with such amendments, modifications, changes and omissions thereto as the District Manager may approve as in the best interests of the District and not inconsistent with the terms of this resolution. The execution of the Service Contract shall constitute conclusive evidence of valid authorization hereunder of any such amendment, modification, change or omission. BE IT FURTHER RESOLVED, that the [District Manager] is hereby authorized to execute and deliver the Guaranty Agreement executed and delivered to the District by Southwest Water Company. The Guaranty Agreement shall be substantially in the form presented at this meeting with such amendments, modifications, changes and omissions thereto as the District Manager may approve as in the best interests of the District and not inconsistent with the terms of this resolution. The execution by the District Manager of the Guaranty Agreement shall constitute conclusive evidence of the authorization hereunder of any such amendments, modifications, changes or omissions to such Guaranty Agreement. BE IT FURTHER RESOLVED, that the District Manager is hereby authorized to execute and deliver any and all other papers, instruments, opinions, certificates, affidavits and other documents, and to do and cause to be done any and all acts necessary or proper in connection with or for carrying out this resolution and the execution, delivery and performance of the Service Contract and the Guaranty Agreement, including the execution of contract administration memoranda, as appropriate under the Service Contract, taking appropriate action with respect to the various termination rights of the parties under the Service Contract during the development period, and taking appropriate action with respect to the financing of the Project as contemplated by the Service Contract. BE IT FURTHER RESOLVED, that the District Clerk shall cause copies of this resolution to be forwarded to the members of the District's selection committee, the appropriate representatives of the Company, and the appropriate representatives of Southwest Water Company. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the Capistrano Valley Water District does hereby x PASSED, APPROVED, AND ADOPTED this day of 2002. DIANE BATHGATE, Chairman ATTEST: MARGARET R. MONAHAN, Clerk of the Board THIS IS NOTA LIEN. THIS NOTICIVEN CALIFORNIA PURSUANT TO SECTIONS 3097 A 98, PRELIMINARY CALIFORNIA CIVIL CODE. THIS IS NOT NOTICE A REFLECTION ON THE INTEGRITY OF 11111111111111 Mill ANY CONTRACTOR OR Wpm7108 1800 8317 2249 1024 J22293 722491 2003 OCT 2u P 12' M1 YOU ARE HEREBY NOTIFIED THAT... STANDARD CONCRETE PRODUCTS INC 3422 OWNER or Reputed Ow'�,,IeIF��Co 02 P O BOX 15326 or PUBLIC A�I���(ore�t ) SANTA ANA CA 92735-5326 949-493-1515 CAPISTRANO VALLEY WATER DISTRICT 32400 PASEO ADELANTO SAN JUAN CAPISTRANO CA 92675 has furnished or will furnish labor,services,equipment or materials of the following general description: 1436340A READY MIX CONCRETE AND/OR BUILDING MATERIALS ------------- CONSTRUCTION LENDER or Reputed Construction Lender,if any. =building,building,structure or other work of improvement located at: NONE/BOND#24015060/BOND CO: "CONSTRUCTION OF DESALTER PROJECT" SAN JUAN BASIN AUTHORITY LEASE 32470 PASEO ADELANTO REVENUE BONDSBNY TRUST CO SAN JUAN CAPISTRANO CA 700 S FLOWER ST#2 JOB#1436340 LOS ANGELES CA 90017 ORIGINAL CONTRACTOR or 03 Reputed Contractor,if any. 949-218-7714 An estimate of the total price of the labor,services, ECO RESOURCES equipment or materials furnished or to be furnished is: 32234 PASEO ADELANTO#D $ 4,374.00 SAN JUAN CAPISTRANO CA 92675 Trust Funds to which Supplemental Fringe Benefits are payable: SUB CONTRACTOR/person or firm who contracted for the purchase of such labor,services,equipment or materials is: 949-598-9242 ARB INC 26000 COMMERCENTRE DR n LAKE FOREST CA 92630 BY: C�Jda IA1/9YQ Agent Dated: 10/23/2003 (Signature) (Title) 10/08/2003 R NOTICE TO PROPERTY OWNER OTHER INFORMATION,if any. IF BILLS ARE NOT PAID IN FULL FOR THE LABOR, SERVICES,EQUIPMENT, OR MATERIALS FURNISHED OR TO BE FURNISHED,A MECHANIC'S LIEN LEADING BOND AGENT: TO THE LOSS, THROUGH COURT FORECLOSURE MCGOWAN&ASSOCIATES PROCEEDINGS, OF ALL OR PART OR YOUR 1450 GRANT AVE#210 PROPERTY BEING SO IMPROVED MAY BE PLACED NOVATO CA 94945 AGAINST THE PROPERTY EVEN THOUGH YOU HAVE PAID YOUR CONTRACTOR IN FULL, YOU MAY WISH TO PROTECT YOURSELF AGAINST THIS r CONSEQUENCE BY(1) REQUIRING YOUR J I Ct 1 CONTRACTOR TO FURNISH A SIGNED RELEASE / 1 l BY THE PERSON OR FIRM GIVING YOU THIS NOTICE U r BEFORE MAKING PAYMENT TO YOUR 63 CONTRACTOR OR(2)ANY OTHER METHOD OR DEVICE 'JMAT IS APPROPRIATE UNDER THE CIRCUMSTANCES. This form prepared by CAPRENOS INC 4345 Murphy Canyon its 200,San Diego CA 92123(800)054-2100,FAX(858)560.7626 • �tie" • 32400 PASEO ADELANTO SAN JUAN CAPISTRANO, CA 92675 jY IAf111111111 MEMBERS OF THE CITY COUNCIL (949) 493-1171 m/1115111 1961 DIANE L BATHGATE (949) 493-1053 (FAX) 1776 COUENE CAMPBELLJOHN S.GEIFF Ivlulu sanjuGncapistrano.org w ART OAMD DAND M.SWERgJN CITY MANAGER GEORGE SCARBOROUGH NOTIFICATION OF MEETING OF POTENTIAL INTEREST CAPISTRANO VALLEY WATER DISTRICT The Board of Directors of the Capistrano Valley Water District will meet at 7:00 p.m. on September 3, 2002, in the City Council Chamber in City Hall, to consider "Consideration of Approval of Design Build Operate and Finance Agreement for the Phase I Groudwater Recovery Project (CIP# 758) (ECO Resources, Inc. and Southwest Water Company)" — Item No. C1 If you have specific thoughts or concerns regarding this item, you are encouraged to participate in this decision making process. You can communicate with the Board of Directors through correspondence addressed to the Board and/or by attending the meeting and speaking to the Board during the public meeting. Correspondence related to this item must be received at City Hall by 5:00 p.m. on Friday, August 30, 2002 to allow time for the Board to consider its content. If you would like to speak at the meeting, please complete a blue "Request to Speak" form found inside the entrance to the Council Chamber. This form is turned in at the staff table, just in front of the Council dais. You will be called to speak by the Chairman when the item is considered. You have received this notice at the request of the City staff member Amy Amirani, Public Works Director. You may contact that staff member at (949) 487-6361 with any questions Than y u f y r ' t, Me nahan, MC City Clerk cc: ECO Resources, Inc.*; Southwest Water Company*; EarthTech Inc.; San Juan Basin Authority; Metropolitan Water District; Santa Margarita Water District; Moulton Niguel Water District; South Coast Water District; Amy Amirani, Public Works Director * Received staff report onuo use s San Juan Capistrano: Preserving the Past to Enhance the Future C VW G � SUPPLEMENTAL AGENDA ITEM August 27, 2002 TO: George Scarborough, General Manager FROM: Amy Amirani, Public Works Director 4/, SUBJECT: Consideration of Approval of Design Build Operate and Finance Agreement for the Phase I Groundwater Recovery Project (CIP# 758) (ECO Resources, Inc. and Southwest Water Company) The Service Contract between ECO Resources, Inc. and Capistrano Valley Water District for the design, construction, financing, and long-term operation of the Capistrano Valley Water District Phase I Groundwater Recovery Plant Project has been made available. Five copies of the Service Contract have been forwarded to the Capistrano Valley Water District Board of Directors for their review and information. One copy has also been forwarded to the Clerk of the Board for public review. Should you have any questions, please contact me. Thank you. wd- 101 CITY COUNCIL AGEND . 32400 PASEO ADELANTO i/ MEMBERS OF THE CITY COUNCIL SAN JUAN CAPISTRANO, CA 92675 ] muvamtl DIANE L.BATHGATE COLLENE CAMPBELL (949) 493-1171 61IIu5IU 1961 JOHN S.DELFT (949) 493-1053 (FAX) 1776 MATT HART www.sanjuancapistrano.org • • DAVID M.SWERDLIN CITY MANAGER GEORGE SCARBOROUGH September 8, 2002 NOTIFICATION OF ACTION BY THE CAPISTRANO VALLEY WATER DISTRICT BOARD OF DIRECTORS On September 3, 2002 the Capistrano Valley Water District Board of Directors met regarding: "Consideration of Approval of Design Build Operate and Finance Agreement for the Phase I Groundwater Recovery Project (CIP# 758) (ECO Resources, Inc. and Southwest Water Company)." (Item No. C1) The following action was taken at the meeting: Resolution No. CVWD 02-09-03-01 adopted authorizing award and execution of a service contract with ECO Resources, Inc. for design, construction, financing, operation and execution of guaranty agreement with Southwest Water Company as Guarantor of the performanace of the obligations of ECO Resources, Inc. under the service contract; B) Chairman authorized to execute the appropriate service contract and service guaranty agreement; c) Tax-exempt public financing concept approved through the San Juan Basin Authority and staff authorized to proceed with issuance of bonds to provide funding for the project; D) Commencement of site preparation for relocation of the Orange County Headstart Facility approved and the City Manager authorized to execute any necessary agreement; E) $650,000 appropriated from Water Enterprise fund to the Project CIP# 758 to pay for services of Hawkins, Delafield & Wood and Malcolm Pirnie for additional contract services and financial negotiation work, costs to be reimbursed by ECO. The following documents are in the process of being executed. Resolution No. CVWD 02-09-03-01; Service contract with ECO Resources If you have any questions regarding this action, please contact Amy Amirani, Public Works Director at 487-6361 for more detailed information. TThhenk you, Meg n an, CMC, Clerk of the Board Cc: Resources, Inc.'; Southwest Water Company'; EarthTech Inc.; San Juan Basin Authority; Metropolitan Water District; Santa Margarita Water District; Moulton Niguel Water District; South Coast Water District; Amy Amirani, Public Works Director onuo use 1s San Juan Capistrano: Preserving the Past to Enhance the Future RESOLUTION NO. CVWD 02-09-03-01 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CAPISTRANO VALLEY WATER DISTRICT, CALIFORNIA, AUTHORIZING AWARD AND EXECUTION OF A SERVICE CONTRACT WITH ECO RESOURCES, INC. FOR THE DESIGN, CONSTRUCTION, FINANCING AND OPERATION OF THE SAN JUAN BASIN DESALTER PROJECT AND THE FORM AND EXECUTION OF A GUARANTY AGREEMENT WITH SOUTHWEST WATER COMPANY AS GUARANTOR OF THE PERFORMANCE OF THE OBLIGATIONS OF ECO RESOURCES, INC. UNDER THE SERVICE CONTRACT WHEREAS, the Capistrano Valley Water District (the "District') is a county waterworks district organized and existing under the laws of the State of California authorized to establish, maintain, equip, own and operate water treatment projects within the District and to contract for water project services; and WHEREAS, the District plans to implement a new water treatment project consisting of a water treatment plant, wells, a raw water pumping station and related transmission line, a brine disposal line and a finished water pumping station and related transmission line to serve its potable water supply needs (the 'Project'); and WHEREAS, the District is authorized under the laws of the State of California, including Title 1, Division 6, Chapter 14 of the California Government Code (Section 5956 et seq.), as amended, to utilize a competitive procurement proposal process in contracting for water treatment services and to contract with a single firm on a full service, long-term basis for the design, permitting, financing, construction, start-up, acceptance testing, operation, maintenance, repair, replacement or management of the Project (the 'Project Services"); and WHEREAS, the District issued a pre-request for proposals dated September 22, 2000 to companies interested in providing the Project Services; and WHEREAS, the District, on November 20, 2000, based on the technical and financial qualifications set forth in the pre-request for proposals, determined all of the three firms that responded to the pre-request for proposals to be qualified; and WHEREAS, the District issued a request for proposals on February 1, 2001, as amended (the 'RFP"), to the pre-qualified firms to provide the Project Services, and set forth in the RFP the criteria for selection of the preferred proposer; and WHEREAS, proposals submitted in response to the RFP were received in July, 2001 from Eco Resources, Inc. and Earth Tech, Inc. A proposal clarification process was conducted commencing in July 2001 and post-proposal clarification submittals were received from each of the proposers in July 2001; and 09-03-02 1 CVWD Resolution WHEREAS, based on further evaluation by its selection committee utilizing the evaluation factors and selection criteria and following the review and selection process identified in the RFP, the District on September 18, 2001 selected the proposal by or on behalf of ECO Resources, Inc., a corporation organized and existing underthe laws of the State of Texas and authorized to do business in the State of California (the"Company"), as the most advantageous proposal received in response to the RFP; and WHEREAS, based on the evaluation report of the proposals prepared in September 2001 by the selection committee, the District designated the Company as the Selected Proposer Team, as defined in the RFP, and authorized the selection committee by resolution of the Board of Directors of the District dated September 18, 2001 to proceed with negotiations with the Company fora proposed service contract forthe Project Services (the "Service Contract"); and WHEREAS, negotiations with the Company have proven to be successful in the development of a Service Contract which has a 20 year initial operating term following the development and construction periods; and WHEREAS, Southwest Water Company, an affiliate of the Company, has agreed to act as the guarantor of the Service Contract on behalf of the Company and to provide the District with an unconditional and unlimited guaranty of the Company's performance of its obligations under the Service Contract, for the term of the Service Contract, in the form of a guaranty agreement with the District (the "Guaranty Agreement"); and WHEREAS, the Project is expected to be financed by revenue bonds of the San Juan Basin Authority pursuant to a lease arrangement between the San Juan Basin Authority and the District under which the District will lease the Project from the San Juan Basin Authority and pay the debt service on the bonds forthe term of the Service Contract. The District will have no obligation to pay debt service on the bonds in the event the Service Contract is terminated due to an event of default by the Company and the failure of the trustee or insurer of the bonds to cure such event of default in accordance with the terms of the Service Contract; and WHEREAS, the Company is expected to provide additional financial support to the trustee or insurer of the bonds in order to cover payment of the debt service on the bonds in the event of a default or breach by the Company under the Service Contract; and WHEREAS,the negotiated Service Contract and Guaranty Agreement will provide a comprehensive framework which will result in a public-private partnership that is advantageous to the interests of the residents of the District; and WHEREAS,the proposed Service Contract and Guaranty Agreement incorporate all provisions which are required to be included as provided for in the RFP. NOW, THEREFORE, BE ITRESOLVED, by the Board of Directors of the District that the [General Manager] is hereby authorized to execute and deliver the Service Contract with the Company for the provision of the Project Services. The Service Contract 09-03-02 2 CVWD Resolution shall be substantially in the form presented at this meeting with such amendments, modifications, changes and omissions thereto as the District Manager may approve as in the best interests of the District and not inconsistent with the terms of this resolution. The execution of the Service Contract shall constitute conclusive evidence of valid authorization hereunder of any such amendment, modification, change or omission. BE IT FURTHER RESOLVED, that the [District Manager] is hereby authorized to execute and deliver the Guaranty Agreement executed and delivered to the District by Southwest Water Company. The Guaranty Agreement shall be substantially in the form presented at this meeting with such amendments, modifications, changes and omissions thereto as the District Manager may approve as in the best interests of the District and not inconsistent with the terms of this resolution. The execution by the District Manager of the Guaranty Agreement shall constitute conclusive evidence of the authorization hereunder of any such amendments, modifications, changes or omissions to such Guaranty Agreement. BE IT FURTHER RESOLVED, that the District Manager is hereby authorized to execute and deliver any and all other papers, instruments, opinions, certificates, affidavits and other documents, and to do and cause to be done any and all acts necessary or proper in connection with or for carrying out this resolution and the execution, delivery and performance of the Service Contract and the Guaranty Agreement, including the execution of contract administration memoranda, as appropriate under the Service Contract, taking appropriate action with respect to the various termination rights of the parties under the Service Contract during the development period, and taking appropriate action with respect to the financing of the Project as contemplated by the Service Contract. BE IT FURTHER RESOLVED, that the District Clerk shall cause copies of this resolution to be forwarded to the members of the District's selection committee, the appropriate representatives of the Company, and the appropriate representatives of Southwest Water Company. PASSED, APPROVED, AND ADOPTED this 3rd day of September 2002. SCJ IVLL lt� DIANE BATHGATE, ChaLOman ATTEST: MA G RET R. MONAHAN, Clerk of the Board 09-03-02 3 CVWD Resolution STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF SAN JUAN CAPISTRANO ) I, MARGARET R. MONAHAN, appointed Clerk of the Board of the Capistrano Valley Water District, do hereby certify that the foregoing Resolution No. CVWD 02-09-03-01 was duly adopted by the Board of Directors of the Capistrano Valley Water District at a regular meeting thereof, held the 3rd day of September 2002, by the following vote: AYES: DIRECTORS: Hart, Gelff and Chairman Bathgate NOES DIRECTORS: Swerdlin ABSENT: DIRECT /RRSS: Campbell C L M ARET R. MONAHAN, Clerk of the Board RESOLUTION NO. CVWD 02-09-03-01 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CAPISTRANO VALLEY WATER DISTRICT, CALIFORNIA, AUTHORIZING AWARD AND EXECUTION OF A SERVICE CONTRACT WITH ECO RESOURCES, INC. FOR THE DESIGN, CONSTRUCTION, FINANCING AND OPERATION OF THE SAN JUAN BASIN DESALTER PROJECT AND THE FORM AND EXECUTION OF A GUARANTY AGREEMENT WITH SOUTHWEST WATER COMPANY AS GUARANTOR OF THE PERFORMANCE OF THE OBLIGATIONS OF ECO RESOURCES, INC. UNDER THE SERVICE CONTRACT WHEREAS, the Capistrano Valley Water District (the "District') is a county waterworks district organized and existing under the laws of the State of California authorized to establish, maintain, equip, own and operate water treatment projects within the District and to contract for water project services; and WHEREAS, the District plans to implement a new water treatment project consisting of a water treatment plant, wells, a raw water pumping station and related transmission line, a brine disposal line and a finished water pumping station and related transmission line to serve its potable water supply needs (the "Project'); and WHEREAS, the District is authorized under the laws of the State of California, including Title 1, Division 6, Chapter 14 of the California Government Code (Section 5956 etseq.), as amended, to utilize a competitive procurement proposal process in contracting for water treatment services and to contract with a single firm on a full service, long-term basis for the design, permitting, financing, construction, start-up, acceptance testing, operation, maintenance, repair, replacement or management of the Project (the "Project Services"); and WHEREAS, the District issued a pre-request for proposals dated September 22, 2000 to companies interested in providing the Project Services; and WHEREAS, the District, on November 20, 2000, based on the technical and financial qualifications set forth in the pre-request for proposals, determined all of the three firms that responded to the pre-request for proposals to be qualified; and WHEREAS, the District issued a request for proposals on February 1, 2001, as amended (the 'RFP"), to the pre-qualified firms to provide the Project Services, and set forth in the RFP the criteria for selection of the preferred proposer; and WHEREAS, proposals submitted in response to the RFP were received in July, 2001 from Eco Resources, Inc. and Earth Tech, Inc. A proposal clarification process was conducted commencing in July 2001 and post-proposal clarification submittals were received from each of the proposers in July 2001; and 09-03-02 1 CVWD Resolution WHEREAS, based on further evaluation by its selection committee utilizing the evaluation factors and selection criteria and following the review and selection process identified in the RFP, the District on September 18, 2001 selected the proposal by or on behalf of ECO Resources, Inc., a corporation organized and existing under the laws of the State of Texas and authorized to do business in the State of California (the"Company"), as the most advantageous proposal received in response to the RFP; and WHEREAS, based on the evaluation report of the proposals prepared in September 2001 by the selection committee, the District designated the Company as the Selected Proposer Team, as defined in the RFP, and authorized the selection committee by resolution of the Board of Directors of the District dated September 18, 2001 to proceed with negotiations with the Company for a proposed service contract forthe Project Services (the "Service Contract"); and WHEREAS, negotiations with the Company have proven to be successful in the development of a Service Contract which has a 20 year initial operating term following the development and construction periods; and WHEREAS, Southwest Water Company, an affiliate of the Company, has agreed to act as the guarantor of the Service Contract on behalf of the Company and to provide the District with an unconditional and unlimited guaranty of the Company's performance of its obligations under the Service Contract, for the term of the Service Contract, in the form of a guaranty agreement with the District (the "Guaranty Agreement"); and WHEREAS, the Project is expected to be financed by revenue bonds of the San Juan Basin Authority pursuant to a lease arrangement between the San Juan Basin Authority and the District under which the District will lease the Project from the San Juan Basin Authority and pay the debt service on the bonds for the term of the Service Contract. The District will have no obligation to pay debt service on the bonds in the event the Service Contract is terminated due to an event of default by the Company and the failure of the trustee or insurer of the bonds to cure such event of default in accordance with the terms of the Service Contract; and WHEREAS, the Company is expected to provide additional financial support to the trustee or insurer of the bonds in order to cover payment of the debt service on the bonds in the event of a default or breach by the Company under the Service Contract; and WHEREAS,the negotiated Service Contract and Guaranty Agreement will provide a comprehensive framework which will result in a public-private partnership that is advantageous to the interests of the residents of the District; and WHEREAS,the proposed Service Contract and Guaranty Agreement incorporate all provisions which are required to be included as provided for in the RFP. NOW, THEREFORE, BE ITRESOLVED, by the Board of Directors of the District that the [General Manager] is hereby authorized to execute and deliver the Service Contract with the Company for the provision of the Project Services. The Service Contract 09-03-02 2 CVWD Resolution ' • shall be substantially in the form presented at this meeting with such amendments, modifications, changes and omissions thereto as the District Manager may approve as in the best interests of the District and not inconsistent with the terms of this resolution. The execution of the Service Contract shall constitute conclusive evidence of valid authorization hereunder of any such amendment, modification, change or omission. BE IT FURTHER RESOLVED, that the [District Manager] is hereby authorized to execute and deliver the Guaranty Agreement executed and delivered to the District by Southwest Water Company. The Guaranty Agreement shall be substantially in the form presented at this meeting with such amendments, modifications, changes and omissions thereto as the District Manager may approve as in the best interests of the District and not inconsistent with the terms of this resolution. The execution by the District Manager of the Guaranty Agreement shall constitute conclusive evidence of the authorization hereunder of any such amendments, modifications, changes or omissions to such Guaranty Agreement. BE IT FURTHER RESOLVED, that the District Manager is hereby authorized to execute and deliver any and all other papers, instruments, opinions, certificates, affidavits and other documents, and to do and cause to be done any and all acts necessary or proper in connection with or for carrying out this resolution and the execution, delivery and performance of the Service Contract and the Guaranty Agreement, including the execution of contract administration memoranda, as appropriate under the Service Contract, taking appropriate action with respect to the various termination rights of the parties under the Service Contract during the development period, and taking appropriate action with respect to the financing of the Project as contemplated by the Service Contract. BE IT FURTHER RESOLVED, that the District Clerk shall cause copies of this resolution to be forwarded to the members of the District's selection committee, the appropriate representatives of the Company, and the appropriate representatives of Southwest Water Company. PASSED, APPROVED, AND ADOPTED this 3rd day of September 2002. D I Atl DIANE BATHGATE, C an ATTEST: � C, MA G RET R. MONAHAN, Clerk of the Board 09-03.02 3 CVWD Resolution STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF SAN JUAN CAPISTRANO ) I, MARGARET R. MONAHAN, appointed Clerk of the Board of the Capistrano Valley Water District, do hereby certify that the foregoing Resolution No. CVWD 02-09-03-01 was duly adopted by the Board of Directors of the Capistrano Valley Water District at a regular meeting thereof, held the 3rd day of September 2002, by the following vote: AYES: DIRECTORS: Hart, Gelff and Chairman Bathgate NOES DIRECTORS: Swerdlin ABSENT: DIRECT /RS: Campbell ( L MrIARET R. MONAHAN, Clerk of the Board BOARD ACTIONS: `RC1. GROUNDWATER RECOVERY PROJECT - PHASE I: NEGOTIATION TERMS / FOR SERVICE CONTRACT WITH ECO RESOURCES AND TAX-EXEMPTED LEASE FINANCING CONCEPT WITH PFG ENERGY CAPITAL, INC.APPROVED AND RELATED AGREEMENTS WITH OTHER LOCAL AGENCIES TO FACILITATE PROJECT APPROVED IN-CONCEPT(600..70) Proiect Description: City staff and specialized outside contractors have negotiated terms for a design, build and operate Service Contract with ECO Resources, Inc., and long-term tax-exempt take-out financing through a third party financial group, PFG Energy Capital, Inc. Staff is also in the process of completing negotiations on agreements with adjoining jurisdictions to facilitate the Project. Negotiated terms for the specialized contractors' agreements and agreements in-concept with adjoining jurisdictions are before the Board of Directors for review and approval. Written Communications: Report dated February 19, 2002, prepared by Amy Amirani, Public Works Director. Oral Presentation: Amy Amirani, Public Works Director, reviewed the staff recommendation. Board Member Swerdlin was opposed to the project, expressing concerns about increased costs and existence of numerous unknown factors. He felt that past success with conservation efforts reduced the need for storage capacity. Board Member Campbell and Chairman Bathgate felt that the District should continue to pursue additional storage capacity. Board Member Hart felt that the District should proceed cautiously, anticipating that costs would increase whether or not the District proceeded with the project. Board Action: Moved by Director Hart, seconded by Director Campbell and carried, 4-1, to approve negotiated deal points of the Service Contract between ECO Resources, Inc., and the Water District for design, construction and long-term operation of the project; tax-exempted lease financing concept between PFG Energy Capital, Inc., and the Water District for long-term financing of project approved; Agreements with other local agencies to facilitate the project approved in concept; and staff directed to return with final documents for all transactions at the March 5, 2002, Board of Directors' meeting. CVWD Minutes 2 2-19-02 ROLL CALL AYES: DIRECTORS: Hart, Campbell, Vice Chairman Gelff and Chairman Bathgate NOES: DIRECTORS: Swerdlin ABSTAIN: DIRECTORS: None ADJOURNMENT There being no further business, Chairman Bathgate adjourned the meeting at 8:24 p.m. to Tuesday, March 5, 2002, in the City Council Chamber. Respectfully submitted, ----S 4 / 2 � L' h- MAR,GARET R. MONAHAN, CLERK OF THE BOARD Adopted: March 19, 2002 ATTEST: Wy�t/ CHAIRMAN BATHGATY CVWD Minutes 3 2-19-02 2/19/2002 CVWD AGENDA ITEM C I TO: George Scarborough, General Manager FROM: Amy Amirani, Public Works Director SUBJECT: Consideration of the Results of Negotiations for Agreements related to the Phase I Groundwater Recovery Project RECOMMENDATION By motion, A. Approve the negotiated deals points of the Service Contract between ECO Resources, Inc. and Capistrano Valley Water District for the design, construction, and long-term operation of the Project; and, B. Approve the tax-exempted lease financing concept between PFG Energy Capital, Inc. and Capistrano Valley Water District for the long-term financing of the Project; and, C. Approve in concept the agreements with other local agencies to facilitate the Project; and, D. Direct staff to return to the Water District Board of Directors with final documents for all transactions at the March 5, 2002 meeting. SITUATION: A. Summary & Recommendation On September 18, 2001, the Capistrano Valley Water District (CVWD) Board of Directors authorized the General Manager to enter into negotiations with ECO Resources, Inc. (ECO), the highest ranked Design, Build, Operate, Finance (DBOF) proposer, to design, construct, finance and provide long-term operation of the Phase I San Juan Basin Ground Water Recovery Plant (the "Project"). Over the last four months, the DBOF team made up of City staff and specialized outside contractors have negotiated a design, build and operate Service Contract with ECO and structured long-term tax-exempt take-out financing through a third party financial group, PFG Energy Capital, Inc. Additionally, City staff is completing negotiations on a number of agreements with other adjoining jurisdictions to facilitate the Project. Staff recommends the Board review and approve the negotiated deal points and direct staff to return with final documents for approval at the March 5, 2002 Board meeting. FOR CITY COUNCIL AGENDA. . V,(' AGENDA ITEM • 2 • February 19, 2002 B. Background Project Background The San Juan Basin Authority (SJBA) was formed in 1971 for the purposes of managing the San Juan Groundwater Basin and jointly funding water system facilities to make water resources available to areas within the San Juan Creek Watershed serviced by SJBA. Approximately eighty-five percent of CVWD's water supply is imported. CVWD's main water supplier, the Metropolitan Water District of Southern California (MWD), recognizing the importance of alternative supplies, entered into an agreement with Municipal Water District of Orange County and SJBA under MWD's Groundwater Recovery Program in December of 1998. The Groundwater Recovery Program agreement recognizes that recovered groundwater is more costly than MWD water, and provides a subsidy from MWD to CVWD (through SJBA) of up to $250 / acre-foot (AF) of groundwater recovered above the cost of purchased water from MWD. SJBA formed Project Committee No. 4 (PC-4) for the sole purpose of constructing and operating the San Juan Basin Groundwater Recovery Project . Currently, CVWD is the only participating agency of PC-4 as Moulton Niguel Water District and Santa Margarita Water District have decided to not participate at this time. CVWD plans to develop Phase I of the Project. Phase I of the Project proposes to design, build, operate and finance a groundwater recovery facility to provide between 4,800 to 5,760 acre-feet of potable water annually. This amount represents nearly one-half of CVWD's annual potable water supplies. The Project would help the City of San Juan Capistrano meet its goal of securing 50% of its annual potable water supply from groundwater sources. The District's domestic water master plan (DWMP) was prepared with an assumption that the Project would be constructed. From a service reliability viewpoint, the local source water provides the District with a more accessible source of water and avoids the cost of imporation. By providing this local water supply, the District will avoid approximately $12 million in costs to purchase additional import capacity and the pipelines to bring this water into the system. In addition to providing 50% local water supply, the project displaces the need for the District to construct 41 million gallons (MG) of reservoir storage volume at a cost of approximately $41 million. The DWMP recommended that emergency storage be established at seven average days demand based on the MWD target of seven days of service outage during repair or replacement of its major facilities. The District's current storage facilities and well capacity provide for 1.82 average days of emergency storage. The DWMP provides for the construction of 11.5 MG of additional reservoir volume bringing the total available to 2.72 average days of storage. The Project will produce 5.6 million gallons per day (mgd) bringing the total to 9.3 average days of storage. Activities completed to-date The MWD Groundwater Recovery Program requires the completed plant to be operational by December 2003. In order to comply with tight schedule constraints, CVWD elected to utilize the design-build-operate and finance (DBOF) alternative. AGENDA ITEM • 3 • February 19, 2002 The DBOF team will provide CVWD with numerous benefits, primarily 1) significant scheduling efficiencies over traditional design-bid-build approaches, 2) overall project cost savings via the efficiencies promoted by a single-source DBOF project team, and 3) project risk sharing. On July 18, 2000 the City Council approved a recommendation to engage the professional engineering firm Malcolm Pirnie, Inc. and the law offices of Hawkins Delafield and Wood to assist Capistrano Valley Water District in implementing procurement management and legal consultation services, respectively, for the design, construction, operation and financing of the Project. The Scope of Work for the Project included development of a procurement strategy, pre-qualification process to pre-screen qualified bidders, preparation of the request for proposals (RFP) document to design-build-operate-finance the Project, preparation of the draft Service Contract, proposal evaluation, Service Contract negotiation and preparation for adoption of the public-private partnership. Three firms responded to the Pre-Request for Proposals. All three met the criteria to qualify for the Request for Proposals (RFP) process. The focus of the RFP was to direct the short listed firms to provide the objective criteria that the DBOF team must meet, and present the terms of the legally binding contract to which the DBOF team must agree. Two firms submitted proposals in response to the RFP: Earth Tech Inc., and ECO Resources, Inc. To review the proposals, a selection committee was formed. The committee included the following persons: 1) Diane Bathgate, Chairman of the Board; 2) Larry Gallery, representing the Water Advisory Commission; 3) Don Martinson, representing SJBA; 4) George Scarborough, Amy Amirani, Cindy Russell and Eric Bauman representing the City of San Juan Capistrano/CVWD. With technical and financial interpretation and assistance provided by Malcolm Pirnie, the committee selected ECO Resources (ECO) as the best proposal as: 1) ECO provided a more economical solution in terms of capital and operations costs; 2) ECO's system included a blending bypass system that would allow for changes in the quality of the source water; 3) ECO's system has an iron and manganese precipitation and removal system that would eliminate potential NPDES permit issues in the future. At its September 18, 2001 meeting, the Board approved the recommendation by City Staff to enter into negotiations with ECO. The DBOF team has essentially completed negotiations on the Service Contract and related financing terms. The team is currently finalizing documents for consideration by the Board at the March 5, 2002 meeting. Contractual Considerations Specific terms of the negotiated Service Contract include: A. Scope of services: a. Permitting, design and construction of 5+ million gallons per day (MGD) brackish water treatment facility, wells and pipelines. b. The Project will produce approximately 5,760 acre-feet, with the District using 5,060 acre-feet per year of that amount. The District will sell, under contract, AGENDA ITEM • 4 • February 19, 2002 to South Coast Water District approximately 700 acre-feet per year, the remaining quantity. c. Guaranteed long-term financing of all capital improvements and related costs. d. 20-year operation and maintenance term, with District convenience termination provisions at years 10, 12, 14, 16 and 18. e. ECO will reimburse the District for $1.15 million in procurement transaction costs incurred to date. B. Key components of risk allocation: a. ECO responsible for securing all required permits for the project. b. ECO responsible for operating facilities in accordance with all applicable laws and performance requirements as described in the Service Contract and the MWD GRP Agreement. c. ECO to provide a guarantee of financing. d. ECO, at its sole risk, must design and construct the facility by the MWD GRP Agreement deadline of 12/2003. Should it fail to begin operations of the facility by this time, the GRP subsidy is at risk and ECO will be financially responsible for the subsidy amount. e. District responsible for changes in law, degradation of source water quality and reduction of source water quantity. f. District assumes risk of interest rate and inflationary fluctuations and electricity price increases. C. "Second Look Window": a. At any time prior to July 1, 2002, ECO will have the right to terminate the contract for convenience upon 30-day notice to the District. The purpose of this provision is to allow ECO to terminate the contract should permitting become impossible or should the Project become infeasible for other reasons. b. Should ECO exercise its option to terminate under the second look window, both the District and ECO will absorb their own costs expended to date. c. Should ECO exercise its option to terminate under the second look window, the District will not be responsible for repaying any procurement transaction cost reimbursements paid to the District by ECO prior to the termination. Related Necessary Agreements In addition to the work being performed by the DBOF team, staff has been working on agreements with other local jurisdictions to assist in the overall succes of this project. The project design requires brine disposal. Staff has been working with the South Orange County Wastewater Authority (SOCWA) to secure brine disposal using the existing ocean outfall. The City's capacity is not sufficient to support the Project and AGENDA ITEM 5 February 19, 2002 we are in the process of securing approvals from the other SOCWA member agencies to use more than our capacity. Also, related to brine disposal is an agreement with Santa Margarita Water District (SMWD) to purchase capacity in their disposal line from the Chiquita Canyon Plant to the SOCWA ocean outfall. Should the City be unable to obtain the approvals from the SOCWA member agencies to exceed capacity in the ocean outfall or at some point in the future be unable to use the approved excess capacity, the City would need to purchase additional capacity in the ocean outfall from SMWD. The City is currently negotiating the terms of this acquisition, should it be necessary. The proposed project is designed to produce 5,760 acre-feet of potable water annually. This amount is the maximum allowed under the GRP agreement with MWD. By sizing the plant to this capacity, the District would obtain a more economical cost per acre-foot. The difference in price is approximately $60 per acre-foot. Although 5,760 acre-feet represents only approxmately 50% of the District's annual demand, the system can only take 5,114 acre-feet annually. This is due to the annual peaks and valleys in the District's usage. In the summer months the system can handle much more than the plant can provide. In the winter months the amount produced by the plant exceeds the District's total demand. In an effort to obtain the most effective cost per acre-foot, staff is working with South Coast Water District (SCWD) to negotiate their buying 700 acre-feet of our production annually at the MWD rate. The District would also be receiving the MWD subsidy on this water. The difference between the MWD rate plus the subsidy and the amount pasid to ECO per acre foot will be borne by the District. The savings of $60 per acre-foot of production exceeds the additional cost of the water sold to SCWD, making this strategy most cost effective This strategy is beneficial to SCWD as it provides their service area with another source of water at the same rate they are currently paying for imported water. SCWD and the District would share equally in the capital cost of the connection to our system to deliver this water. The various agreements for the items mentioned above are anticipated to be completed and ready for Board review and consideration on March 5, 2002. COMMISSION/BOARD REVIEW AND RECOMMENDATIONS: The Water Advisory Commission (WAC) has been apprised of the status of these negotiations. FINANCIAL CONSIDERATIONS: Proiect Costs The cost of water from the PROJECT is made up of three components, a capital charge, operations and maintenance costs (the "service fee") and power costs. The capital cost of the facilities including design, construction, equipment, permitting and District procurement management costs is approximately $25 million. AGENDA ITEM 6 February 19, 2002 ECO Resources, Inc. through its parent company Southwest Water, will provide guaranteed financing of these costs over a 20-year fully amortized lease. The annual cost of the lease payments is estimated at $2.5 million annually. The more detailed discussion of the project financing appears later in this report. The District will make level annual payments of approximately $1.1 million, to pay for the capital and operational costs to produce 5,760 acre-feet of water per year. After the first contract year, ECO will be entitled to annual operations and maintenance fee adjustments based on a formula indexed to a fraction (90%) of the Consumer Price Index rise. The District will pay electricity costs as a pass through cost based on a contractual maximum consumption quantity. The DBOF team has obtained information from San Diego Gas & Electric in an effort to project power costs over the 20-year life of the project. When the initial cost projections were prepared for this project, the current average cost of power over the past year had been $0.11 per KwHr. For purposes of modeling the costs of this project, the DBOF team had used a consistent rate of$0.125 per KwHr over the life of the project. This rate represented the most reasonable estimate of future rates. Staff believes these projections are still valid and represent an extremely conservative projection based on recently reduced rates. Based on the usage projections, power costs are anticipated to be $1,187,500 annually. Staff continues to investigate alternatives to lower the cost of energy. Ground Water Recovery Plant vs. Traditional Import and Storage As stated earlier, the plant not only provides the means to meet our goal of 50% local water supply, it provides a large addition to our existing storage capacity. From a service reliability viewpoint, the local source water provides the District with a more accesible source of water and avoids the cost of importation. Additionally, the plant adds the equivalent of 41 MG of storage to the District. The present value of the cost to continue to import water, increase our import capacity and add sufficient storage is approximately $79 million. The present value of the costs associated with the proposed Project is $57 million. Cost Comparison and User Rate Impacts Based on the costs outlined above, the water delivered from the Project will cost approximately $829 per acre-foot. The provisions of the GRP Agreement with Metropolitan Water District will provide the District a subsidy of $250 per acre-foot of water produced by the Project to offset the additional costs associated with treating groundwater for domestic consumption. Additionally, the District will avoid the cost of $431 per acre-foot cost of imported water. The net cost remaining is $149 per acre-foot. The additional cost will be covered by an increase in user rates. Based on the existing rate structure adopted on October 2, 2001, the District will need to increase rates effective December 1, 2003 by $0.163 per ccf, or 11.6%. This increase is projected based on today's interest rates and will be adjusted to reflect the market rates in December 2003. To fund the costs of continuing to import water and building a large amount of storage, staff projects the rate increase would be approximately 16%. AGENDA ITEM 7 February 19, 2002 Financing Structure Analysis The District anticipated utilizing private sector financing provided by the selected vendor to fund the capital improvements. The RFP required the proposers to provide a financing proposal that identified the financing terms and structure required for the DBOF deal. This structure puts the risk of the capital investment on the vendor. Basically, should the vendor fail to meet the performance requirements of the Service Contract, the capital financing portion of the service fee would be forfeited along with the operating portion. While the DBOF concept provides benefits to the District in terms of risk transfer, the financial premium associated with private sector financing is significant, requiring a higher increase in user rates. In an effort to reduce the cost of the project, the DBOF considered traditional public financing. Although public financing would save the District 3.68% in the financing rate, this structure would shift the capital risk to the District. Specifically, the District would be required to continue its bond payments for the project regardless of the performance of the vendor. The District would need to pursue legal action to recover funds expended to repay the bonds should ECO default. In an effort to reduce costs, meet the requirements of the DBOF process and still maintain the risk structure contemplated in the process, staff has been working with PFG Energy Capital (the "Lessor") and Provident Bank (Provident) to secure long- term financing through a tax-exempt capital lease type financing arrangement. To meet the requirements of the DBOF procurement structure, a portion of the financing must be private. Therefore, ECO will be required to provide the financing during construction. Upon Acceptance of the Plant per the Service Contract, Provident would provide take-out financing in the form of a tax-exempt lease. The lease is structured such that should ECO fail to meet the performance requirements of the Service Contract, the lease payments would cease until they have cured their default. Should the default not be cured by ECO, the Lessor has 60 days to cure the default. Should the Lessor fail to cure the defalut, the plant becomes the property of the District, unencumbered. The current tax-exempt 20-year financing rate used for projecting the cost of the Project is 5.2%. The margin for the tax-exempt lease financing is 1.41% over the 20-year bond rate for a total of 6.61%. The margin for the private financing proposed by ECO is 3.68% over the 10-year Treasury rate (5.5%) for a total of 9.18%. The 1.41% is the premium the City will pay over its own borrowing rate in order to transfer the performance risk to a third party. The proposed financing plan using a tax-exempt lease results in an anticipated rate increase in December 2003 of 11.6%. Traditional public financing would require an increase of 10.8%. Based on the small variance in rates versus the larger risk of non-performance, staff is recommending the tax-exempt lease financing. In comparison, the anticipated rate increase using the private financing would be 18.7%. AGENDA ITEM • 8 February 19, 2002 NOTIFICATION ECO Resources, Inc.* ALTERNATE ACTIONS 1. By motion, A. Approve the negotiated deals points of the Service Contract between ECO Resources, Inc. and Capistrano Valley Water District for the design, construction, financing and long-term operation of the Project; and, B. Approve the tax-exempted lease financing concept between PFG Energy Capital, Inc. and Capistrano Valley Water District for the long-term financing of the Project; and, C. Approve in concept the agreements with other local agencies to facilitate the Project; and, D. Direct staff to return to the Water District Board of Directors with final documents for all transactions at the March 5, 2002 meeting. 2. Request additional information from staff RECOMMENDATION By motion, A. Approve the negotiated deals points of the Service Contract between ECO Resources, Inc. and Capistrano Valley Water District for the design, construction, financing and long-term operation of the Project; and, B. Approve the tax-exempted lease financing concept between PFG Energy Capital, Inc. and Capistrano Valley Water District for the long-term financing of the Project; and, C. Approve in concept the agreements with other local agencies to facilitate the Project; and, D. Direct staff to return to the Water District Board of Directors with final documents for all transactions at the March 5, 2002 meeting. Respectfully submitted, Amy Amlfani Public Works Director Capistrano Talley- Water `District NOTIFICATION OF MEETING OF POTENTIAL INTEREST CAPISTRANO VALLEY WATER DISTRICT The Board of Directors of the Capistrano Valley Water District will meet at 7:00 p.m. on February 19, 2002, in the City Council Chamber in City Hall, to consider "Consideration of the Results of Negotiations for Agreements related to the Phase I Groundwater Recovery Project" — Item No. C1 If you have specific thoughts or concerns regarding this item, you are encouraged to participate in this decision making process. You can communicate with the Board of Directors through correspondence addressed to the Board and/or by attending the meeting and speaking to the Board during the public meeting. Correspondence related to this item must be received at City Hall by 5:00 p.m. on Friday, February 15, 2002 to allow time for the Board to consider its content. If you would like to speak at the meeting, please complete a blue 'Request to Speak" form found inside the entrance to the Council Chamber. This form is turned in at the staff table, just in front of the Council dais. You will be called to speak by the Chairman when the item is considered. You have received this notice at the request of the City staff member Amy Amirani, Public Works Director. You may contact that staff member at (949) 443-6361 with any questions. Thank you for your interest, Meg M ha , CMC City Cl rk (949) 4 8 cc: ECO Resources, Inc.*; Amy Amirani, Public Works Director * Received staff report P.O. Box%7,San Juan Capistrano, California 92693 '( Phone 714-493-1515 32450 Paseo Adelanto • San Juan Capistrano, California 92675 FAX 714-4933955 • Wer&Wastewater Operations Management ECO Resources, Inc. October 14,2002 Capistrano Valley Water District 32400 Paseo Adelanto San Juan Capistrano,CA 92675 Atm: City Clerk and City Manager Re: Service Contract for the Design,Construction,Financing and Operation of the San Juan Basin Desalter Project dated September 3, 2002 ("Service Contract") between Capistrano Valley Water District("District")and ECO Resources,Inc.("ECO") Over the past month, in accordance with the Service Contract, ECO has been working with the District to evaluate the state of title to the Project Sites. There is a recorded easement benefiting the Orange County Flood Control District that impacts the entire Plant Site, which ECO has determined may have an actual or potential material and adverse effect on ECO's ability to perform its obligations under the Service Contract. In order to give the parties sufficient time to work together to explore with the Orange County Flood Control District whether a satisfactory resolution of the issues arising from the existence of the easement can be reached, the parties agree to extend the date in Section 4.8(E) of the Service Contract from October 15,2002 to November 15,2002. In addition, the parties agree that all references to October 15, 2002 set forth in Sections 4.11(B) and(C) of the Service Contract are extended to Novemb 15, 2002 to ive the District additional time to modify the Metropolitan Water District Agreement(as esc 'bed in the ervice Contract). Steven Richardson4Ciage4r, �off Vice-President,ECO Resources, Inc. San Juan Capistrano Tom Tekulve Vice-President, Southwest Water Company 5820 Stoneridge Mall Road a Suite 204 a Pleasanton,CA 94588 a (925)463-3663 a Fax(925)463-0232 Fu/14/l 16:02 FAX 6230824 WESTON BENSHOOF r I V E �]WESTON BENSHOOF a)OCHEFORT RTJB�ILCAVA MACCUISH LLP Z°�� OCT 4AT lCC AT LAW II � I FACSIMILE TRANSMITTAL FROM: Pamela J. Privett DATE- October 14, 2002 NUMBER OF PAGES:i 6 ; it i I RECIPIENT FIRMIAGENCY FAX NUMBER CONFIRMATION +! Capistrano Valley Water (949)443-6300 " Meg Monahan/City Clerk p District (949)493-1053 George Scarborough/City Capistrano Valley Water (949)493-1053 (949)493-1171; Mona er District I MESSAGE I I r Please contact our Duplicating Center at(213)576-1195,if there are any questions or problems with this transmissioh. 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If you have received this communication In error,please notify us immediately by telephone and return the 1 original message to us at the above address Via the U.S-Postal SeMce_ Thank you I 1 I FLOOR-LOSANCFLES.CA 99071 - MI.213 576 1000 2 UTH 110PE STREET $IXTEENI - II -PAx 1} 576 1100 373 SOI o CA 91 1 -TEL 4JT Y4 •PAX N7 88U4 I l 2i{9t TOWNSGAIL)IOAD-SUITE SIS-WPS8Ti AA¢VI CO WWW WPCOU IINSYL.CON Y li 1 I, 1 10/14/02 16:09 FAX 6290824- • - _WESTON BENSHOOF _ • - — 609/' III nI 1 WESTON BENSHOOF ROCHEFORT RUBALCAVA MACCUISH 1LP ATTORNEYS AT LAW — — —— — —— — — — (213)576-1112jr -17- P7tivcllQhOewnfef2ort , r' October 14, 2002 C } t Cl�k I• ,.. .., Caplsnano v alley Water District VIA FACSllVULE AND U.S. MAIL 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: City Clerk and City Manager I I. Re: Service Contract for the Design, Construction, Financing and Operation " ! of the San Juan Basin Desalter Project dated September 3, 2002 ("Service Contract") between Capistrano Valley Water District "District" and ECO Resources_ Inc. "ECO" Ladies and Gentlemen: We are in receipt of the District's written response to ECO's Site Title Lists and Amended and Restated Site Title Lists, which was delivered to ECO and its counsel is by e-mail and facsimile transmission from Cindy Russell on October 8, 2002, together with a follow-up e-mail from Ms. Russell on October 9, 2002 supplementing the District's response concerning the Strawberry Hill Booster Pumping Station Site (collectively, the "Response"). The District's Response resolved certain title issues in a manner acceptable to ECO. ECO believes that as to certain other issues, some clarification of the District's statements set forth in the Response is necessary as a basis for the parties to proceed under the Service Contract. Accordingly, ECO hereby notifies ; the District that ECO has determined not to exercise its option to terminate the Service ereof, contingent upon, and in reliance on, all of the Contract pursuant to Section 4.8(E) thI; following: 1. Definition of"Preliminary Title Reports" and "PTR" The definition of"Preliminary Title Reports" and "PTR" set forth in Article 1, Section 1.1 0 the Service Contract is deemed to mean (i) as to CVWD Well Site #1, SJBA Well Site #2 and SJBA Well Site 94, the preliminary title report with respect to such Sites obtained by the District from First American Title Insurance Company dated as of September 23, 2002 and bearing Order Number 2227603 together with all supplements and amendments thereto, and (ii) as to all other Sites, the preliminary title reports with respect to such Sites obtained by the Company from Chicago Title Insurance Company each dated as of a d�te 333 SOUTH HOPE STRFET • SIXTEENTH FIooR • Los ANGELES, CA 90071`TEL. 713 576 1000 • I'AX 213 576 110011 2801 T0wtl ROAD, SUITE 215 - WESTLAKE VILLAGE, CA 91361 • TEL 905 497 9474 • FAX 805 497 8904 li Iii I. I. b 1ui14iu2 18:03 FAX 8230824 WESTON BENSHOOF I � aII Capistrano Valley Water District j October 14, 2002 i Page 2 I � p I not earlier than 6 months prior to September 30, 2002 together with all supplements and I I amendments thereto. 2. Representations of District In the District's Response. In the ! 1 District's Response,the District made a number of representations regarding factual t matters concerning the Sites and/or curative actions that the District will take with respect I to the Sites. In proceeding with the Service Contract, ECO is relying upon the District's representations made in the Response. Such representations include: 111 (a) CVWD Well Site #1: The District has represented that it will acquire fee title in and to CVWD Well Site#1 from the current fee owner, Alipaz Community Association, on or about October 15, 2002 pursuant to Lot Line Adjustment No. 02-15858-13. The District has further represented that the City holds a quitclaim deed of CVWD Well Site #1 from Alipaz Community Association to the District that will be recorded concurrently with the lot line adjustment, on or about October 15, 2002, and that prior to the recordation of the bond financing, the District will transfer CVWD Well ; Site#1 to the City. The District has further represented that First American Title Insurance Company has in hand a partial reconveyance of the Deed of Trust given by OBSHP Company No. 3 in favor of Village Alipaz LLC. The District has also represented that the existing well at CVWD Well Site #1 that was to be abandoned by ECO pursuant to Appendix 1, Section 1.2.10 of the Service Contract has already been legally abandoned. (b) Strawberry Hill Booster Pumping Station: The District has represented that the City shall not accept title to the Strawberry Hill Booster Pumping Station Site unless Exception #6 shown on the PTR for said Site has been removed by the current owner. Accordingly, if the District ultimately acquires the property described in the PTR for the Booster Pumping Station Site, for purposes of the Service Contract Exception#6 shall be deemed deleted and removed as an exception to the PTR for such Site. Further, in its Response, the District has represented that if the District ultimately acquires the property described in the PTR for the Booster Pumping Station Site, the i1 District will get an casement across the open space between such Site and the right of w i way for Ranch Viejo Road, along with securing a sufficient ingress and egress easement to the Site, either across certain open space or from the roadway and utility easement planned to the east of the Strawberry Hill Booster Pumping Station Site. (e) SJBA Well Site #2: The District has represented that ECO shall have the right to utilize the ingress/egress easement adjacent to SJBA Well Site #2 as appropriate to enable performance of the Contract Services, so long as ECO does not unreasonably obstruct ingress, egress and other dedicated use of such easement area. i I it I I Idi i WE3FON BENsnoOF aosua"' POCHF.r_o1Cr IZUBALCAVA r Mn 1 SHLyq Ano,.a,l.r i I n 10/14/02 16:04 FAX 6230824 WESTON BENSHOOF QO5/4q� �I • , rr I d I a ,I I Capistrano Valley Water District October 14, 2002 it ' Page 3 + I, I , (d) South Alipaz Well Site: The District has represented that r �; the City Clerk will accept the dedication of Alipaz Street on the tract map for Tract No. i l 6038. Furthermore,the District has represented that the District and/or the City has It sufficient rights under California law, as evidenced by the holding in Mancino v. Santa i �' ill Clara County Flood Control and Water District(1969) 272 Cal.App.2d 678 to install and i construct the South Alipaz Well and related improvements within the Alipaz Street right- of-way dedicated to the City. (e) Kinoshita Well Site: The District has represented that the easement referenced in Exception #8 to the PTR has been acquired by the City, that all " II 1 I I it improvements have been made pursuant to the Agreement For Acquisition of Public Right of Way and that all of the City's obligations under said Agreement have been met. The District has represented that the drainage easement referenced in Exception#9 has ; been completed and that all of the City's obligations under the Agreement For Acquisition of Drainage Easement have been met. The District has further represented that it will remove the equipment and personal property currently located on the Kinoshita Well Site. I (f) Plant Site and Dance Hall Well Site: The District has represented that the permit/franchise to the County of Orange, State of California for the Orange County Water Works District No. 4 ("OCWD44") to provide water to the town or San Juan Capistrano does not infringe on the right of the San Juan Basin Authority to extract water. The District has further represented that OCWD#4 is the predecessor to the District and is now the holder of the franchise rights to distribute water in San Juan ; ;;' Capistrano and parts of Dana Point, and that the OCWD#4 assigned all of its property, rights, and obligations to the District in the early 1970's- (e) Mariner Well Site: The District has represented that the supporting documentation provided by William Huber, Director of Engineering & ! Ii Building Services for the City, is sufficient evidence that the Mariner Well Site has been 4 1' 1: devoted to public access prior to November 24, 1991, thereby precluding the reversion of title to the Mariner Well Site to the State of California under Exception #19 shown on the �i I J PTR for the Mariner Well Site. i it 3. CVWD Well Site#1 and Strawberry Full Booster Pumping Station. ECO notes that in the District's October 8, 2002 Response, the District has confirmed that neither the District nor the City holds fee title to CVWD Well Site #1 or the Strawberry Hill Booster Pumping Station Site. ECO acknowledges the District's statements in the Response that the District anticipates completing a lot line adjustment by October 15, 2002 as a result of which the District will acquire fee title in and to CVWD Well Site #1. ECO further acknowledges the District's statements in the I��qy I �3 WESTON BE SNQOF I( III �OL9B]-1 !' ISI RocwrFo;tT Ruear_cAVa I Mac Visna .I ur [Y I I I I I I 1 n 1 1 I II I I I 11 i 10/14/02 18:04 FAX 8200824 WESTON BENSHOOF Capistrano Valley Water District I October 14, 2002 Page 4 ; 'I Response that, if it is not feasible for the District to acquire fee title to the Strawberry Hill ,I = Booster Pumping Station Site, there are three other possible locations on which the Booster Pumping Station could be developed. Notwithstanding the foregoing acknowledgments by ECO: (i) ECO does not waive, and expressly reserves, all rights it has under the Service Contract arising from or in any manner related to the fact that from { Fn and after the Contract Date, the District has not been in fee title to the CVWD Well Site #' j 1 and/or the Strawberry Hill Booster Pumping Station Site; and(ii) assuming that the 4 parties proceed with the performance of the Contract Services under the Service Contract; I 4' any change in the legal description and/or location of the Booster Pumping Station Site shall be reflected in a written Change Order from the District to ECO and the parties shall proceed in accordance with the Service Contract, including Section 6.11 thereof, in respect of such Change Order. 4. Materials Referenced in District's Response But Not Yet Received by ECO. In its Response, the District indicated that it would provide additional documents and information to ECO with respect to: (i) CVWD Well Site #1, Exception#15 to the Chicago Title Insurance Company Preliminary Title Report ; (Exception #14 to the First American Title Insurance Company Preliminary Title Report) and Site Conditions; (ii) SJBA Well Sites #2 and#4, Exception #14 to the Chicago Title Insurance Company Preliminary Title Report (Exception#13 to the First American Title Insurance Company Preliminary Title Report); and(iii) Mariner Well Site, Exception #19. As of the date of this letter, ECO has not received any of such additional documents and information. Accordingly, ECO agrees to proceed with performance of its obligations under the Service Contract in reliance upon the District's representations concerning these matters set forth in the Response, and ECO reserves right to supplement this letter within a reasonable period of time following ECOreceipt of the promised materials from the District to the extent that such materials vary from the District's representations with respect thereto set forth in the Response. ; p I ii I,i I II iii i � I Ij I Ll i W�STON BEnsFfOor r^ a0698J 1 [tgcnEFOR1 RUBJ,�GV�MA O K V.I h , .-o..E......_ it �' i I it :i 10/14/02 18:05 FAX 8200824 WESTON BENSBOOF 1 l Capistrano Valley Water District I October 14, 2002 Page 5 to 5. Addendum to Amended and Restated Site Title Lists In the Possible CAMS 50-Foot Radius Control Zone (the "Addendum"). Response to the Addendum, the District merely stated that the possible new CADHS { regulation requiring a fifty (50) foot control zone around all new well sites does not 011111 , L appear to the District to be a title issue. Since the District offered no explanation or ion, ECO neither a reasoning for its posit nor disagrees with the District's conclusion re ;I C reat this time; however, ECO restates that it does not, either by including this potential future new CADHS regulation in the Amended and Restated Site Title Lists for the Well waive or relinquish its right under the Service Contract to assert Sites, or by this letter, that a Change in Law and/or other Uncontrollable Circumstance has occurred as a result i ;1 of this possible future new regulation. 6. Extension of Time to Resolve Orange County Flood Control District Easement Affecting Plant Site. ECO has today, under separate cover,proposes} to Section to the District that ECO's right to terminate the Service Contract pursuant 4.8(E) of the Service Contract be extended from October 15, 2002 to November 15, 2002 I for the sole purpose of permitting ECO and the District to work together during such I, additional period toward a satisfactory resolution of the blanket easement affecting the Plant Site and Dance Hall Well Site in favor of the Orange County Flood Control District. Said easement is shown as Exception #7 on the Preliminary Title Report for th Plant Site and Dance Hall Well Site prepared by Chicago Title Insurance Company. ECO has further proposed in such separate communication, that the references to October 15, 2002 in Sections 4.11(B) and (C) of the Service Contract also be extended to i it k!I November 15, 2002. It is our understanding that the District has agreed to this proposal and that a letter memorializing this arrangement will be executed tomorrow. ' ! 7. Capitalized Terms. Capitalized terms used in this letter and not otherwise defined herein shall have the meanings ascribed to them in the Service R Contract. ECO looks forward to proceeding toward implementation of the Service Contract in accordance with the foregoing. 01 ii h ii1 erely 61 Pamela J. Privett �j " WESTON BENSHOOF ROCHEFORT RUBALCAVA MacCUISH LLP ' I I VI I PJP/gh + t kl k i WESTON BENF RacHFFOry RuD CAV MN; I II I' + ri 10/14/02 18:05 FAX 8290824 _ _ _ WESTON BENSBOOF Capistrano Valley Water District October 14, 2002 Page 6 cc_ Neila Bemstein, Esq. (via facsimile and U.S. Mail) �I I �1 F•I III I it ,•', ' I! 4� ell, I II! r, 11 I � I� � LI it n 1� II H I WesroN BkNv10 I , �ppgg�I ROCFIFfowr RuMLCAVA MA SFi w.Tomve wi.+w' 1 1 I I 10/14/02 18:05 FAX 8290824 WESTON BENSBOOF �09/I f ICI r I r Capistrano Valley Water District October 14, 2002 i Page 7 I' bcc: Mr. Peter Moerbeek (via facsimile and e-mail) Mr. Maurice Gallarda (via facsimile and e-mail) Mr. Thomas Tekulve (via facsimile and e-mail) Mr. Steven Richardson (via facsimile and e-mail) G. Christian Roux, Esq. Darren L. Hereford, Esq. I: j I I I• 1 I I• I I I I 1I III log j 1 I' I rl 'u w1 III 1 t Y1 nl I 1 I! i I I YI I 1 II li I llII , C I� r' r rlI �i Irl �1 ' I I "I ®' WESTON 10fi9N� BNLUfIA �I �- ROniErORT RuCC IS W " �iiowen n*l+ h 11� I I U I I I AI I I 1 11 I I I i I II Ili iil WESTON BENSHOOF ROCHEFORT RUBALCAVA MACCUISH LLP ATTORNEYS AT LAW "it� (213)576-1112, ppnvett@wEcounsd.com October 14, 2002 + ' o L- Capistrano Valley Water District VIA FACSIMILE AND U.S. MAIL 32400 Pasco Adelanto San Juan Capistrano, CA 92675 Attn: City Clerk and City Manager Re: Service Contract for the Design, Construction, Financing and Operation of the San Juan Basin Desalter Project dated September 3, 2002 ("Service Contract") between Capistrano Valley Water District ("District") and ECO Resources, Inc. ("ECO") Ladies and Gentlemen: We are in receipt of the District's written response to ECO's Site Title Lists and Amended and Restated Site Title Lists, which was delivered to ECO and its counsel by e-mail and facsimile transmission from Cindy Russell on October 8, 2002, together with a follow-up e-mail from Ms. Russell on October 9, 2002 supplementing the District's response concerning the Strawberry Hill Booster Pumping Station Site (collectively, the "Response"). The District's Response resolved certain title issues in a manner acceptable to ECO. ECO believes that as to certain other issues, some clarification of the District's statements set forth in the Response is necessary as a basis for the parties to proceed under the Service Contract. Accordingly, ECO hereby notifies the District that ECO has determined not to exercise its option to terminate the Service Contract pursuant to Section 4.8(E) thereof, contingent upon, and in reliance on, all of the following: 1. Definition of"Preliminary Title Reports" and "PTR." The definition of"Preliminary Title Reports" and "PTR" set forth in Article I, Section 1.1 of the Service Contract is deemed to mean (i) as to CVWD Well Site #1, SJBA Well Site #2 and SJBA Well Site 44, the preliminary title report with respect to such Sites obtained by the District from First American Title Insurance Company dated as of September 23, 2002 and bearing Order Number 2227603 together with all supplements and amendments thereto, and (ii) as to all other Sites, the preliminary title reports with respect to such Sites obtained by the Company from Chicago Title Insurance Company each dated as of a date 406983.1 333 SOUTH HOPE STREET • SIXTEENTH FLOOR • F.OS ANGELES, CA 90071 • TEL 213 576 1000 • EAX 213 576 1100 2801 TOWNSGATE ROAD, SUITE 215 • C�. �c°CUl l�adYlU g?n �G(.cN12�e u GWEST��VILLA Ta,u 91361 • TEL 805 05A947 - 1X 8 5 497 8804 oL eggwC / s� otf 0 • Capistrano Valley Water District October 14, 2002 Page 2 not earlier than 6 months prior to September 30, 2002 together with all supplements and amendments thereto. 2. Representations of District In the District's Response. In the District's Response, the District made a number of representations regarding factual matters concerning the Sites and/or curative actions that the District will take with respect to the Sites. In proceeding with the Service Contract, ECO is relying upon the District's representations made in the Response. Such representations include: (a) CVWD Well Site #1: The District has represented that it will acquire fee title in and to CVWD Well Site #1 from the current fee owner, Alipaz Community Association, on or about October 15, 2002 pursuant to Lot Line Adjustment No. 02-15858-13. The District has further represented that the City holds a quitclaim deed of CVWD Well Site #1 from Alipaz Community Association to the District that will be recorded concurrently with the lot line adjustment, on or about October 15, 2002, and that prior to the recordation of the bond financing, the District will transfer CVWD Well Site #1 to the City. The District has further represented that First American Title Insurance Company has in hand a partial reconveyance of the Deed of Trust given by OBSHP Company No. 3 in favor of Village Alipaz LLC. The District has also represented that the existing well at CVWD Well Site #1 that was to be abandoned by ECO pursuant to Appendix 1, Section 1.2.10 of the Service Contract has already been legally abandoned. (b) Strawberry Hill Booster Pumping Station: The District has represented that the City shall not accept title to the Strawberry Hill Booster Pumping Station Site unless Exception#6 shown on the PTR for said Site has been removed by the current owner. Accordingly, if the District ultimately acquires the property described in the PTR for the Booster Pumping Station Site, for purposes of the Service Contract Exception #6 shall be deemed deleted and removed as an exception to the PTR for such Site. Further, in its Response, the District has represented that if the District ultimately acquires the property described in the PTR for the Booster Pumping Station Site, the District will get an easement across the open space between such Site and the right of way for Ranch Viejo Road, along with securing a sufficient ingress and egress easement to the Site, either across certain open space or from the roadway and utility easement planned to the east of the Strawberry Hill Booster Pumping Station Site. (c) SJBA Well Site #2: The District has represented that ECO shall have the right to utilize the ingress/egress easement adjacent to SJBA Well Site #2 as appropriate to enable performance of the Contract Services, so long as ECO does not unreasonably obstruct ingress, egress and other dedicated use of such easement area. 406983.1 ®WE4 ON BENSHOOF ROCHEFORT RUBALCAVA MACCUISH LLP Capistrano Valley Water District October 14, 2002 Page 3 (d) South Alipaz Well Site: The District has represented that the City Clerk will accept the dedication of Alipaz Street on the tract map for Tract No. 6038. Furthermore, the District has represented that the District and/or the City has sufficient rights under California law, as evidenced by the holding in Mancino v. Santa Clara County Flood Control and Water District (1969) 272 Cal.App.2d 678 to install and construct the South Alipaz Well and related improvements within the Alipaz Street right- of-way dedicated to the City. (e) Kinoshita Well Site: The District has represented that the easement referenced in Exception #8 to the PTR has been acquired by the City, that all improvements have been made pursuant to the Agreement For Acquisition of Public Right of Way and that all of the City's obligations under said Agreement have been met. The District has represented that the drainage easement referenced in Exception #9 has been completed and that all of the City's obligations under the Agreement For Acquisition of Drainage Easement have been met. The District has further represented that it will remove the equipment and personal property currently located on the Kinoshita Well Site. (f) Plant Site and Dance Hall Well Site: The District has represented that the permit/franchise to the County of Orange, State of California for the Orange County Water Works District No. 4 ("OCWD#4") to provide water to the town of San Juan Capistrano does not infringe on the right of the San Juan Basin Authority to extract water. The District has further represented that OCWD#4 is the predecessor to the District and is now the holder of the franchise rights to distribute water in San Juan Capistrano and parts of Dana Point, and that the OCWD#4 assigned all of its property, rights, and obligations to the District in the early 1970's. (g) Mariner Well Site: The District has represented that the supporting documentation provided by William Huber, Director of Engineering & Building Services for the City, is sufficient evidence that the Mariner Well Site has been devoted to public access prior to November 24, 1991, thereby precluding the reversion of title to the Mariner Well Site to the State of California under Exception#19 shown on the PTR for the Mariner Well Site. 3. CVWD Well Site #1 and Strawberry Hill Booster Pumping Station. ECO notes that in the District's October 8, 2002 Response, the District has confirmed that neither the District nor the City holds fee title to CVWD Well Site #1 or the Strawberry Hill Booster Pumping Station Site. ECO acknowledges the District's statements in the Response that the District anticipates completing a lot line adjustment by October 15, 2002 as a result of which the District will acquire fee title in and to CVWD Well Site #1. ECO further acknowledges the District's statements in the 406983.1 - ® WESTON BENSHOOF ROCHEFOu RUBALCAVA MACCUISH ur Capistrano Valley Water District October 14, 2002 Page 4 Response that, if it is not feasible for the District to acquire fee title to the Strawberry Hill Booster Pumping Station Site, there are three other possible locations on which the Booster Pumping Station could be developed. Notwithstanding the foregoing acknowledgments by ECO: (i) ECO does not waive, and expressly reserves, all rights it has under the Service Contract arising from or in any manner related to the fact that from and after the Contract Date, the District has not been in fee title to the CVWD Well Site # 1 and/or the Strawberry Hill Booster Pumping Station Site; and (ii) assuming that the parties proceed with the performance of the Contract Services under the Service Contract, any change in the legal description and/or location of the Booster Pumping Station Site shall be reflected in a written Change Order from the District to ECO and the parties shall proceed in accordance with the Service Contract, including Section 6.11 thereof, in respect of such Change Order. 4. Materials Referenced in District's Response But Not Yet Received by ECO. In its Response, the District indicated that it would provide additional documents and information to ECO with respect to: (i) CVWD Well Site #1, Exception #15 to the Chicago Title Insurance Company Preliminary Title Report (Exception #14 to the First American Title Insurance Company Preliminary Title Report) and Site Conditions; (ii) SJBA Well Sites #2 and#4, Exception #14 to the Chicago Title Insurance Company Preliminary Title Report (Exception #13 to the First American Title Insurance Company Preliminary Title Report); and (iii) Mariner Well Site, Exception #19. As of the date of this letter, ECO has not received any of such additional documents and information. Accordingly, ECO agrees to proceed with performance of its obligations under the Service Contract in reliance upon the District's representations concerning these matters set forth in the Response, and ECO reserves its right to supplement this letter within a reasonable period of time following ECO's receipt of the promised materials from the District to the extent that such materials vary from the District's representations with respect thereto set forth in the Response. 606983.1 In WESTON BENSHOOF ROCHEFORT RUBALCAVA MACCUISH uv Capistrano Valley Water District October 14, 2002 Page 5 5. Addendum to Amended and Restated Site Title Lists Related to Possible CAMS 50-Foot Radius Control Zone (the "Addendum"). In the District's Response to the Addendum, the District merely stated that the possible new CAMS regulation requiring a fifty(50) foot control zone around all new well sites does not appear to the District to be a title issue. Since the District offered no explanation or reasoning for its position, ECO neither agrees nor disagrees with the District's conclusion at this time; however, ECO restates that it does not, either by including this potential future new CADHS regulation in the Amended and Restated Site Title Lists for the Well Sites, or by this letter, waive or relinquish its right under the Service Contract to assert that a Change in Law and/or other Uncontrollable Circumstance has occurred as a result of this possible future new regulation. 6. Extension of Time to Resolve Orange County Flood Control District Easement Affecting Plant Site. ECO has today, under separate cover, proposed to the District that ECO's right to terminate the Service Contract pursuant to Section 4.8(E) of the Service Contract be extended from October 15, 2002 to November 15, 2002 for the sole purpose of permitting ECO and the District to work together during such additional period toward a satisfactory resolution of the blanket easement affecting the Plant Site and Dance Hall Well Site in favor of the Orange County Flood Control District. Said easement is shown as Exception #7 on the Preliminary Title Report for the Plant Site and Dance Hall Well Site prepared by Chicago Title Insurance Company. ECO has further proposed in such separate communication, that the references to October 15, 2002 in Sections 4.11(B) and (C) of the Service Contract also be extended to November 15, 2002. It is our understanding that the District has agreed to this proposal and that a letter memorializing this arrangement will be executed tomorrow. 7. Capitalized Terms. Capitalized terms used in this letter and not otherwise defined herein shall have the meanings ascribed to them in the Service Contract. ECO looks forward to proceeding toward implementation of the Service Contract in accordance with the foregoing. rely, ame a J. r WESTON BENSHOOF ROCHEFORT RUBALCAVA MacCUISH LLP PJP/gh 406983.1 ®WESTON BENSHOOF ROCHEFORT RUBALCAVA MACCUISH uv Capistrano Valley Water District October 14, 2002 Page 6 cc: Neila Bernstein, Esq. (via facsimile and U.S. Mail) 406983.1 WES ON BENSHOOF ROCHEFORT RUBALCAVA MACCUISH ur 0 CA1A"NIAT*fNTV DAY PRELIMINARY NOTICE IN ACCORDANCE WITH SECTION 3097 AND RECIEWED 3098, CALIFORNIA CIVIL CODE, ***THIS IS IT. H`EKEBY N-0'JJF1 NOT A LIEN***THIS IS NOT A REFLEcTioiM) FEB -4 P 1: 30 ON THE INTEGRITY OF ANY CONTRACTOR ARB, Inc. OR SUBCONTRACTOR 2600OCornmercentreDrive SAN JUAN 1A11STRWe Forest, CA 92630-8666 ORIGINAL COMAAMM* (949) 598-9242 Reputed Contract6ri if any, ECO Rescources 32234 Paseo Adelanto, Suite D Has famished or will furnish labor, services, San Juan Capistrano,CA 92675 equipment or materials of the following general description: OWNER ,(reputed oWner n Itrivate work)or PUBLIC AGENCY I(on ARB job No. 1436340 Construction of Desalter Project Capistrano Valley Water District 32400 Paseo Adelanto San Juan Capistrano,CA 92675 For the building, structure or other work of improvement located at: CONS, 32470 Paseo Adelanto, San Juan Capistrano and (reputed co various well and pipeline locations throughout San Juan Capistrano San Juan Basin Authority Lease Revenue Bonds BNY Trust Company 700 South Flower Street Los Angeles,CA 90017 The name of the person or firra who contracted for the purchase of such labor,services, equipment SUBCON,MMMI �uarit has cdoMaed 0anChris Costello of ECO Resources NOTICE TO PROPERTY OWNER An estimate of the total price of the labor, services, IF BILLS ARE NOT PAID IN FULL FOR THE LABOR, equipment or materials famished or to be furnished SERVICES, EQUIPMENT OR MATERIALS FURNISHED OR TO BE FURNISHED, A MECHANICS L=1 LEADING TO THE LOSS, THROUGH COURT FORECLOSURE PROCEEDINGS, OF ALL OR PART OF YOUR PROPERTY BEING SO IMPROVED MAY BE $16,500,000.00 PLACED AGAINST THE PROPERTY EVEN THOUGH YOU HAVE PAID YOUR CONTRACTOR IN FULL. YOU MAY WISH TO PROTECT YOURSELF AGAINST THIS PREPARED BY: CONSEQUENCE BY: (1) REQUIRING YOUR CONTRACTOR TO FURNISH A SIGNED RELEASE BY THE PERSON OR FIRM GIVING YOU THIS NOTICE L/6&e ffn�ffin BEFORE MAKING PAYMENT TO YOUR CONTRACTOR Contract Administration OR (2) ANY OTHER METHOD OR DEVICE WHICH IS APPROPRIATE UNDER THE CIRCUMSTANCES. 02/03/03 214041 x 'qMq d1mJ- � vd 47&A�Ul CALIFORN�PRELIMINARY NOTICID IN ACCORDANCE WITH SECTION 3097 AND 3098,CALIFORNIA CIVIL CODE THIS IS NOT A LIEN,THIS IS NOT A REFLECTION ON THE INTEGRITY OF ANY CONTRACTOR OR SUBCONTRACTOR YOU ARE HEREBY NOTIFIED THAT.... EWLES MATERIALS (name of person or firm furnishing labor,services,equipment or material) CONSTRUCTION LENDERor Reputed Construction Lender,if any P.O. BOX 578, STANTON, CA 90680-0578 (address of person or firm furnishing labor,services,equipment or material) NONE REPORTED has furnished or will furnish labor,services,equipment or materials of the following general description: AGGREGATE BASE AND/OR ASPHALT/CONCRETE DISPOSAL (general description of the labor services,equipment or material furnished or to be furnished)for Me building,structure or other work of improvement located at: SAN JUAN CAPISTRANO DESALTER PROJECT 32502 PASEO ADELANTO OWNER or PUBLIC AGENCY SAN JUAN CAPISTRANO or Reputed Owner (on public work) CAPISTRANO VALLEY WATER DIST. The name of the person or firm who contracted for the 32400 PASEO ADELANTO STE D purchase of such labor,services,equipment or material is: SAN JUAN CAPD, CA 92675 AMERICAN CONCRETE CUTTING An estimate of the total price of the labor,services equipment or materials furnished or to be furnished is: $6.000.00 Payable. (Material men not required to furnish) n _ ORIGINAL CONTRACTOR or (name) (addrey5) L Reputed Contractor,if any C n � z- n t m ECO RESOURCES, INC. w 32234 PASEO A13ELANTO STE D yz M SAN JUAN CAPISTRANO CA 92675 If bills are not paid in full for the labor ervice,w equipment,or material furnished or tr3Ee furnis9w,a mechanic's lien leading to the loss,tt&gh fore sure proceedings,of all or part of your property being so Improved may be placed against the property even y I 1 though you have your contractor In full. You may /�Q U 1 ✓\ wish to protect yourself against this consequence by(1) I /O� requiring your contractor to furnish a signed release by I 1G/ the person or firm giving you this notice before making payment to your contractor,or(2)any other method or device that is appropriate under the circumstance. SUBCONTRACTOR with whom claims has contracted AMERICAN CONCRETE CUTTING Dated: 620 POINSETTIA De m r, 2 0 SANTA ANA CA 92701 Rachel Acosta (tine)Asst.Cr.Mgr. Job#D Telephone Number(714)894-1988 CERTIFIED MAIL NUMBER CALIFORnrAr. PRELIMINARY NOTICE �0 6309 2640 1596 1659 $ ISN accordance with sections and California Civil Code THIS ISNOT A IEN. This is NOT a reflection on the integrity of any contractor or subcontractor. You are hereby notified that has furnished or will furnish labor,service,equipment or material of the following general description: for building structure, or other work of improvement located at The name of the person or firm who contracted for the purchase of such labor, services,equipment or material furnished is � An estimate of the total price of the labor,services,equipment or material is NOTICE TO PROPERTY OWNER a bills aro not pwd M fail for the labor,saMws,"almost w nowlw tWabbN o or to he ternlshad,a mochanlu's Ilan loading to the less,through Wort toreclosere proWadings,w all or hart of Your imperil being so Imerdsad ands he stood student r.., the property even though You he aid your contractor In tell. tau adds rlsh to i'' prolod lannlf ooetnst this moo nW bl tit peolring Year contractor M furnish 8141 roledsa M the person or /lying lod3k MIW�/IyarosmN�np paymem p to Yom Wnhacter or(Yl ads othe efhed or"M that ffssa�p� oder the n cirwashowas. Cn p m N n J POSTMAN DELIVER THIS ENVELOPE TO ADDRESS ON REVERSE SIDE TICE TO PROPERTY OWNER SNI FO M105 01999 PRELIMINARY 20-DAY NOTICE O 1999 if bills are not paid in tuts for the labor, (This form may be used on both public and private projects) services,equipmeM,or materials furnished or to be furnished,a mechanic's TO: CONSTRUCTION LENDER Or Reputed Construction Lender If An fire ceasing to the dingthrough court ( P ) ( Y) foreclosure proceedings,of all or part of Name None Reported your property being so improved may be p against the property even though Street you may have paid your contractor in full. You may wish to protect yourself against City,State,Zip this consequence by(1)requiring your contractor to furnish a signed release by the person or firm giving you this notice TO: ❑ OWNER(Or Reputed Owner) PUBLIC AGENCY before making payment to your contractor,(2)requiring yourcontractor (On Private Work) (On Public Work) to furnish a receipt to establish that you paid the contractor in full and recording Name Caistrano Valley Water District no later than 30 days from receipt of this preliminary notice an affidavit that you Street 32400 Paseo Adelanto paid the contractor in full,or'(3)any other method or device that is City,State,Zip San Juan Capistrano CA 92675 appropriate under the circumstances. PLEASE NOTE:The Italicized language was included In the notice by a drafting error In TO: ORIGINAL CONTRACTOR (Or Reputed Contractor) Send Bill 914 and may be disregarded. Name FCO Resources Inc I EGO Capistrano Valley Inc (1) If the MAILING errsoon rINSTRUCTIONS sides n California, the notice may be served by first sass Street 32234 Paseo Adelanto Ste D registered or cerlfied mail, postage prepaid, addresssed to the person at his or her City, State,Zip San Juan Calstrano CA 92675 residence, or place of business address, or at the address shown by the building permit on file, or at the address shown on a General description of the labor, service, equipment,or materials furnished, or to recorded Construction Trust Deed. be furnished and an estimate of the total price thereof: (2) When service is made by first Gass registered or certified mail, service is 950 Loader Operated and Maintained complete at the time of the deposit of mail. If this notice is given by a subcontractor who is required under a collective bargaining agreement to pay fringe benefits, the names and addresses of the fringe benefits trusts follow: $ 3000. Operating Engineers P O Box 7064 NAME AND ADDRESS OF CLAIMANT GIVING THIS NOTICE Pasadena CA 91109 Name Myles Equipment Inc Street P O Box 2742 City,State,Zip Newport Beach CA 92659 � 01.P All rn C= M ==l r' 0 NAME OF PERSON OR FIRM THAT CONTRACTED TO PURCHASE THE LABOR,SERVICE,EQUIPMENT,OR MATERIALS n r Name American Demolition/Concrete Cuffing Inc PROOF�ERINCE Agf DAVIT The unde se coM of this Preliminary Day Natice t class DESCRIPTION OF JOB SITE SUFFICIENT FOR IDENTIFICATION registered 3brm prepaido$the p certns and at-Mear, postage , San Juan Capistrano Authority Desalter Prosect addresses s own on: 32470 Paseo Adelanto / Z " ZrJv ` San Juan Canistrano (Date) I declare under penalty of perjury under the laws of the State of California that the STAPLE RETURN RECEIPTS HERE foregoing is true and correct. Dated: Z- Signature: son 32400 PASEO ADELANTO Iplllpllllll SAN JUAN CAPISTRANO, CA 92675B1111ISX11 I 1961 MEMBERS OF THE CIN COUNCIL DIANE L.SA�HQATE (949) 493-1171 1776 COLLENECCAMPBELL (949)493-1053 (FAX) ♦ ♦ JOHN S.GELFF 1V1Y1V sanjimncapistrano.Org ' DAM HART • MAI M.BWEROUN • CITYMANAGER GEORGESCARBOROUGH September 26, 2002 Hawkins, Delafield & Wood 67 Wall Street New York, New York 10005 Attention: Anthony Cerasuolo RE: Capistrano Valley Water District— Ground Water Recovery Plan; San Juan Basin DeSalter Project Dear Mr. Cerasuolo: Please find enclosed an original, fully executed Service Contract of the Design Construction, Financing and Operation of the San Juan Basin DeSalter Project, between the Capistrano Valley Water District and Eco Resources, dates September 3, 2002. This service contract is for your records. Please note that pages 53 and 54 have been attached to page 55. Our local copy service erroneously omitted and lost the original pages during a copy process, resulting in having to seek new original signatures for these pages. Therefore, these pages are not part of the bound copy, but should be retained with your document. If you have questions regarding the agreement, please direct your questions to Cynthia Russell, Administrative Services Director, (949) 443-6301. Sincereltenc . an, CMC ocument as noted cc: Cynthia Russell, Administrative Services Director DRUG use San Juan Capistrano: Preserving the Past to Enhance the Future • Execution Copy • • SERVICE CONTRACT FOR THE DESIGN, CONSTRUCTION, FINANCING AND OPERATION OF THE SAN JUAN BASIN DESALTER PROJECT • between CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA and ECO RESOURCES, INC. Dated September s , 2002 • • • 368012.15 022806 AGMT • • TABLE OF CONTENTS Page . ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.2. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (A) References Hereto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 • (B) Gender and Plurality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (C) Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (D) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (E) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (F) Design Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (G) Standards of Workmanship and Materials . . . . . . . . . . . . . . . . . . . . . . . 24 (H) Technical Standards and Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (I) Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (J) Causing Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (K) Party Bearing Cost of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (L) Cost of Performing Excludes Cost from Legal Proceeding . . . . . . . . . . . 25 (M) Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 • (N) Interpolation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (0) Good Industry Practice and Good Engineering and Construction Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (P) Applicability and Stringency of Contract Standards . . . . . . . . . . . . . . . 26 (Q) Delivery of Documents in Digital Format . . . . . . . . . . . . . . . . . . . . . . . . 26 (R) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (S) No Third-Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (T) References to Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (U) References to Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (V) References to Including . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (W) References to Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (X) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 • (Y) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (Z) Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE II REPRESENTATIONS AND WARRANTIES • SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF THE DISTRICT . . . . . . . . . . . . . . . 28 (A) Existence and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (B) Due Authorization and Binding Obligation . . . . . . . . . . . . . . . . . . . . . . 28 (C) No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (D) No Approvals Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (E) No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 • (F) Claims and Demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (G) Applicable Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (H) District or City Ownership Interests in the Sites . . . . . . . . . . . . . . . . . . 29 (1) Information Pertaining to the Sites and Raw Water . . . . . . . . . . . . . . . . 29 (J) San Juan Basin Authority Ownership of Water Rights . . . . . . . . . . . . . 29 SECTION 2.2, REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . 29 (A) Existence and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (B) Due Authorization and Binding Obligation . . . . . . . . . . . . . . . . . . . . . . 30 -1- 368012.15 022806 AGMT • • Pape (C) No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (D) No Approvals Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 • (E) No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (F) Claims and Demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (G) Applicable Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (H) Practicability of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (I) Patents and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (J) Information Supplied by the Company . . . . . . . . . . . . . . . . . . . . . . . . . 31 • SECTION 2.3. KNOWLEDGE-BASED REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE III TERM SECTION 3.1. EFFECTIVE DATE AND INITIAL TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 • (A) Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 (B) First Installment of Transaction Cost Reimbursement Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 3.2. DISTRICT RENEWAL OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE IV • DEVELOPMENT OF THE PROJECT SECTION 4.1. PROJECT SITES SUITABILITY CONFIRMATION . . . . . . . . . . . . . . . . . . . . . . . . 34 (A) Project Sites Familiarity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (B) District-Supplied Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (C) Assumption of Structural Suitability Risk . . . . . . . . . . . . . . . . . . . . . . . 34 • (D) Project Sites Access During Development Period . . . . . . . . . . . . . . . . . . 34 SECTION 4.2. COMPANY DEVELOPMENT PERIOD RESPONSIBILITIES . . . . . . . . . . . . . . . . . 35 (A) Obligation to Proceed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 (B) Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 4.3. DISTRICT DEVELOPMENT PERIOD RESPONSIBILITIES . . . . . . . . . . . . . . . . . . 38 SECTION 4.4. INITIAL CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 • SECTION 4.5. CONSTRUCTION DATE CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 (A) Construction Date Conditions Defined . . . . . . . . . . . . . . . . . . . . . . . . . 39 (B) Construction Date Conditions for which Both Parties Have Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 (C) Project Sites Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.6 COMPANY CONSTRUCTION PERMITTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 • (A) Applications for Construction Governmental Approvals and the CADHS Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 (B) Limited Permitting Assistance by the District . . . . . . . . . . . . . . . . . . . . 42 (C) Terms and Conditions of Governmental Approvals . . . . . . . . . . . . . . . . 43 (D) Change in Law Not Related to Governmental Approvals . . . . . . . . . . . . 43 SECTION 4.7 SOURCE WATER PILOT TEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 • (A) Conduct of Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 (B) Test Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 4.8. EXAMINATION OF PRE-EXISTING TITLE CONDITION . . . . . . . . . . . . . . . . . . . 43 (A) Site Title List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 (B) Amended and Restated Site Title Lists . . . . . . . . . . . . . . . . . . . . . . . . . . 44 (C) Review of Title Condition by the Parties . . . . . . . . . . . . . . . . . . . . . . . . . 45 • (D) Company Responsibility for Obtaining Certain Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 368012.15 022806 AGMT • • Page (E) Termination Right of the Company Based Upon Title Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 • (F) Excluded Title Matters and Related Costs and Risks . . . . . . . . . . . . . . . 45 SECTION 4.9. CLOSING THE DEVELOPMENT PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 4.10. COMPANY DEVELOPMENT PERIOD GENERAL TERMINATION RIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 (A) Termination Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 (B) Effect of Election by the Company Not to Terminate . . . . . . . . . . . . . . . 47 • (C) Second Installment of Transaction Cost Reimbursement Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 (D) Transaction Cost Reimbursement Payment Not Repayable; Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 4.11. DISTRICT TERMINATION RIGHT RELATING TO CERTAIN PRINCIPAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 • (A) Termination Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 (B) Termination Fee On or Before October 15, 2002. . . . . . . . . . . . . . . . . . . 47 (C) Termination Fee After October 15, 2002. . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE V OWNERSHIP, FINANCING AND DESIGN/BUILD PRICE SECTION 5.1. PROJECT OWNERSHIP49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 5.2. USE, SALE AND ENCUMBRANCE OF THE PROJECT . . . . . . . . . . . . . . . . . . . . 49 (A) Use of Sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 (B) Sale, Lease and Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 (C) Tax Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 • (D) Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 (E) Use of Sites Following Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 5.3. FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (A) Bond Structure and Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (B) Property Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (C) Lease Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 • (D) Company Financing Support Agreements . . . . . . . . . . . . . . . . . . . . . . . 50 (E) Trustee Rights Hereunder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 (F) Plan of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 (G) Company and District Information and Reports . . . . . . . . . . . . . . . . . . 51 (H) Sizing of Initial Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 (I) Completion Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 • SECTION 5.4. DESIGN/BUILD PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (A) Design/Build Price Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (B) Fixed Design/Build Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (C) Fixed Design/Build Price Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 53 (D) Certain Interconnection Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 (F) Limitation on Payments for Design/Build Price Costs . . . . . . . . . . . . . . 54 • SECTION 5.5 PAYMENT OF THE DESIGN/BUILD PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 (A) Construction Disbursement Requisition Procedure . . . . . . . . . . . . . . . . 54 (B) Retainage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 (C) Certification of Requisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 (D) Information Supporting Requisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 (E) Review and Payment of Requisitioned Amounts . . . . . . . . . . . . . . . . . . 56 • (F) Permissible Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 (G) Disbursement Dispute Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 -iii- 368012.15 022806 AGMT • • Page (H) Certification of Amounts Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 • ARTICLE VI DESIGN AND CONSTRUCTION OF THE PROJECT SECTION 6.1. AUTHORIZED REPRESENTATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 6.2. DESIGN/BUILD WORK GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 (A) Commencement of Design/Build Work . . . . . . . . . . . . . . . . . . . . . . . . . 59 • (B) Title and Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 (C) Elements of the Design/Build Work . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 (D) Existing Structures and Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 (E) Well Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 (F) Quality Assurance and Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . 60 (G) Subcontractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 • (H) Damage or Destruction to the Design/Build Work . . . . . . . . . . . . . . . . 60 (I) Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 (J) Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 (K) Payment of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 (L) Prevailing Wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 6.3. COMPANY DESIGN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 • (A) Sole Responsibility and Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 (B) Conformity of Company Design Documents with the Design Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 (C) District Interest in the Design Requirements . . . . . . . . . . . . . . . . . . . . 62 (D) Company Requested Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 (E) Procedure for District Review of Design Submittals . . . . . . . . . . . . . . . . 62 • (F) Documents at the Plant Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 6.4. COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 (A) Compliance with Law and Equipment Operating Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 (B) Compliance with Conditions in Governmental Approvals . . . . . . . . . . . 63 (C) Governmental Approvals Necessary for Continued • Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.5. CONSTRUCTION PRACTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.6. ENGAGEMENT OF DISTRICT ENGINEER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 (A) Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 (B) Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 6.7. INDEPENDENT ENGINEER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 • (A) Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 (B) Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 6.8. PROGRESS SCHEDULE AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 6.9. CONSTRUCTION MONITORING, OBSERVATIONS, TESTING AND UNCOVERING OF WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 (A) Observation and Design Review Program . . . . . . . . . . . . . . . . . . . . . . . . 65 • (B) Company Tests and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 (C) District Tests, Observations and Inspections . . . . . . . . . . . . . . . . . . . . . 66 (D) Certificates and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 (E) Notice of Covering Design/Build Work . . . . . . . . . . . . . . . . . . . . . . . . . . 67 (F) Meetings and Design/Build Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 SECTION 6.10. CORRECTION OF DESIGN/BUILD WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 • (A) Correction of Non-Conforming Design/Build Work . . . . . . . . . . . . . . . . 68 (B) Election to Accept Non-Conforming Design/Build Work . . . . . . . . . . . . 68 -iv- 368012.15 022806 AGMT • • Pape (C) Relation to Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 6.11. CHANGE ORDERS AND EXTRA DESIGN/BUILD WORK . . . . . . . . . . . . . . . . . . . 68 • (A) Right to Issue Change Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 (B) Obligation to Complete Extra Design/Build Work . . . . . . . . . . . . . . . . . 68 (C) Effect of Company Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (D) Cost Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (E) Proposal for Extra Design/Build Work . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (F) Conditions to Obligation to Proceed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 • (G) Disputed Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 (H) Notice; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 6.12. DELIVERABLE MATERIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 6.13. PERSONNEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 (A) Personnel Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 (B) Company Construction Superintendent . . . . . . . . . . . . . . . . . . . . . . . . 70 • (C) District Rights With Respect to Key Personnel . . . . . . . . . . . . . . . . . . . . 71 (D) Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 6.14. CONSTRUCTION BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 ARTICLE VII PROVISIONAL ACCEPTANCE, ACCEPTANCE AND • FINAL COMPLETION OF THE PROJECT SECTION 7.1 PROVISIONAL ACCEPTANCE, ACCEPTANCE AND FINAL COMPLETION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 (A) Independent Measures of Performance . . . . . . . . . . . . . . . . . . . . . . . . . 73 (B) Relation of Acceptance to the Metropolitan Agreement . . . . . . . . . . . . . 73 • SECTION 7.2. SUBSTANTIAL COMPLETION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 7.3. NOTICE OF START-UP OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 (A) Submittal of Acceptance Test Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 (B) Notice of Substantial Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 (C) Notice of Commencement of Acceptance Test . . . . . . . . . . . . . . . . . . . . 74 SECTION 7.4 PRE-ACCEPTANCE TEST RAW WATER QUALITY ANALYSIS . . . . . . . . . . . . . . . 74 • (A) Conduct of Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 (B) Test Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 7.5. RAW WATER SUPPLY AND DELIVERY OF FINISHED WATER DURING START-UP, COMMISSIONING AND TESTING . . . . . . . . . . . . . . . . . . . 75 SECTION 7.6. CONDUCT OF ACCEPTANCE TEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 7.7. ACCEPTANCE DATE CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 • SECTION 7.8. PROVISIONAL ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 (A) Company Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 (B) Effect of Provisional Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 7.9. DELAY LIQUIDATED DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 (A) Provisional Acceptance Prior to December 4, 2004 . . . . . . . . . . . . . . . . 77 (B) Provisional Acceptance Subsequent to December 4, • 2004 - Liquidated Damages Payable to District . . . . . . . . . . . . . . . . . . . 77 SECTION 7.10. TEST REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 7.11. CONCURRENCE OR DISAGREEMENT WITH TEST RESULTS . . . . . . . . . . . . . . 78 (A) Acceptance Date Concurrence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 (B) Acceptance Date Disagreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 SECTION 7.12 SCHEDULED ACCEPTANCE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 • (A) Scheduled Acceptance Date Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 (B) Adjustment of Scheduled Acceptance Date . . . . . . . . . . . . . . . . . . . . . . 78 -v- 368012.15 022806 AGMT • • Page SECTION 7.13 EFFECT OF UNEXCUSED DELAY - METROPOLITAN AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 • (A) Company Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 (B) Termination of the Metropolitan Agreement . . . . . . . . . . . . . . . . . . . . . 79 SECTION 7.14. EFFECT OF UNEXCUSED DELAY-EXTENSION PERIOD . . . . . . . . . . . . . . . . . . 79 (A) Right to Repeat Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 (B) Failure to meet Acceptance Standard . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 7.15 FINAL PUNCH LIST AND CLAIMS STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 80 • (A) Final Punch List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 (B) Claims Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 7.16. FINAL COMPLETION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 (A) Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 (B) Final Certificate and Claims Statement . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 7.17. NO ACCEPTANCE, WAIVER OR RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 • SECTION 7.18. NO SERVICE FEE PAYMENT PRIOR TO PROVISIONAL ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 ARTICLE VIII OPERATION AND MANAGEMENT • SECTION 8.1. COMPANY OBLIGATIONS GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 (A) Operation and Management Responsibility . . . . . . . . . . . . . . . . . . . . . . 83 (B) Transfer and Application of Industry Experience . . . . . . . . . . . . . . . . . . 83 SECTION 8.2. DISTRICT OBLIGATIONS GENERALLY 83 SECTION 8.3. SERVICE COORDINATION AND CONTRACT ADMINISTRATION . . . . . . . . . . . . 83 (A) Company's Facilities Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 • (B) Project Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 (C) Immediate Contact Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 (D) Company's Senior Supervisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 (E) District's Contract Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 (F) District Approvals and Consents 85 (G) Communications and Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 • (H) Customer Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 8.4. OPERATION AND MAINTENANCE MANUAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 (A) Company Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 (B) Supplements for Capital Modifications . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 8.5. STAFFING AND PERSONNEL TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 (A) Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 • (B) Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 8.6. TRAINING OF DISTRICT PERSONNEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 (A) Ongoing Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 (B) Permanent Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 8.7. ELECTRICITY SUPPLY, PAYMENT AND UTILIZATION . . . . . . . . . . . . . . . . . . . . 88 (A) Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 • (B) Payment and Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 SECTION 8.8. SAFETY AND SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 (A) Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 (B) Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 SECTION 8.9. COMPLIANCE WITH METROPOLITAN AGREEMENT . . . . . . . . . . . . . . . . . . . . . 89 SECTION 8.10. COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 • (A) Compliance Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 (B) Sampling, Testing and Laboratory Work . . . . . . . . . . . . . . . . . . . . . . . . 90 -vi- 365012.15 022806 AGMT • • Page (C) Investigations of Non-Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 (D) Fines, Penalties and Remediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 • (E) No Nuisance Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 (F) Effects of Construction Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 8.11. OPERATING GOVERNMENTAL APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 (A) Applications and Submittals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 (B) Data and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 (C) Non-Compliance and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 • (D) Reports to Governmental Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 (E) Potential Regulatory Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 SECTION 8.12. DISTRICT ACCESS TO PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 SECTION 8.13. ASSET AND FINANCIAL RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 (A) Project Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 (B) Availability of Project Records to District . . . . . . . . . . . . . . . . . . . . . . . . 94 • (C) Record Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 (D) Financial Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 (E) Annual Audited Report Required under the Act . . . . . . . . . . . . . . . . . . 95 (F) Information Required Under the Metropolitan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 (G) Inspection, Audit and Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 • SECTION 8.14. PERIODIC REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 (A) Monthly Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 (B) Annual Operations and Maintenance Reports . . . . . . . . . . . . . . . . . . . . 98 (C) Default Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 (D) Permit Communications and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 8.15. EMERGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 • (A) Emergency Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 (B) Emergency Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 SECTION 8.16, COST REDUCTION AND SERVICE IMPROVEMENT . . . . . . . . . . . . . . . . . . . . . 99 ARTICLE IX PERFORMANCE • SECTION 9.1. WATER SYSTEM100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A) Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 (B) District Management of Water System . . . . . . . . . . . . . . . . . . . . . . . . . 100 (C) Project Interface with Water System . . . . . . . . . . . . . . . . . . . . . . . . . . 100 (D) Water Ownership and Limitations on Company Rights . . . . . . . . . . . . 100 • SECTION 9.2. WATER TREATMENT GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 (A) Applicable Law Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 (B) Enhanced Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 (C) Liquidated Damages and Other Remedies for Breach of Water Treatment Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 (D) Applicability of Water Treatment Guarantee . . . . . . . . . . . . . . . . . . . . 101 • (E) Conditions to Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 (F) Indemnity for Loss-and-Expense from Non-Complying Finished Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 (G) Change in Law Affecting Finished Water . . . . . . . . . . . . . . . . . . . . . . . 102 SECTION 9.3. WATER DELIVERY GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 (A) District Demand Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 • (B) Projected Firm Demand Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 (C) Modified Firm Demand Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 -vii- 368012.15 022806 AGMT • • Page (D) Establishing Firm Daily Water Demand Volumes . . . . . . . . . . . . . . . . 103 (E) Surplus Water Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 • (F) Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 (G) Extraordinary Flow Rate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 (H) Permitted Downtime for Scheduled Maintenance, Repair and Replacement Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 (I) Permitted Downtime for Unscheduled Maintenance, Repair and Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 • (J) District-Directed Curtailments and Shutdowns . . . . . . . . . . . . . . . . . . 106 (K) No District Obligation to Demand Water . . . . . . . . . . . . . . . . . . . . . . . 106 (L) Insufficiency of Wellfield Supply of Raw Water . . . . . . . . . . . . . . . . . . 106 SECTION 9.4. PRODUCTION EFFICIENCY GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 SECTION 9.5. HYDRAULIC TRANSIENTS GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 SECTION 9.6. DISTRICT REMEDIES FOR NON-COMPLIANCE WITH • PERFORMANCE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 SECTION 9.7. SERVICE COORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 SECTION 9.8. METERING AND TESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 (A) Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 (B) Metering and Weighing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 SECTION 9.9. RELEASES, LEAKS AND SPILLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 • (A) Unauthorized Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 (B) Notification and Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 (C) Cleanup and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 (D) Pre-Existing Environmental Conditions . . . . . . . . . . . . . . . . . . . . . . . . 109 SECTION 9.10. COMPANY DISPOSAL OF RESIDUALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 (A) Residuals Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 • (B) Acceptable Disposal Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 (C) Transportation Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 (D) Acceptable Disposal Site Information . . . . . . . . . . . . . . . . . . . . . . . . . 111 (E) Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ill (F) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 SECTION 9.11. COMPANY DISPOSAL OF BRINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 • SECTION 9.12. COMPLIANCE FAILURES AND LIQUIDATED DAMAGES . . . . . . . . . . . . . . . . 112 (A) Compliance Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 (B) Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 ARTICLE X • MAINTENANCE, REPAIR AND REPLACEMENT SECTION 10.1. MAINTENANCE, REPAIR AND REPLACEMENT GENERALLY . . . . . . . . . . . . . . 114 (A) Ordinary Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 (B) Repair and Maintenance of Sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 (C) Major Maintenance, Repair and Replacements . . . . . . . . . . . . . . . . . . 114 (D) Relation to Metropolitan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 • (E) Replacements Constituting Capital Modifications . . . . . . . . . . . . . . . . 115 SECTION 10.2. PROJECT EVALUATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 (A) Baseline Project Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 (B) Final Evaluations of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 (C) Required Condition of Project Structures Upon Return to the District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 • (D) Required Condition of Project Equipment Upon Return to the District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 -viii- 368012.15 022806 AGMT • • Page (E) Capital Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 (F) Effect of Election to Renew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 • (G) Expense and Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 SECTION 10.3. PERIODIC MAINTENANCE INSPECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 (A) Annual Maintenance Inspection 117 (B) Full-Scale Triennial Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 (C) Remediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 (D) Unscheduled Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 • SECTION 10.4. COMPUTERIZED MAINTENANCE MANAGEMENT SYSTEM . . . . . . . . . . . . . . 118 SECTION 10.5. DISPOSAL OF SURPLUS EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 SECTION 10.6. LOSS, DAMAGE OR DESTRUCTION TO THE PROJECT . . . . . . . . . . . . . . . . . 119 (A) Prevention and Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 (B) Insurance and Other Third-Party Payments . . . . . . . . . . . . . . . . . . . . 119 (C) Uninsured Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 • (D) Repair of Municipal and Private Property . . . . . . . . . . . . . . . . . . . . . . . 120 ARTICLE XI CAPITAL MODIFICATIONS SECTION 11.1. CAPITAL MODIFICATIONS GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 • (A) Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 (B) District Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 (C) Party Responsible for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 (D) Cost Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 (E) Applicability to the Original Project . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 SECTION 11.2. CAPITAL MODIFICATIONS AT COMPANY REQUEST . . . . . . . . . . . . . . . . . . . . 121 • SECTION 11.3. CAPITAL MODIFICATIONS DUE TO UNCONTROLLABLE CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 SECTION 11.4. CAPITAL MODIFICATIONS AT DISTRICT DIRECTION . . . . . . . . . . . . . . . . . . . 122 SECTION 11.5. PRIMARY PROCEDURE FOR IMPLEMENTING CAPITAL MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 (A) Primary Implementation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 • (B) Preliminary Company Plan and District Review . . . . . . . . . . . . . . . . . . 123 (C) Company Implementation Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 (D) Negotiation and Finalization of Company Implementation Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 (E) Implementation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 SECTION 11.6. ALTERNATIVE PROCEDURES FOR IMPLEMENTING CAPITAL • MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 (A) Capital Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 (B) Maintenance, Repair and Replacement Exception . . . . . . . . . . . . . . . . 125 SECTION 11.7. FINANCING CAPITAL MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 (A) District Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 (B) Company Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 • SECTION 11.8. COMPANY NON-IMPAIRMENT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 ARTICLE XII SERVICE FEE AND OTHER PAYMENTS SECTION 12.1. SERVICE FEE GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 • SECTION 12.2. SERVICE FEE FORMULA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 -ix- 3680I2.I5 022806 AGMT 0 • Page SECTION 12.3. BASE OPERATING CHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 (A) Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 • (B) Adjustment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 SECTION 12.4 FIXED COMPONENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 (A) Fixed Component Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 (B) Operation and Maintenance Component . . . . . . . . . . . . . . . . . . . . . . . 128 (C) Labor Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 (D) Replacement Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 • SECTION 12.5. VARIABLE COMPONENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 (A) Variable Component Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 (B) First Water Demand Adjustment Element . . . . . . . . . . . . . . . . . . . . . . 128 (C) Second Water Demand Adjustment Element . . . . . . . . . . . . . . . . . . . . 129 (D) Electricity Savings Element . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 SECTION 12.6. EXTRAORDINARY ITEMS CHARGE OR CREDIT . . . . . . . . . . . . . . . . . . . . . . . 130 SECTION 12.7. BILLING AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 (A) Billing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 (B) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 SECTION 12.8. ESTIMATES AND ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 (A) Pro Rata Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 (B) Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 • (C) Adjustment to Service Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 SECTION 12.9. ANNUAL SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 SECTION 12.10. BILLING STATEMENT DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 SECTION 12.12. SALES AND BUSINESS TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 SECTION 12.13. COMPLIANCE WITH INTERNAL REVENUE SERVICE REV. PROC. 97-13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 • ARTICLE XIII BREACH, DEFAULT, REMEDIES AND TERMINATION SECTION 13.1. REMEDIES FOR BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 SECTION 13.2. EVENTS OF DEFAULT BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 • (A) Events of Default Not Requiring Previous Notice or Cure Opportunity for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 (B) Events of Default Requiring Previous Notice and Cure Opportunity for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 (C) Other Remedies Upon Company Event of Default . . . . . . . . . . . . . . . . 135 SECTION 13.3. PROTECTION OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 • (A) Lease Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 (B) Limitation of District's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 (C) Default Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 (D) No Trustee Right of Cure for an Event of Default Under Subsection 13.2(A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 (E) Trustee Right of Cure for an Event of Default Under • Subsection 13.2(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 (F) Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 (G) New Agreement Upon Rejection in Bankruptcy . . . . . . . . . . . . . . . . . . 138 (H) Continuing Performance Obligations; Trustee Obligation to Pay Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 SECTION 13.4. EVENTS OF DEFAULT BY THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 • (A) Events of Default Permitting Termination . . . . . . . . . . . . . . . . . . . . . . 139 (B) Notice and Cure Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 -x- 368012.15 022806 AGMT • • Page (C) Other Remedies Upon District Event of Default-Prior to Tenth Anniversary of Acceptance Date . . . . . . . . . . . . . . . . . . . . . . . . 140 • (D) Other Remedies Upon District Event of Default - After Tenth Anniversary of Acceptance Date . . . . . . . . . . . . . . . . . . . . . . . . 140 SECTION 13.5. DISTRICT BUY-OUT RIGHT UPON PILOT TEST RESULTS DURING THE DEVELOPMENT PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 (A) Buy-out Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 (B) Development Period Buy-Out Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 • (C) Cost Records and Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 (D) Buy-Out Fee Payment Contingent Upon Surrender of Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 (E) Adequacy of Buy-Out Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 SECTION 13.6. DISTRICT RIGHT OF TERMINATION UPON UNSUCCESSFUL BOND ISSUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 • SECTION 13.7. DISTRICT BUY-OUT RIGHT FOR SIGNIFICANT UNCONTROLLABLE CIRCUMSTANCES DURING THE DEVELOPMENT PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 (A) Buy-out Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 (B) Development Period Buy-Out Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 (C) Buy-Out Fee Payment Contingent Upon Surrender of • Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 (D) Adequacy of Buy-Out Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 SECTION 13.8. DISTRICT BUY-OUT RIGHT FOR SIGNIFICANT UNCONTROLLABLE CIRCUMSTANCES DURING THE CONSTRUCTION PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 (A) Buy-out Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 • (B) Construction Period Buy-Out Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 (C) Cost Records and Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 (D) Buy-Out Fee Payment Contingent Upon Surrender of Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 (E) Adequacy of Buy-Out Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 SECTION 13.9. DISTRICT BUY-OUT RIGHTS DURING THE OPERATION • PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 (A) General Buy-Out Right and Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 (B) Significant Uncontrollable Circumstances Buy-Out Right and Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 (C) Operation Period Uncontrollable Circumstances Buy- OutFee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 • (D) Payment of Amounts Owing Through the Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 (E) Termination Fee Payment Contingent Upon Surrender of Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 (F) Adequacy of Buy-Out Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 (G) Consideration for Buy-Out Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 • SECTION 13.10. GENERAL RELEASE OF THE COMPANY UPON BUY-OUT . . . . . . . . . . . . . . . 146 SECTION 13.11. OBLIGATIONS OF THE COMPANY UPON TERMINATION OR EXPIRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 (A) Company Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 (B) Certain Obligations of the Company Relating to the Sites Prior to the Acceptance Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 • (C) Hiring of Company Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 (D) Continuity of Service and Technical Support . . . . . . . . . . . . . . . . . . . . 149 -xi- 368012.15 022806 AGMT • • Pape (E) Company Payment of Certain Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 (F) District Payment of Certain Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 • (G) Exit Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 SECTION 13.12. SURVIVAL OF CERTAIN PROVISIONS UPON TERMINATION . . . . . . . . . . . . . 150 SECTION 13.13. NO WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 SECTION 13.14. NO CONSEQUENTIAL OR PUNITIVE DAMAGES . . . . . . . . . . . . . . . . . . . . . . . 151 SECTION 13.15. FORUM FOR DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 SECTION 13.16. NON-BINDING MEDIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 (A) Rights to Request and Decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 (B) Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 (C) Non-Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 (D) Relation to Judicial Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 152 SECTION 13.17. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 (A) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 . (B) Relation to Judicial Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 152 ARTICLE XIV INSURANCE, UNCONTROLLABLE CIRCUMSTANCES AND INDEMNIFICATION • SECTION 14.1. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (A) Company Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (B) Insurers, Deductibles and District Rights . . . . . . . . . . . . . . . . . . . . . . 153 (C) Certificates, Policies and Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (D) Maintenance of Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . 153 SECTION 14.2. UNCONTROLLABLE CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 • (A) Relief from Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 (B) Notice and Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 (C) Conditions to Performance, Design/Build Price, Service Fee and Schedule Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 (D) Capital Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 (E) Share of Costs of Uncontrollable Circumstances . . . . . . . . . . . . . . . . . 156 • (F) Acceptance of Relief Constitutes Release . . . . . . . . . . . . . . . . . . . . . . . 157 SECTION 14.3. INDEMNIFICATION BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 SECTION 14.4. INDEMNIFICATION BY THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 ARTICLE XV SECURITY FOR PERFORMANCE • SECTION 15.1. GUARANTOR159 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A) Service Contract Guaranty Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 159 (B) Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 SECTION 15.2. BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 (A) Construction Performance and Payment Bonds . . . . . . . . . . . . . . . . . . 159 • (B) Monitoring of Sureties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 SECTION 15.3. SERVICE CONTRACT LETTER OF CREDIT . . . . . . . . . . . . . . . . . . . I . . . . . . . 160 (A) Terms and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 (B) Drawings for Non-Renewal or Bankruptcy . . . . . . . . . . . . . . . . . . . . . . 160 (C) Drawings to Pay Delay Liquidated Damages . . . . . . . . . . . . . . . . . . . . 160 (D) Effect of Final Determination of Damages . . . . . . . . . . . . . . . . . . . . . . 161 • SECTION 15.4. COSTS OF PROVIDING SECURITY FOR PERFORMANCE . . . . . . . . . . . . . . . . 161 -xii- 368012.15 022806 AGMT • Page ARTICLE XVI MISCELLANEOUS PROVISIONS • SECTION 16.1. RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 SECTION 16.2. CONTRACT ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 (A) Administrative Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 (B) Contract Administration Memoranda . . . . . . . . . . . . . . . . . . . . . . . . . . 162 (C) Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 • (D) Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 SECTION 16.3. PROPERTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 (A) Protection from Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 (B) Intellectual Property Developed by the Company . . . . . . . . . . . . . . . . 163 SECTION 16.4. INTEREST ON OVERDUE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 SECTION 16.5. NEGOTIATED FIXED PRICE WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 • (A) Fixed Component of the Service Fee and Fixed Design/Build Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 (B) Negotiated Lump Sum Pricing of Work for Which the District is Financially Responsible . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 SECTION 16.6. COST SUBSTANTIATION OF WORK ALREADY PERFORMED . . . . . . . . . . . . . 164 (A) Cost Substantiation Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 • (B) Costs Requiring Cost Substantiation . . . . . . . . . . . . . . . . . . . . . . . . . . 165 (C) Cost Substantiation Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 (D) Technical Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 (E) Mark-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 (F) Evidence of Costs Incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 SECTION 16.7. SUBCONTRACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 • (A) Use Restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 (B) Subcontract Terms and Subcontractor Actions . . . . . . . . . . . . . . . . . . 166 (C) Indemnity for Subcontractor Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 167 (D) Design, Construction and Membrane System Subcontractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 (E) Notice to District of Amendments, Breaches and • Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 (F) Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 SECTION 16.8. ACTIONS OF THE DISTRICT IN ITS GOVERNMENTAL CAPACITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 (A) Rights as Government Not Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 (B) No District Obligation to Issue Governmental Approvals . . . . . . . . . . . 168 • SECTION 16.9. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 (A) By the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 (B) By the District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 (C) Assignment to City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 (D) Limited Recourse to City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 SECTION 16.10. CERTAIN TRANSACTION DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 • SECTION 16.11. COMPLIANCE WITH MATERIAL AGREEMENTS 169 SECTION 16.12. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 SECTION 16.13. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 SECTION 16.14. NON-DISCRIMINATION REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 SECTION 16.15. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 (A) Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 (B) Company Notice Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 (C) District Notice Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 -xiii- 368012.15 022806 AGMT • • Page (D) District Engineer, Independent Engineer, Issuer and Trustee Notice Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 • SECTION 16.16. NOTICE OF LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 SECTION 16.17. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 ! r • • • • -xiv- 368012.15 022806 AGMT • • APPENDICES • 1. Project Description 2. Enhanced Standards 3. Design Raw Water Quality Parameters 4. Source Water Pilot Tests 5. Design Requirements 6. Design/Build Work Review Procedures • 7. Liquidated Damages 8. Acceptance Test Procedures and Standards 9. Governmental Approvals 10. Guaranteed Maximum Electricity Utilization 11. Insurance Requirements 12. Operation and Maintenance Standards 13. Operation and Maintenance Manual • 14. Safety and Security Plan 15. Community Relations Program 16. Project Evaluations 17. Acknowledged Subcontractors 18. Exit Test and Transition Plan . 19. Example Service Fee Calculation 20. Certain Transaction Documents 21. Milestone Payment Schedule TRANSACTION FORMS • A. Form of Service Contract Guaranty Agreement B. Form of Construction Performance Bond C. Form of Payment Bond D. Form of Service Contract Letter of Credit TRANSACTION DOCUMENTS • E. Metropolitan Agreement, dated December 4, 1998, as amended, between the Metropolitan Water District of Southern California, the Municipal Water District of Orange County and the San Juan Basin Authority F. Agreement for Acquisition of Capacity, Construction, Use, Operation and Maintenance of Outfall Facilities for South East Regional Reclamation Authority, as amended, for and on • behalf of Project Committee No. 5, dated August 18, 1977 G. California Regional Water Quality Control Board San Diego Region Order No. 2000-13, NPDES Permit No. 0107417, Waste Discharge Requirements for the South East Regional Reclamation Authority, Orange County, Discharge to the Pacific Ocean through the South East Regional Reclamation Authority Ocean Outfall. H. Agreement between the City of San Juan Capistrano and the Santa Margarita Water District, dated February 27, 2002, Regarding the Right to Dispose of Brine Waste in the Chiquita • Land Outfall I. Resolution No. 01-07-17-1 of the Board of Directors of the Capistrano Valley Water District Certifying a Negative Declaration for the Construction of the Capistrano Valley Water District Desalter Facility (Capistrano Valley Water District Desalter/Dancehall site), dated July 17, 2001 • J. Resolution No. 95-8-1 of the San Juan Basin Authority Board of Directors Adopting a Mitigated Declaration for Phase I of the San Juan Basin Groundwater Management and Facility Plan, dated August 1, 1995 -xv- 368012.15 022806 AGMT • K. California Environmental Protection Agency State Water Resources Control Board, Division of Water Rights, Permit No. 21074 for Diversion and Use of Water issued to the San Juan Basin Authority, dated October 30, 2000 -xvi- 368012.15 022806 AGMT SERVICE CONTRACT FORTH E DESIGN, CONSTRUCTION, FINANCING AND OPERATION OFTHE 0 SAN JUAN BASIN DESALTER PROJECT THIS SERVICE CONTRACT FORTHE DESIGN,CONSTRUCTION, FINANCINGAND OPERATION OF THE SAN JUAN BASIN DESALTER PROJECT is made and entered into as of this ` day of September, 2002 between the Capistrano Valley Water District (the "District') and ECO Resources, Inc., a corporation organized and existing under the laws of the State of Texas and authorized to do business in the State of California (the "Company"). RECITALS (A) The District plans to implement anew water treatment project to serve its potable water supply needs. (B) The water treatment project will consist of a water treatment plant, wells, a raw water pumping station and transmission line, a brine disposal line, and a finished water . pumping station and transmission line. (C) The District is authorized to establish, maintain, equip, own and operate water treatment projects within the District and to contract for water project services. (D) The District is further authorized to contract with a single firm on a full service,long-term basis for the design,permitting, financing, construction, start-up, acceptance testing, operation, maintenance, repair, replacement and management of water treatment projects. (E) The District is further authorized to utilize a competitive proposal . procurement process in contracting for water treatment projects. (F) The District issued a pre-request for proposals on September 22, 2000 for companies interested in providing the water project services. (G) The District, on November 20, 2000, based on the technical and financial qualifications set forth in the Pre-RFP, determined all of the three firms that responded to the Pre-RFP to be qualified. (H) The District issued arequest for proposals on February 1, 2001 to the pre- qualified firms to provide design,construction,financing and operation services,and set forth in the RFP the criteria for selection of the preferred proposer. RFP Addenda were issued on April 30, 2001 and May 8, 2001. The District provided potential proposers with reasonable access to the project sites to allow them the opportunity to conduct such inspections and reviews as they deemed necessary to become familiar with the project sites and to review related documentation prior to submission of the proposals. 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Recitals (I) Proposals submitted in response to the RFP were received in July, 2001 from two firms. A proposal clarification process was conducted commencing in July, 2001 and post-proposal clarification submittals were received from each of the proposers in July, 2001. (J) Based on further evaluation by its selection committee utilizing the • evaluation factors and selection criteria and following the review and selection process identified in the RFP, the District on September 18, 2001 selected the proposal submitted by or on behalf of the Company as the most advantageous proposal received in response to the District's RFP. (K) In September,200 1,the District initiated the contract negotiations with the Company which have concluded with this Service Contract. (L) On September , 2002 the District Board of Directors adopted a resolution authorizing the execution and delivery of this Service Contract. (M) The Company will be responsible for designing, constructing, starting up . and testing the water treatment project pursuant to this Service Contract. (N) The water treatment plant will be nominally owned by the issuer of the bonds issued to finance the project, will be leased to the District, and will be operated, maintained, repaired, replaced and managed by the Company. f (0) The project bonds will be secured by the project lease and by certain Company financing support agreements. (P) Southwest Water Company,an affiliate of the Company,will guarantee the performance of the obligations of the Company under the Service Contract for the benefit of the • District and of the bondholders pursuant to separate guaranty agreements executed concurrently herewith. (Q) The District desires to receive, and the Company desires to provide, water treatment project services under the terms of this Service Contract. • NOW,THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto, intending to be legally bound, agree as follows: 2 368012.15 022806 AGMT . I • ARTICLE I DEFINITIONS AND INTERPRETATION • SECTION 1.1. DEFINITIONS. As used in this Service Contract the following terms shall have the meanings set forth below: "Acceptable Disposal Site"has the meaning specified in subsection 9.10(B). "Acceptance" means the satisfaction by the Company of all Acceptance Date • Conditions specified in Section 7.7. "Acceptance Date" means the date on which Acceptance of the Project occurs or is deemed to have occurred under Article VII. "Acceptance Test Procedures and Standards" means the test procedures and • standards for Acceptance set forth in Appendix 8. "Acceptance Tests' means the tests for Acceptance set forth in Appendix 8. "Act" means Title 1, Division 6, Chapter 14 of the California Government Code (Section 5956 et seq.), as amended, supplemented, superseded and replaced from time to time. • "Adjustment Factor" has the meaning specified in subsection 12.3(B). "Affiliate" means any person directly or indirectly controlling or controlled by another person,corporation or other entity or under direct or indirect common controlwith such person, corporation or other entity. • "Allowable Yield" has the meaning specified in the Metropolitan Agreement. "Amended and Restated Site Title List" has the meaning specified in subsection 4.8(B). "Annual Settlement Statement" has the meaning specified in Section 12.9. • "Appendix"means any of the Appendices attached to this Service Contract,as the same may be amended or modified from time to time in accordance with the terms hereof. "Applicable Law"means(1)any federal,state or local law,code,regulation,consent order or agreement; (2) any formally adopted and generally applicable rule, requirement, • determination, standard, policy, implementation schedule or order of any Governmental Body having appropriate jurisdiction; (3) any established interpretation of law or regulation utilized by an appropriate Governmental Body if such interpretation is documented by such regulatory body and generally applicable;and(4)any Governmental Approval,in each case having the force of law • and applicable from time to time to a the siting,pp ( ) permitting, design, acquisition, construction, equipping, financing, ownership, possession, start-up, testing, operation, maintenance, repair, replacement or management of water treatment systems, including the Project; (b) the delivery, treatment, storage or supply of water; (c) the transfer, handling, transportation or disposal of Plant By-Products;or(d)any other transaction or matter contemplated hereby(including,without 3 368012.15 022806 AGMT • i Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation limitation, any of the foregoing which pertain to water treatment, waste disposal,health, safety, i fire, environmental protection, labor relations, building codes, the payment of prevailing or minimum wages and non-discrimination). Applicable Law shall be deemed to include the requirements contained in the final mitigated negative declaration approved by the District in connection with the Project. "Authorized Representative"means the authorized representative for either party designated pursuant to Section 6.1. 'Bankruptcy Code' means the United States Bankruptcy Code, 11 U.S.C. 101 et seq., as amended from time to time and any successor statute thereto. 'Bankruptcy Code'shall i also include (1) any similar state law relating to bankruptcy,insolvency, the rights and remedies of creditors, the appointment of receivers or the liquidation of companies and estates that are unable to pay their debts when due, and (2) in the event the Guarantor is incorporated or otherwise organized under the laws of a jurisdiction other than the United States, any similar i insolvency or bankruptcy code applicable under the laws of such jurisdiction. "Baseline Project Record"has the meaning specified in subsection 10.2(A). "Billing Period"means each calendar month,except that(1) the first Billing Period shall begin on the Acceptance Date and shall continue to the last day of the month in which the i Acceptance Date occurs and(2)the last Billing Period shall end on the last day of the Term of this Service Contract. Any computation made on the basis of a Billing Period shall be adjusted on a pro rata basis to take into account any Billing Period of less than the actual number of days in the month to which such Billing Period relates. i 'Bond Insurer"means any surety company that issues a policy of municipal bond insurance insuring the payment of debt service on the Bonds, as contemplated by Article V. 'Bond Issuance Date' means the date of execution and delivery of the Bonds pursuant to the Trust Agreement. i 'Bonds"means the obligations to be issued by the Issuer to finance the payment of the Design/Build Price and related Costs of Issuance. "Booster Pumping Station"means the Strawberry Hill Booster Pumping Station, for boosting the pressure of Finished Water conveyed from the Plant to the Water System, i including all related buildings, structures, pipes, valves and equipment, as more particularly described in Appendix 1. 'Booster Pumping Station Site' means the parcels of real property described in Appendix 1 on which the Booster Pumping Station is to be constructed by the Company. • 4 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Brine" means any sanitary wastewater and any brine, liquid or water-carried • pollutant resulting from the treatment of Raw Water that is not capable of, or is prohibited by Applicable Law or this Service Contract from, being recycled at the Plant and requires disposal in accordance with this Service Contract. "CADHS"means the California Department of Health Services or any predecessor • or successor agency. "CADHS Approval" means the approval by the CADHS, upon substantial completion of the construction of the Project Improvements, of the delivery of Finished Water to the Water System for potable consumption by the District's customers. • "Capital Modification"means any material change to the Project occurring after the Acceptance Date, including the installation of new equipment, systems or technology. If a replacement of any part of the Project made by the Company pursuant to its obligations under Article XI results in a material change to the Project,such replacement shall be considered to be • a Capital Modification. 'CERCLA"means the Comprehensive Environmental Response,Compensation,and Liability Act, 42 U.S.C. 9601 et seq., and applicable regulations promulgated thereunder, each as amended from time to time. • "Change in Law"means any of the following acts, events or circumstances to the extent that compliance therewith materially increases the cost of performing or materially increases the scope of the party's obligations hereunder: (a) the adoption,amendment,promulgation,issuance,modification,repeal or • written change in administrative or judicial interpretation of any Applicable Law on or after the Contract Date,unless such Applicable Law was on or prior to the Contract Date duly adopted, promulgated, issued or otherwise officially modified or changed in interpretation, in each case in final form, to become effective without any further action • by any Governmental Body; (b) the order or judgment of any Governmental Body issued on or after the Contract Date (unless such order or judgment is issued to enforce compliance with Applicable Law which was effective as of the Contract Date) to the extent such order or • judgment is not the result of willful or negligent action, error or omission or lack of reasonable diligence of the Company or of the District, whichever is asserting the occurrence of a Change in Law;provided,however,that the contesting in good faith or the failure in good faith to contest any such order or judgment shall not constitute or be • 5 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation construed as such a willful or negligent action, error or omission or lack of reasonable diligence; (c) except with respect to any Governmental Approval required for the construction of the Project as provided within (b) below pertaining to exclusions from "Change in Law", the denial of an application for, a delay in the review, issuance or • renewal of, or the suspension, termination or interruption of any Governmental Approvals,or the imposition of a term, condition or requirement which is more stringent or burdensome than the Contract Standards in connection with the issuance,renewal or failure of issuance or renewal of, any Governmental Approval to the extent that such • occurrence is not the result of willful or negligent action, error or omission or a lack of reasonable diligence of the Company or of the District, whichever is asserting the occurrence of a Change in Law;provided,however,that the contesting in good faith or the failure in good faith to contest any such occurrence shall not be construed as such a willful or negligent action or lack of reasonable diligence; and (d) any requirements in the mitigated negative declaration finally approved by the District in connection with the Project which are materially more burdensome or costly than the requirements contained in the mitigated negative declaration approved by • the District on July 17, 2001. It is specifically understood, however, that none of the following shall constitute a "Change in Law': (a) a change in the nature or severity of the actions typically taken by a r Governmental Body to enforce compliance with Applicable Law which was effective as of the Contract Date; (b) acts, events and circumstances with respect to which the Company has assumed the permitting risk relating to the Project under Section 4.6; (c) any event that affects generally applicable working conditions or standards that is not specific to the water treatment industry or to the Project, and that does not require a Capital Modification, other than changes in federal or State OSHA regulations or minimum wage requirements; and • (d) as and to the extent provided in Section 8.5, the establishment by a Governmental Body of a minimum staffing level for the Project. "Change Order"means a written order to the Company issued and signed by the District after the Contract Date requiring a change in the Design/Build Work which is District- directed and not due to an Uncontrollable Circumstance. 6 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "City"means the City of San Juan Capistrano,California,a municipal corporation • organized and existing under and by virtue of the laws of the State. "Company" means ECO Resources, Inc., a corporation organized and existing under the laws of the state of Texas, and its permitted successors and assigns. "Company Construction Superintendent" has the meaning specified in • subsection 6.13(B). "Company Fault" means any breach (including the untruth or breach of any Company representation or warranty herein set forth), failure, non-performance or non- compliance by the Company with respect to its obligations and responsibilities under this Service • Contract to the extent not attributable to any Uncontrollable Circumstance or District Fault,and which materially and adversely affects the District's right and obligations or ability to perform under this Service Contract. "Company Financing Support Agreements" has the meaning specified in • subsection 5.3(D). "Company Indemnitee" has the meaning specified in Section 14.4. "Concentrate Disposal Line"means the transmission line for the conveyance from the Plant to the South Orange County Wastewater Authority PC5 Ocean Outfall of Brine • concentrate resulting from the treatment of Raw Water at the Plant, including all related buildings,structures,pipes,valves and equipment,as more particularly described in Appendix 1. The Concentrate Disposal Line includes the Concentrate Disposal Line Site. "Concentrate Disposal Line Site"means the real property or rights of way described • in Appendix 1 on or over which the Concentrate Disposal Line is to be constructed. "Construction Date" means the first date on which all of the Construction Date Conditions shall be satisfied or waived, as agreed to in writing by the parties pursuant to Section 4.5. • "Construction Date Conditions" has the meaning specified in Section 4.5. "Construction Governmental Approvals" means those Governmental Approvals which are necessary in order to commence construction of the Project. "Construction Performance Bond" means the surety bond which guarantees the • timely performance by the construction Subcontractor of its obligations to construct the Project, and which shall be provided in accordance with Section 15.2 and substantially in the form set forth in the Transaction Forms. "Construction Period"means the period from and including the Construction Date • to the Provisional Acceptance Date. 7 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Consumables"means those materials,supplies and similar consumables used in connection with the operation of the Project, which may include fuel oil, diesel fuel, liquid chlorine,alum,lime,sand,activated carbon,gravel,office supplies and other chemicals and fuels. "Consumer Price Index"or"CPI-U"means the Unadjusted Consumer Price Index, as reported by the U.S. Department of Labor, Bureau of Labor Statistics, for All Urban Consumers, for all items in the Los Angeles -Riverside-Orange County, California area. "Contract Administrator" has the meaning specified in subsection 8.3(E). "Contract Date"means the date this Service Contract is executed and delivered by the parties hereto. "Contract Representative" means, in the case of the Company, the individual specified in writing by the Company as the representative of the Company from time to time for all purposes of this Service Contract and,in the case of the District,the City's Director of Public Works or such other representative as shall be designated in writing by the City's Director of Public Works from time to time. "Contract Services" means the Design/Build Work and the Operation Services. "Contract Standards" means the standards, terms, conditions, methods, techniques and practices imposed or required by: (1) Applicable Law; (2) the Design ID Requirements;(3)the Performance Guarantees;(4)Good Engineering and Construction Practice; (5) Good Industry Practice; (6) the Quality Management Plan; (7)the Operation and Maintenance Manual; (8) applicable equipment manufacturers' specifications; (9) applicable Insurance Requirements, and(10)any other standard,term, condition or requirement specifically provided w in this Service Contract to be observed by the Company. Subsection 1.2(P) shall govern issues of interpretation related to the applicability and stringency of the Contract Standards. "Contract Year"means the District's fiscal year commencing on July 1 in any year and ending on June 30 of the following year;provided,however,that the first Contract Year shall commence on the Acceptance Date and shall end on the following June 30,and the last Contract Year shall commence on July 1 prior to the date this Service Contract expires or is terminated, whichever is appropriate,and shall end on the last day of the Term of this Service Contract or the effective date of any termination,whichever is appropriate. Any computation made on the basis of a Contract Year shall be adjusted on a pro rata basis to take into account any Contract Year of less than 365 or 366 days, whichever is applicable. "Costs of Issuance" means all items of expense, directly or indirectly payable by or reimbursable to the Issuer or the Trustee and related to the authorization, sale and issuance of the Bonds, including fees and expenses of counsel to the Issuer in connection therewith, fees 8 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation paid to the Bond Insurer, the Rating Services, the Issuer's financial advisor and consulting • engineer,and other professionals,costs of preparation,printing and reproduction of documents, filing and recording fees,initial fees and charges of the Trustee,underwriting fees and discounts and other costs and expenses in connection with the original issuance of the Bonds. "Cost Substantiation" has the meaning specified in. Section 16.6. • "Deferred Cost" has the meaning specified in the Metropolitan Agreement. "Deliverable Material" has the meaning specified in Section 6.12. "Design/Build Price" has the meaning specified in Section 5.4. .'Design/Build Work"means the employment and furnishing of all labor,materials, • equipment, supplies, tools, scaffolding, transportation, Utilities, insurance, temporary facilities and other things and services of every kind whatsoever necessary for the full performance and completion of the.Company's design, engineering,construction,financing, start-up,shakedown, Acceptance Testing, obtaining Governmental Approvals and related obligations with respect to • the construction of the Project during the Development Period and the Construction Period under this Service Contract, including all completed structures, assemblies, fabrications, acquisitions and installations, all commissioning and testing, and all of the Company's administrative, accounting, record-keeping, notification and similar responsibilities of every kind whatsoever • under this Service Contract pertaining to such obligations. A reference to Design/Build Work shall mean any part and all of the Design/Build Work unless the context otherwise requires, and shall include all Extra Design/Build Work authorized by Change Order. "Design Raw Water Quality Parameters"has the meaning specified in Appendix 3. • "Design Requirements"means the design requirements for the Project set forth in the Appendices, as the same may be changed or modified in accordance herewith. "Development Period"means the period from and including the Contract Date to the Construction Date. • "District"means the Capistrano Valley Water District, Orange County,California. "District Engineer" means either the City's Director of Public Works or other engineer employed or designated by the District from time to time in writing by the District. "District Fault"means any breach(including the untruth or breach of any District • representation of warranty herein set forth),failure,non-performance or non-compliance by the District under this Service Contract with respect to its obligations and responsibilities under this Service Contract to the extent not attributable to any Uncontrollable Circumstance or Company Fault, and which materially and adversely affects the Company's rights, obligations or ability or • costs to perform under this Service Contract. 9 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article 1 - Definitions and Interpretation "District Indemnitee"has the meaning specified in Section 14.3. • "Effective Rate for Finished Water"means, with respect to any Contract Year, the effective cost per acre foot paid by the District with respect to Finished Water demanded hereunder during such Contract Year,determined by dividing(1) the sum of(a) the total amount of Lease Payments paid by the District with respect to such Contract Year, (b) the total amount • of Service Fee payments paid to the Company with respect to such Contract Year,and(c)the total amount of electricity bills paid by the District under subsection 8.7 (B) with respect to such Contract Year, by (2) the amount of acre feet of Finished Water demanded by the District pursuant to Section 9.3 during such Contract Year, and subtracting from the result thereby • obtained, (3) the Final GRP Contribution (expressed in dollars per acre foot) established under the Metropolitan Agreement with respect to such Contract Year. "Encumbrances" means any Lien, lease, mortgage, security interest, charge, judgment,judicial award, attachment or encumbrance of any kind with respect to the Project, • other than Permitted Encumbrances. "Enhanced Standards" has the meaning specified in subsection 9.2(B). "EPA" means the United States Environmental Protection Agency and any successor agency. • "Event of Default"means, with respect to the Company, those items specified in Section 13.2 and, with respect to the District, those items specified in Section 13.4. "Excluded Title Matters" has the meaning specified in subsection 4.8(F). "Exit Test Procedures and Standards" means the test procedures and standards • for the performance test of the Project to be conducted by the Company prior to termination or expiration of this Service Contract as set forth in Appendix 18. "Extension Period"means the period commencing on the day after the Scheduled Acceptance Date and ending 547 days following the Scheduled Acceptance Date, or in the event • of one or more delays caused by Uncontrollable Circumstances, District-requested Change Orders or District Fault occurring during such period, the date determined by adding to such 547-day period the aggregate number of days of delay caused by such Uncontrollable Circumstances, District-requested Change Orders, or District Fault. • "Extra Design/Build W ork"means any Design/Build Work that is District-directed pursuant to Section 6.11,that is not due to Uncontrollable Circumstances,and that is in addition to the Design/Build Work originally required hereunder. "Facilities Manager" has the meaning specified in Section 8.3. • 10 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Fees and Costs" means reasonable fees and expenses of employees, attorneys, • architects, engineers, expert witnesses, contractors, consultants and other persons, and costs of transcripts, printing of briefs and records on appeal, copying and other reimbursed expenses, and expenses reasonably incurred in connection with investigating, preparing for, defending or otherwise appropriately responding to any Legal Proceeding. • "Final Completion"means completion of the Design/Build Work in compliance with the Design Requirements and the requirements of Section 7.16. "Final Design"means the detailedplans and specifications necessary and sufficient to allow complete construction of the Project in conformance with the requirements of this • Service Contract. "Final GRP Contribution" has the meaning specified in the Metropolitan Agreement. "Final Punch List" has the meaning specified in subsection 7.15(A). • "Financing Documents"means the Property Lease, the Lease Agreement and the Trust Agreement. "Finished Water" means Raw Water which has been treated at the Plant in accordance herewith and delivered by the Company to the Finished Water Transmission Line. • "Finished Water Transmission Line" means the transmission line for the conveyance of Finished Water to the Water System, including all related buildings, structures, pipes,valves and equipment, as more particularly described in Appendix 1. The Finished Water Transmission line includes the Finished Water Transmission Line Site. • "Finished Water Transmission Line Site"means the real property or rights of way described in Appendix 1 on or over which the Finished Water Transmission Line is to be constructed. "Fixed Design/Build Price" has the meaning specified in subsection 5.4(B). • "Fixed Design/Build Price Adjustments" has the meaning specified in subsection 5.4(C). "Flow Rate" means the rate of flow of Finished Water volume delivered to the Finished Water Transmission Line, as measured by the flow meters in the Plant and expressed • in MGD. "Good Engineering and Construction Practice"means those methods,techniques, standards and practices which, at the time they are to be employed and in light of the circumstances known or reasonably believed to exist at such time, are generally recognized and • accepted as good design, engineering, equipping, installation, construction and commissioning I1 368012.13 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation practices for the design, construction and improvement of capital assets in the municipal water • treatment industry as followed in the southern California region of the United States. "Good Industry Practice"means the methods,techniques,standards and practices which,at the time they are to be employed and in light of the circumstances known or reasonably believed to exist at such time, are generally recognized and accepted as good operation, • maintenance, repair, replacement and management practices in the municipal water treatment industry as observed in the southern California region of the United States. "Governmental Approvals" means all orders of approval, permits, licenses, authorizations, consents, certifications, exemptions,rulings,entitlements and approvals issued • by a Governmental Body of whatever kind and however described which are required under Applicable Law to be obtained or maintained by any person with respect to the Contract Services. "Governmental Body" means any federal, state, regional or local legislative, executive,judicial or other governmental board, agency, authority,commission, administration, • court or other body, or any official thereof having jurisdiction. "Guaranteed Maximum Electricity Consumption" has the meaning specified in Appendix 10. "Guaranteed Maximum Electricity Demand" has the meaning specified in • Appendix 10. "Guaranteed Maximum Electricity Utilization" means Guaranteed Maximum Electricity Consumption and Guaranteed Maximum Electricity Demand. "Guarantor" means Southwest Water Company, a corporation organized and • existing under the laws of the state of Delaware, and its successors and assigns permitted thereunder. "Hazardous Material" means any waste, substance, object or material deemed hazardous under Applicable Law including,without limitation,"hazardous substances"as defined • under CERCLA and "hazardous waste" as defined under RCRA. "Hydraulic Transients Guarantee" means the hydraulic transients guarantee described in Section 9.5. "Independent Engineer" means a nationally-recognized qualified consulting • engineer or firm of consulting engineers representing the Trustee and having experience with respect to obtaining of governmental approvals for, design, construction, testing, operation, maintenance, repair, replacement and management of water treatment facilities and in monitoring construction progress and reviewing related payment applications. • 12 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Independent Evaluator" means a qualified independent evaluator or evaluation • firm with demonstrated skill and experience in the evaluation of utility property, not otherwise associated with the transactions contemplated hereby, selected with the mutual consent of the parties for the purpose of evaluating and determining the condition and weighted average useful life of the Project pursuant to Section 10.2. The Independent Evaluator may be an engineer or • other technical professional competent to perform such services. "Initial Term"has the meaning specified in Section 3.1. "Insurance Requirement"means any rule,regulation,code,or requirement issued by any insurance company which has issued a policy of Required Construction Period Insurance • or Required Operation Period Insurance under this Service Contract,as in effect during the Term hereof, compliance with which is a condition to the effectiveness of such policy. "Issuer"means the issuer of the Bonds, as provided in Article V. "Lease Agreement"means the Lease Agreement to be entered into by the District • and the Issuer providing for the lease of the Project to the District,as the same may be amended or modified from time to time in accordance therewith. "Lease Payments" means the payments to be made by the District to the Issuer under the Lease Agreement. • "Lease Term" means the term of the Lease Agreement. "Legal Proceeding"means every action, suit,litigation, arbitration, administrative proceeding, and other legal or equitable proceeding having a material bearing upon this Service Contract or the performances of the parties hereunder, and all appeals therefrom. • "Lien"means any and every lien against the Project or against any monies due or to become due from the District to the Company under this Service Contract, for or on account of the Contract Services, including mechanics', materialmen's, laborers' and Issuers' liens. "Loss-and-Expense"means any and all actual loss,liability,forfeiture, obligation, damage, fine, penalty,judgment, deposit, cost, expense, charge, Tax, or expense, including all Fees and Costs, except as explicitly excluded or limited under any provision of this Service Contract. "Mediator" means any person serving as a mediator of disputes hereunder • pursuant to Section 13.16. "Metropolitan" means the Metropolitan Water District of Southern California. "Metropolitan Agreement" means the 1998 San Juan Basin Desalter Project Agreement between the Metropolitan Water District of Southern California, the Municipal Water • 13 368012.15 022806 ACMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation District of Orange County and the San Juan Basin Authority, dated December 4, 1998, as • amended, modified, clarified and implemented from time to time. "MG"means millions of gallons. "MGD"means millions of gallons per day. One MGD=1,120 acre feet per 365-day year. • "Municipal Property"means any structures,improvements,equipment,fire alarm systems,wastewater and water mains,valves,pumping systems,hydrants,hydrant connections, duct lines, lamps,lampposts, monuments, sidewalks, curbs, trees, lawns,roadways,utilities or any other systems, fixtures, or real or personal property owned,leased,operated,maintained,or • occupied by the District or the City. "MWDOC" means the Metropolitan Water District of Orange County, California. "Non-Binding Mediation" means the voluntary system of dispute resolution established by Section 13.16 for the resolution of any dispute arising under this Service Contract. • "Notice to Proceed" means a notice issued by the District for the Company to commence construction of the Project as set forth in Section 4.9. "Operation and Maintenance Manual" means the manual and related computer programs prepared by the Company containing detailed standard operating and maintenance • procedures and other specific instructions, policies, directives, routines, schedules and other matters relating to the Operation Services, developed and maintained as required by Article VIII and Appendix 13. "Operation Period" means the period from and including the Provisional • Acceptance Date, to and including the last day of the Term. "Operation Services"means everything required to be furnished and done for and relating to the Project by the Company pursuant to this Service Contract during the Operation Period. Operation Services include the employment and furnishing of all labor, materials, • equipment, supplies, tools, storage, transportation, insurance, sales, delivery and other things and kinds of services whatsoever necessary for the full performance of the Company's operation, maintenance,repair,replacement,management, obtaining Governmental Approvals and related obligations under this Service Contract, and all of the Company's administrative, accounting, • recordkeeping,reporting,notification and similar responsibilities of every kind whatsoever under this Service Contract pertaining to such obligations. "Overdue Rate"means the maximum rate of interest permitted by the laws of the State, if applicable, or the Prime Rate plus 2%, whichever is lower. • 14 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Payment Bond"means the surety bond which guarantees the timely payment by • the construction Subcontractor for all labor,materials,supplies,implements,and machinery and equipment to be furnished with respect to the construction of the Project, and which shall be provided in accordance with Section 15.2 and in substantially the form set forth in the Transaction Forms. • 'Performance Guarantees' means the guarantees of performance made by the Company specifically set forth in Sections 9.2, 9.3, 9.4 and 9.5 and Appendix 2. "Permitted Encumbrances" means, as of any particular time, any one or more of the following: • (1) encumbrances for Utility charges, taxes, rates and assessments not yet delinquent or,if delinquent,the validity of which is being contested diligently and in good faith by the Company and against which the Company has established appropriate reserves in accordance with generally accepted accounting principles; • (2) any encumbrance arising out of any judgment rendered which is being contested diligently and in good faith by the Company, the execution of which has been stayed or against which a bond or bonds in the aggregate principal amount equal to such judgments shall have been posted with a financially-sound insurer and which does not • have a material and adverse effect on the ability of the Company to construct or operate the Project; (3) any encumbrance arising in the ordinary course of business imposed by law dealing with materialmen's, mechanics', workmen's, repairmen's, warehousemen's, • landlords', vendors' or carriers' encumbrances created by law, or deposits or pledges which are not yet due or, if due, the validity of which is being contested diligently and in good faith by the Company and against which the Company has established appropriate reserves; (4) servitudes,licenses,easements,encumbrances,restrictions,rights-of-way and rights in the nature of easements or similar charges which will not in the aggregate materially and adversely impair the construction and operation of the Project by the Company; • (5) zoning and building bylaws and ordinances, municipal bylaws and regulations, and restrictive covenants, which do not materially interfere with the construction and operation of the Project by the Company; • 15 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article 1 - Definitions and Interpretation (6) the Financing Documents and the Installment Purchase Agreement entered • into with respect to the Certificates of Participation issued by the District in March,2002; and (7) any encumbrance or lien created, or caused or permitted to be created, by the District or as a result of acts or omissions of the District that are not, at the time • committed or omitted, the contractual obligation of the Company under this Service Contract, the Property Lease or otherwise. 'Plant'means the San Juan Capistrano Desalter Plant,consisting generally of the treatment works for production of Finished Water from Raw Water. The Plant includes the Plant • Site, the Project Structures and Project Equipment involved in water treatment and production, as further described in Appendix 1. The Plant will be located proximate to 32400 Paseo Adelanto, San Juan Capistrano, California. "Plant By-Products"means Residuals and Brine requiring disposal by the Company • in accordance with Sections 9.10 and 9.11. "Plant Site" means the parcel of real property described in Appendix 1 on which the Plant is to be constructed by the Company. "Pre-Existing Environmental Condition"means,and is limited to, (1) the presence • anywhere in, on or under the Project on the Contract Date, if not disclosed to the Company as of the Contract Date, of underground storage tanks (for the storage of chemicals or petroleum products), and (2) the presence anywhere in, on or under the Project, whether or not disclosed m the Company as of the Contract Date, of Hazardous Materials. • 'Preliminary Title Reports"or"PTR"means the preliminary title reports with respect to the Sites obtained by the Company from Chicago Title Insurance Company each dated as of a date not earlier than 6 months prior to September 30, 2002. 'Prevailing Full Service Treated Water Rate' has the meaning specified in the Metropolitan Agreement. 'Prime Rate' means the prime rate as published in The Wall Street Journal, or a mutually agreeable alternative source of the prime rate if it is no longer published in The Wall Street Journal or the method of computation thereof is substantially modified. • 'Production Efficiency Guarantee' means the production efficiency guarantee described in Section 9.4. 'Project' means the Sites and the Project Improvements. 'Project Equipment' means all manufactured equipment, property or assets, • whether or not constituting personal property or fixtures, constituting part of the Project 16 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation Improvements including tanks (other than concrete basins, and metal tanks that exceed 500 1 gallons capacity), pumps, membrane systems, and water processing and treatment equipment; instrumentation and control systems;remote monitoring and communications systems;filtration, disinfection, corrosion control and water treatment systems; and chemical mixing, metering, storage, handling and feed systems. Appendix 1 generally lists the types of equipment that are • expected to be installed in the Project and to constitute 'Project Equipment'. "Project Improvements"means the Plant, the Wells, the Raw Water Transmission Line, the Booster Pumping Station, the Finished Water Transmission Line, the Concentrate Disposal Line, and any Capital Modifications made thereto from time to time. After Acceptance, • the Booster Pumping Station shall become part of the Water System,and shall not be considered part of the Project Improvements. "Project Structures" means all structures, buildings, concrete basins and metal tanks exceeding 500 gallons in capacity, piping and other buried infrastructure, other than • Project Equipment,constituting part of the Project Improvements. Appendix 1 generally lists the types of structures that are expected to be installed in the Project and to constitute 'Project Structures". "Project Unit Cost'has the meaning specified in the Metropolitan Agreement. • 'Property Lease"means the Property Lease to be entered into by the District and the Issuer providing for the lease of the Plant Site from the District to the Issuer,as the same may be amended from time to time in accordance therewith. "Provisional Acceptance Date"has the meaning specified in Section 7.8. • 'Rating Service"means Moody's Investors Service Inc. or Standard&Poor's Rating Services,a division of The McGraw-Hill Companies,Inc.,or any of their respective successors and assigns and, if such corporations shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, 'Rating Service" shall be deemed to refer to any other nationally-recognized securities rating agency designated by the District. "Raw Water"means any water pumped from the Wells and conveyed to the Plant for treatment hereunder. "Raw Water Transmission Line" means the transmission line for the conveyance • of Raw Water to the Plant, including all related buildings, structures, pipes, valves and equipment, as more particularly described in Appendix 1. The Raw Water Transmission Line includes the Raw Water Transmission Line Site. "Raw Water Transmission Line Site" means the real property or rights of way described in Appendix 1 on or over which the Raw Water Transmission Line is to be constructed. 17 368012.15 022806 ACMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.A. §6901 • et seq.,and applicable regulations promulgated thereunder, each as amended from time to time. "Renewal Term" has the meaning specified in Section 3.1. "Required Construction Period Insurance" has the meaning specified in Appendix 11. • "Required Insurance"means the Required Construction Period Insurance and the Required Operation Period Insurance. "Required Operation Period Insurance"has the meaning specified in Appendix 11. "Residuals" means any semi-solid or solid material resulting from the treatment • of Raw Water which requires disposal as waste material. The term "Residuals"does not include "Brine" as that term is defined herein. "RFP"means the District's Request for Proposals for the Phase I Desalter Project, issued on February 1, 2001, as amended. • "Scheduled Acceptance Date" has the meaning specified in Section 7.12. "Security Instruments" means the Service Contract Guaranty Agreement, the Construction Performance Bond, the Payment Bond and the Service Contract Letter of Credit. "Senior Supervisors" has the meaning specified in subsection 8.3(D). • "Service Area" means the Capistrano Valley Water District, the City of San Juan Capistrano and all other territory in which customers are served by the Water System during the Term hereof. "Service Contract" means this Service Contract for the Design, Construction, • Financing and Operation of the San Juan Basin Desalter Project between the Company and the District,including the Appendices,the Transaction Forms and the Reference Documents,as the same may be amended or modified from time to time in accordance herewith. "Service Contract Guaranty Agreement"or"Service Contract Guaranty"means the • Service Contract Guaranty Agreement entered into concurrently with this Service Contract from the Guarantor to the District in the form set forth in the Transaction Forms, as the same may be amended from time to time in accordance therewith. "Service Contract Letter of Credit" has the meaning specified in Section 15.3. • "Service Fee"has the meaning specified in Section 12.1. "Sites"means the Plant Site, the Wellfield, the Booster Pumping Station Site,the Raw Water Transmission Line Site, the Finished Water Transmission Line Site, and the Concentrate Disposal Line Site. "Site Title Lists" has the meaning specified in subsection 4.8(A). 18 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Small Scale Capital Modification"means a Capital Modification requested by the • Company, and not required as a result of Uncontrollable Circumstances or directed by the District, which has a cost of less than$25,000, as adjusted annually by the Adjustment Factor. "Specified Site Conditions"means,and is limited to: (1)the presence at the Project of subsurface structures, materials or conditions having historical, archaeological, religious or • similar significance; (2)the presence at the Project of functioning subsurface structures used by Utility providers on,underneath,near or adjacent to the Project if not disclosed to the Company as of the Contract Date; (3) the presence at the Project of any habitat of an endangered or protected species as provided in Applicable Law. • "State"means the State of California. "Subcontract" means an agreement or purchase order by the Company, or a Subcontractor to the Company, as applicable. "Subcontractor" means every person (other than employees of the Company) • employed or engaged by the Company or any person directly or indirectly in privity with the Company (including all subcontractors and every sub-subcontractor of whatever tier) for any portion of the Contract Services, whether for the furnishing of labor, materials, equipment, supplies, services or otherwise. "Substantial Completion"has the meaning specified in Section 7.2. 'Tax" means any tax, fee, levy, duty, impost, charge, surcharge, assessment or withholding, or any payment-in-lieu thereof,and any related interest,penalty or addition to tax. 'Term" has the meaning set forth in Article III. • 'Termination Date"means the last day of the Term of this Service Contract. 'Transaction Cost Reimbursement Payment"means the$1,860,000 payment to be made by the Company in two installments pursuant to Sections 3.1 and 4.10 in reimbursement of the District for transaction costs incurred in the development, procurement and negotiation • of this Service Contract. 'Transaction Document" means any of the Transaction Documents appended to this Service Contract. 'Transaction Form"means any of the Transaction Forms appended to this Service • Contract. 'Trust Agreement"means the Trust Agreement of Trust to be entered into by the Issuer and the Trustee providing for the issuance by the Issuer of the Bonds, as the same may be amended or modified from time to time in accordance therewith. • 'Trustee"means the trustee for the Bonds, determined as provided in Article V. 19 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Uncontrollable Circumstance"means any act, event or condition that is beyond the reasonable control of the party relying thereon as justification for not performing an obligation or complying with any condition required of such party under this Service Contract, and that materially interferes with or materially increases the costs of performing its obligations hereunder(other than payment obligations) to the extent that such act, event or condition is not the result of the willful or negligent act,error or omission,failure to exercise reasonable diligence, or breach of this Service Contract on the part of such party. (1) Inclusions. Subject to the foregoing, Uncontrollable Circumstances shall include, and shall not be limited to, the following: (a) a Change in Law, except as provided in (1) and (m) of item 2 below; (b) the existence of a Pre-Existing Environmental Condition; (c) the existence of a Specified Site Condition; (d) the treatment of Raw Water having parameters which are outside the range established by the Design Raw Water Quality Parameters; (e) contamination of the Project from groundwater,soil or airborne Hazardous Material migrating from sources outside of the Project and not caused by Company Fault; (1) naturally occurring events (except weather conditions normal for the Service Area) such as landslides,underground movement,earthquakes,fires,tornadoes, hurricanes, floods, lightning, epidemics and other acts of God; (g) explosion,sabotage or similar occurrence, acts of a declared or undeclared public enemy, extortion, war, blockade or insurrection, riot or civil disturbance; (h) labor disputes,except labor disputes involving employees of the Company, its Affiliates, or Subcontractors which affect the performance of the Contract Services; (i) the failure of any Subcontractor(other than the Company, the Guarantor or any Affiliate of either) to furnish services, materials, chemicals or equipment on the dates agreed to, but only if such failure is the result of an event which would constitute an Uncontrollable Circumstance if it affected the Company directly, and the Company is not able after exercising all reasonable efforts to timely obtain substitutes; 6) the failure of any appropriate Governmental Body or private utility having operational jurisdiction in the area in which the Project is located to provide and maintain Utilities to the Project which are required for the performance of this Service Contract, except as provided in paragraph (h) of item (2) below; 20 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation (k) the absence of ownership rights by the District or the City in the Sites, • notwithstanding the representation of the District with respect thereto in subsection 2.1(H); (1) except as provided in (k) of item 2 below, the existence of any right, restriction,servitude,license,easement,right of way,limitation,qualification,exception, adverse claim, Encumbrance or Lien on the Sites which either is unrecorded or not listed as an exception on the Preliminary Title Reports and which materially and adversely affects the performance of the Contract Services; (m) the preemption, confiscation, diversion, destruction or other interference in possession or performance of materials or services by a Governmental Body in • connection with a public emergency or any condemnation or other taking by eminent domain of any material portion of the Project; (n) a violation of Applicable Law by a person other than the affected party or its Subcontractors; • (o) any Legal Proceeding described in subsection 4.5(A)(9), or any order or decree issued by a court of competent jurisdiction or other Governmental Body which delays or prevents the construction or operation of the Project, where such order or decree is not caused by Company Fault; • (p) with respect to the Company, any District Fault or District-requested Change Orders not due to Company Fault; and (q) with respect to the District, any Company Fault. (2) Exclusions. It is specifically understood that, without limitation, none of • the following acts, events or circumstances shall constitute Uncontrollable Circumstances: (a) any act,event or circumstance that would not have occurred if the affected party had complied with its obligations hereunder; (b) changes in interest rates,inflation rates,wage rates,insurance premiums, commodity prices,currency values,exchange rates or other general economic conditions; (c) changes in the financial condition of the District, the Company, the Guarantor, or their Affiliates or Subcontractors affecting the ability to perform their respective obligations; • (d) the consequences of error, neglect or omissions by the Company, the Guarantor, any Subcontractor, any of their Affiliates or any other person in the performance of the Contract Services; 21 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation (e) union or labor work rules,requirements or demands which have the effect of increasing the number of employees employed at the Project or otherwise increasing the cost to the Company of performing the Contract Services; M any and all surface, subsurface and other conditions affecting the Sites, which may increase cost of performing or cause delay in the performance of the Design/Build Work,including particularly any subsurface geotechnical conditions,except those constituting Pre-Existing Environmental Conditions and Specified Site Conditions; (g) mechanical failure of equipment to the extent not resulting from a condition that is listed in the "Inclusions" Section of this definition; (h) power outages not caused by third-party Utilities or other Uncontrollable Circumstances; (i) weather conditions normal for the Service Area; 6) the existence of any recorded right, restriction, servitude, license, easement, right of way, limitation, qualification, exception, adverse claim, Encumbrance or Lien appearing as an exception on the Preliminary Title Reports; (k) failure of the Company to obtain easements,rights ofway or encroachment permits for certain segments of the Sites as indicated in Appendix 1, Attachment 1, subsection 2(D). (1) failure of the Company to secure any patent or other intellectual property right which is or may be necessary for the performance of the Contract Services; (in) a Change in Law pertaining to Taxes (except a Change in Law which imposes a Tax on the private provision of water treatment services, or the imposition of a Tax on building materials used in the construction of the Project); (n) any Change in Law regarding the quality of Finished Water(including the issuance of any Governmental Approval, the enactment of any statute, or the promulgation of any regulation) the terms and conditions of which do not impose more stringent or burdensome requirements on the Company than are imposed by the Contract Standards; or (o) except as set forth in this Service Contract,any failure or delay in obtaining the Construction Governmental Approvals or the CADHS Approval, or the imposition of any term or condition by a Governmental Body in connection therewith, which is more burdensome or imposes costs greater than those assumed by the Company in entering into this Service Contract (it being recognized, however, that the Company shall have certain termination rights as provided in Sections 4.8 and 4.10). 22 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation "Utilities"means any and all utility services and installations whatsoever(including • gas,water,sewer,electricity,telephone,and telecommunications),and all piping,wiring,conduit, and other fixtures of every kind whatsoever related thereto or used in connection therewith. "Water Delivery Guarantee" means the Water Delivery Guarantee described in Section 9.3. • "Water System"means the District's water distribution system(including allpipes, pumping stations,mains,valves,distribution facilities and equipment,treatmentworks,sources of water supply, and related buildings, structures, improvements and assets) managed by the District and serving the Service Area,of which the Project is a part. After Acceptance,the Booster • Pumping Station shall become part of the Water System and shall not be considered part of the Project Improvements. "Water Treatment Guarantee"means the water treatment guarantee described in Section 9.2. • "W ellfield"means the parcels of real property described in Appendix 1 within which the Wells are to be located and constructed. "Wells" means the wells to be constructed by the Company hereunder for the production of Raw Water, including any related structures and equipment. • SECTION 1.2. INTERPRETATION. In this Service Contract, notwithstanding any other provision hereof: (A) References Hereto. The terms"hereby,""hereof,""herein,""hereunder"and any similar terms refer to this Service Contract; and the term "hereafter" means after, and the • term "heretofore" means before, the Contract Date. (B) Gender and Plurality. Words of the masculine gender mean and include correlative words of the feminine and neuter genders and words importing the singular number mean and include the plural number and vice versa. • (C) Persons. Words importing persons include firms,companies,associations, joint ventures, general partnerships, limited partnerships, limited liability corporations, trusts, business trusts, corporations and other legal entities, including public bodies, as well as individuals. • (D) Headings. The table of contents and any headings preceding the text of the Articles, Sections and subsections of this Service Contract shall be solely for convenience of reference and shall not affect its meaning, construction or effect. (E) Entire Agreement. This Service Contract contains the entire agreement • between the parties hereto with respect to the transactions contemplated by this Service 23 368012.15 022806 AGMr • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation Contract. Without limiting the generality of the foregoing,this Service Contract shall completely and fully supersede all other understandings and agreements among the parties with respect to such transactions,including those contained in the RFP,the proposal of the Company submitted in response thereto, and any amendments or supplements to the RFP or the proposal. (F) Design Requirements. The Design Requirements are intended to include the basic design principles, concepts and requirements for the Design/Build Work but do not include the final, detailed designs, plans or specifications or indicate or describe each and every item required for full performance of the physical Design/Build Work and for achieving Acceptance. The Company agrees to prepare all necessary and required complete and detailed designs, plans, drawings and specifications as determined by the Company consistent with the Contract Standards, and to furnish and perform, without additional compensation of any kind, all Design/Build Work in conformity with the Design Requirements and the final designs,plans, drawings and specifications based thereon. (G) Standards of Workmanship and Materials. Any reference in this Service Contract to materials, equipment, systems or supplies (whether such references are in lists, notes, specifications, schedules, or otherwise) shall be construed to require the Company to furnish the same in accordance with the grades and standards therefor indicated in this Service Contract. Where this Service Contract does not specify any explicit quality or standard for construction materials or workmanship, the Company shall use only workmanship and new materials of a quality consistent with that of construction workmanship and materials specified elsewhere in the Design Requirements, and the Design Requirements are to be interpreted accordingly. (11) Technical Standards and Codes. References in this Service Contract to all professional and technical standards,codes and specifications are to the most recently published professional and technical standards, codes and specifications of the institute, organization, association, authority or society specified, all as in effect as of the Contract Date. Unless otherwise specified to the contrary, (1) all such professional and technical standards, codes and specifications shall apply as if incorporated in the Design Requirements and (2) if any material revision occurs, to the Company's knowledge, after the Contract Date, and prior to completion of the applicable Design/Build Work,the Company shall notify the District. If so directed by the District, the Company shall perform the applicable Design/Build Work in accordance with the revised professional and technical standard, code, or specification as long as the Company is compensated, subject to Cost Substantiation, for any additional cost or expense attributable to any such revision. 24 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation (1) Liquidated Damages. This Service Contract provides for the payment by the Company of liquidated damages in certain circumstances of non-performance, breach and default,which liquidated damages may also be referred to under this Service Contract as"Service Fee reductions". Each party agrees that the District's actual damages in each such circumstance would be difficult or impossible to ascertain (particularly with respect to the public harm that would occur as a result of such non-performance, breach or default of the Company), and that the liquidated damages provided for herein with respect to each such circumstance are intended to place the District in the same economic position as it would have been in had the circumstance not occurred. Except where additional remedies are otherwise specifically provided for herein, such liquidated damages shall constitute the only damages payable by the Company to the District in such circumstances of non-performance, breach or default, regardless of legal theory. (J) Causing Performance. A party shall itself perform, or shall cause to be performed, subject to any limitations specifically imposed hereby with respect to Subcontractors or otherwise,the obligations affirmatively undertaken by such party under this Service Contract. (K) Party Bearing Cost of Performance.All obligations undertakenbyeach party hereto shall be performed at the cost of the party undertaking the obligation or responsibility, unless the other party has explicitly agreed herein to bear all or a portion of the cost either directly, by reimbursement to the other party or through an adjustment to the Service Fee. (L) Cost of Performing Excludes Cost from Legal Proceeding. The "cost of performing"a party's obligations hereunder,when used with respect to one party's obligation to pay additional costs incurred by the other party, shall not include any Loss-and-Expense incurred by the party resulting from any third-party Legal Proceeding. Notwithstanding the foregoing,each party retains its rights to bring any Legal Proceeding or to implead the other party as to any matter arising hereunder. (M) Assistance. The obligations of a party to cooperate with, to assist or to provide assistance to the other party hereunder shall be construed as an obligation to use the party's personnel resources to the extent reasonably available in the context of performance their normal duties, and not to incur material additional overtime or third party expense unless A requested and reimbursed by the assisted party. (N) Interpolation. If any calculation hereunder is to be made by reference to a chart or table of values, and the reference calculation falls between two stated values, the calculation shall be made on the basis of linear interpolation. 25 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation (0) Good Industry Practice and Good Engineering and Construction Practice. Good Industry Practice and Good Engineering and Construction Practice shall be utilized hereunder, among other things, to implement and in no event displace or lessen the stringency of, the Contract Standards. In the event that, over the course of the Term of this Service Contract, Good Industry Practice or Good Engineering and Construction Practice evolves in a manner which in the aggregate materially and adversely affects the cost of compliance therewith by the Company, the Company shall be relieved of its obligation to comply with such evolved Good Industry Practice and Good Engineering and Construction Practice (but not Good Industry Practice and Good Engineering and Construction Practice as of the Contract Date) unless the • District agrees to adjust the Service Fee on a Cost-Substantiated basis to account for such additional costs. Except to the extent that the Company is relieved of its obligation to comply with such evolved Good Industry Practice or Good Engineering and Construction Practice, as provided above, in no event shall any evolution of Good Industry Practice or Good Engineering and Construction Practice relieve the Company of its obligations hereunder. (P) Applicability and Stringency of Contract Standards. The Company shall be obligated to comply only with those Contract Standards which are applicable in any particular case. Where more than one Contract Standard applies to any particular performance obligation ♦ of the Company hereunder, each such applicable Contract Standard shall be complied with. In the event there is conflict between a term or condition of the main body of this Service Contract and a term or condition of the Appendices, the tern or condition of the main body shall govern. (Q) Delivery of Documents in Digital Format. In this Service Contract, the Company is obligated to deliver reports, records, designs, plans, drawings, specifications, proposals and other documentary submittals in connection with the performance of its duties hereunder. The Company agrees that all such documents shall be submitted to the District both in printed form(in the number of copies indicated) and, at the District's request,in digital form. Digital copies shall consist of computer readable data submitted in Autocad, Microsoft Word, Microsoft Access,and Microsoft Excel or in any other similar standard interchange format which the District may reasonably request to facilitate the administration and enforcement of this Service Contract. (R) Severability. If any clause,provision,subsection,Section or Article of this Service Contract shall be ruled invalid by any court of competent jurisdiction, then the parties shall: (1) promptly negotiate a substitute for such clause, provision, subsection, Section or Article which shall, to the greatest extent legally permissible, effect the intent of the parties in the invalid clause, provision, subsection, Section or Article; (2) if necessary or desirable to 26 368012.15 022806 AGMT s Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article I - Definitions and Interpretation accomplish item (1) above, apply to the court having declared such invalidity for a judicial construction of the invalidated portion of this Service Contract; and (3) negotiate such changes in substitution for or addition to the remaining provisions of this Service Contract as may be necessary in addition to and in conjunction with items(1) and(2) above to effect the intent of the parties in the invalid provision. The invalidity of such clause, provision, subsection, Section or • Article shall not affect any of the remaining provisions hereof, and this Service Contract shall be construed and enforced as if such invalid portion did not exist. (S) No Third-Party Rights. Except as set forth in subsection 5.3(C) and Section 13.3, this Service Contract is exclusively for the benefit of the District and the Company • and shall not provide any third parties with any remedy, claim, liability, reimbursement, cause of action or other rights. (T) References to Treatment. The terms"treat,""treated,""treatment,""treating" and any similar terms, when used with respect to Raw Water, shall mean and refer to the operation of the Plant to treat Raw Water and supply Finished Water to the Finished Water Transmission Line, all in accordance with this Service Contract. (U) ReferencestoDay All references to days herein are references to calendar days. i (V) References to Including. All references to "including" herein shall be interpreted as meaning"including without limitation". (W) References to Knowledge. All references to "acknowledge", "knowing', "know" or "knew" shall be interpreted as references to a party having actual knowledge. (X) Counteroarts. This Service Contract may be executed in any number of original counterparts. All such counterparts shall constitute but one and the same Service Contract. (Y) Governing Law.This Service Contract shallbe governed by and construed in accordance with the applicable laws of the State of California. (Z) Defined Terms. The definitions set forth in Section 1.1 shall control in the event of any conflict with any definitions used in the recitals hereto. 27 368012.15 022806 AGMT ARTICLE II REPRESENTATIONS AND WARRANTIES SECTION 2.1. REPRESENTATIONS AND WARRANTIES OFTHE DISTRICT. The District represents and warrants that: (A) Existence and Powers. The District is a water district organized and existing under and by virtue of the Constitution and the laws of the State, with full legal right, power and authority to enter into and to perform its obligations under this Service Contract. (B) Due Authorization and Binding Obligation. This Service Contract has been duly authorized, executed and delivered by all necessary action of the District and constitutes a legal,valid and binding obligation of the District, enforceable against the District in accordance with its terms, except to the extent that its enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights from time to time in effect and by equitable principles of general application. (C) No Conflict. To the best of its knowledge,neither the execution nor delivery by the District of this Service Contract, nor the performance by the District of its obligations in connection with the transactions contemplated hereby or the fulfillment by the District of the terms or conditions hereof(1) conflicts with, violates or results in a breach of any constitution, law or governmental regulation applicable to the District or(2) conflicts with,violates or results in the breach of any term or condition of any order, judgment or decree, or any contract, agreement or instrument, to which the District is a party or by which the District or any of its properties or assets are bound, or constitutes a default under any of the foregoing. (D) No Approvals Required. No approval,authorization,order or consent of,or . declaration,registration or filing with,any Governmental Body or referendum of voters is required (except with respect to the issuance by the District of certain types of debt)for the valid execution and delivery by the District of this Service Contract or the performance by the District of its payment or other obligations hereunder, except as provided in items (3) and (4) of subsection 4.5(A) and otherwise as such have been duly obtained or made. (E) No Litigation. To the best of its knowledge, there is no Legal Proceeding, at law or in equity, before or by any court or Governmental Body, or proceeding for referendum or other voter initiative, pending or, to the best of the District's knowledge,overtly threatened or publicly announced against the District,in which an unfavorable decision,ruling or finding could reasonably be expected to have amaterial and adverse effect on the execution and delivery of this Service Contract or the validity, legality or enforceability of this Service Contract, or any other material agreement or instrument entered into by the District in connection with the transactions contemplated hereby, or on the ability of the District to perform its obligations hereunder or under any such other agreement or instrument. 28 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article II - Representations and Warranties (F) Claims and Demands. To the best of its knowledge,there are no material and adverse claims or demands based in environmental, contract or tort law pending or threatened against the District with respect to the Project. (G) Applicable Law Compliance. To the best of its knowledge, (1) the District is not in material violation of any Applicable Law pertaining to the Project, or(2) the District has not received notice of a violation or an alleged violation of any such Applicable Law. (H) District or City Ownership Interests in the Sites. The fee simple interest in each of the Sites described in Appendix 1 (except those Sites identified in Appendix 1 for which the Company is required to obtain an easement, license, right of way or encroachment permit, or for which the District or the City owns a right of way interest), is owned either by the City or the District. Notwithstanding that the District is not the fee owner of certain Sites or portions of Sites, the District has all rights and authority necessary to enable the District to grant to the Company those rights and interests in and to the Sites and the Project that are granted to the Company in this Service Contract (other than with respect solely to those segments of the transmission line sites identified in Appendix 1 for which the Company is required to obtain an easement, license, right of way or an encroachment permit). (1) Information Pertaining to the Sites and Raw Water. To the best of its • knowledge, the District has made available to the Company substantially all of the studies, reports and other information pertaining to the Sites and the Raw Water which the District has developed in connection with its planning and preparation work with respect to the RFP and the Project and which, in the District's opinion, may reasonably be material to the performance by the Company of the Contract Services. The District makes no representation,however,as to the accuracy or completeness of any such information. (J) San Juan Basin Authority Ownership of Water Rights. The San Juan Basin Authority owns the water rights necessary for performance of the obligations of the parties under A this Service Contract. SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants that: (A) Existence and Powers. The Company is a corporation duly organized, • validly existing and in good standing under the laws of the state of Texas and has the authority to do business in this State and in any other state in which it conducts its activities,with the full legal right, power and authority to enter into and perform its obligations under this Service Contract. 29 368012.15 02280 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article II - Representations and Warranties (B) Due Authorization and Binding Obligation. This Service Contract has been duly authorized, executed and delivered by all necessary corporate action of the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms,except to the extent that its enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights from time to time in effect and equitable principles of general application. (C) No Conflict. To the best of its knowledge,neither the execution nor delivery by the Company of this Service Contract nor the performance by the Company of its obligations in connection with the transactions contemplated hereby or the fulfillment by the Company of the terms or conditions hereof (1) conflicts with, violates or results in a breach of any constitution, law or governmental regulation applicable to the Company or (2) conflicts with, violates or results in a breach of any order,judgment or decree, or any contract, agreement or instrument to which the Company is a party or by which the Company or any of its properties or assets are bound, or constitutes a default under any of the foregoing. (D) No Approvals Required. No approval,authorization,order or consent of,or declaration,registration or filing with,any Governmental Body is required for the valid execution and delivery of this Service Contract by the Company or the performance of its payment or other obligations hereunder except as such have been duly obtained or made other than the Governmental Approvals to be obtained by the Company after the Contract Date as part of the Contract Services. (E) No Litigation. Except as disclosed in writing to the District, to the best of w its knowledge, there is no Legal Proceeding, at law or in equity, before or by any court or Governmental Body pending or, to the best of the Company's knowledge, overtly threatened or publicly announced against the Company, in which an unfavorable decision, ruling or finding could reasonably be expected to have a material and adverse effect on the execution and delivery of this Service Contract by the Company or the validity, legality or enforceability of this Service Contract against the Company, or any other agreement or instrument entered into by the Company in connection with the transactions contemplated hereby, or on the ability of the Company to perform its obligations hereunder or under any such other agreement or instrument. (F) Claims and Demands. Except as disclosed in writing to the District,to the best of its knowledge, there are no material and adverse claims and demands based in environmental, contract or tort law pending or threatened against the Company which would materially affect this Service Contract. 30 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article II - Representations and Warranties (G) Applicable Law Compliance. Except as disclosed in writing to the District, • to the best of its knowledge, neither the Company, the Guarantor nor any Affiliate is in material violation of any law, order, rule or regulation applicable to any water or wastewater plant providing service to the general public designed, constructed, operated,maintained or managed by the Company, the Guarantor or any Affiliate the violation of which may subject any of the foregoing to any significant regulatory enforcement action which would materially affect this Service Contract. (H) Practicability of Performance. The Design Requirements, the technology and the construction and management practices to be employed in the construction and • operation of the Project are furnished exclusively by the Company and its Subcontractors pursuant to the terms of this Service Contract, and the Company assumes and shall have exclusive responsibility for their efficacy, notwithstanding the inclusion of design principles or other terms and conditions in the RFP or the clarification or negotiation of the terms of the Design Requirements,Acceptance Test Procedures and Standards,and Performance Guarantees between the Company and the District.The Company assumes the risk of the practicability and possibility of performance of the Project on the scale,within the time for completion and in the manner required hereunder, and of treating Raw Water and supplying Finished Water through • the operation of the Project in a manner which meets all of the requirements hereof,even though such performance and operation may involve technological or market breakthroughs or overcoming facts,events or circumstances(other than Uncontrollable Circumstances)which may be different from those assumed by the Company in entering into this Service Contract, and agrees that sufficient consideration for the assumption of such risks and duties is included in the Fixed Design/Build Price and the Service Fee. No impracticability or impossibility of any of the foregoing shall be deemed to constitute an Uncontrollable Circumstance. (I) Patents and Licenses. The Company owns, or is expressly authorized to use under patentrights,licenses,franchises,trademarks or copyrights,the technology necessary for the Project without any known material conflict with the rights of others. (J) Information Supplied by the Company. The information supplied and representations and warranties made by the Company and the Guarantor in all submittals made • in response to the RFP and in all post-proposal submittals with respect to the Company and the Guarantor (and to the best of its knowledge, all information supplied in such submittals with respect to any Subcontractor) are true and correct in all material respects. SECTION 2.3. KNOWLEDGE-BASED REPRESENTATIONS. Whenever a • representation or warranty hereunder is made to the best of the knowledge of the District or the 31 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article 11 - Representations and Warranties best of the knowledge of the Company, such representation or warranty hereunder shall be deemed made, as the case may be, to the knowledge of the City Attorney and the City's Director of Public Works or to the knowledge of the General Counsel and Chief Executive Officer of the Company. • • • • • • 32 368012.15 022806 AGMT ARTICLE III TERM SECTION 3.1. EFFECTIVE DATE AND INITIAL TERM. (A) Effective Date. This Service Contract shall become effective on the Contract Date and shall continue in effect for 20 years following the Provisional Acceptance Date (or, if Provisional Acceptance is not certified by the Company, the Acceptance Date)(the "Initial Term") or, if renewed at the option of the District as provided in Section 3.2, until the last day of the renewal term (the 'Renewal Term"; the Initial Term and any Renewal Term being referred to herein as the 'Term"), unless earlier terminated pursuant to the termination provisions under Article IV or Article XIII, in which event the Term shall be deemed to have ended as of the date of such termination. All rights, obligations and liabilities of the parties hereto shall commence on the Contract Date, subject to the terms and conditions hereof. The District shall have no obligation to make milestone payments hereunder with respect to the Design/Build Price until the Construction Date (notwithstanding any earlier commencement by the Company of Design/Build Work hereunder), or to make Service Fee payments hereunder until the Provisional Acceptance Date (or, if Provisional Acceptance is not certified by the Company,the Acceptance Date). At the end of the Term of this Service Contract, all other obligations of the parties hereunder shall terminate, except as provided in Sections 13.11 and 13.12. (B) First Installment of Transaction Cost Reimbursement Payment. Not later than 14 days following the Contract Date, the Company shall pay the District$330,000 from its own funds as the first installment of the Transaction Cost Reimbursement Payment. SECTION 3.2. DISTRICT RENEWAL OPTION. This Service Contract may be renewed and extended by mutual agreement of the parties. The Company shall give the District notice of the approaching expiration of the Term no later than 270 days prior to such expiration. r 33 368012.15 022806 AGMT ARTICLE IV DEVELOPMENT OF THE PROJECT . SECTION 4.1. PROJECT SITES SUITABILITY CONFIRMATION. (A) Project Sites Familiarity. The Company acknowledges that the Company's agents and representatives have visited, inspected and are familiar with the observable condition of the Sites, their surface physical condition relevant to the obligations of the Company pursuant to this Service Contract, including surface conditions,roads, utilities, topographical conditions and air and water quality conditions; that the Company is familiar with all local and other conditions which may be material to the Company's performance of its obligations under this Service Contract(including, but not limited to transportation;seasons and climate;access,availability,disposal,handling and • storage of materials and equipment; and availability and quality of labor and Utilities), and has received and reviewed all information regarding the Sites provided to it as part of the Sites-related information or obtained in the course of performing its obligations hereunder; and that based on the foregoing, the Sites constitute acceptable and suitable sites for the construction and 0 operation of the Project in accordance herewith, and the Project can be constructed on the Sites within the Fixed Design/Build Price and by the Scheduled Acceptance Date. (B) District-Supplied Information. The Company shall be responsible for the independent verification and confirmation of all information supplied to it by or on behalf of the . District and upon which it elects to rely in connection herewith. No error or omission in any such information shall constitute an Uncontrollable Circumstance, or relieve the Company from any of its obligations or entitle the Company to any increase in compensation hereunder. Nothing in this Section,however, shall limit the Company's entitlement to relief under the Uncontrollable Circumstances provisions hereof if the Raw Water has parameters which vary from the Design Raw Water Quality Parameters set forth in Appendix 3. (C) Assumption of Structural Suitability Risk. Based on the investigations of the Sites and other inquiries made by the Company prior to the Contract Date, which the Company acknowledges to be sufficient for this purpose,and except with respect to Specified Site Conditions and Pre-Existing Environmental Conditions, the Company assumes the risk of all subsurface geotechnical conditions at the Sites as they may affect the structural suitability of the Sites or the Company's excavation or construction costs or schedules, and agrees that any such subsurface geotechnical condition revealed during excavation or construction which has such an affect shall not be an Uncontrollable Circumstance. (D) Project Sites Access During Development Period. The execution of this Service Contract shall be deemed to constitute the granting of a license to the Company to access the Sites for the purposes of. (1) performing engineering, analysis and such additional subsurface and geotechnical studies or tests as deemed necessary by the Company; and 34 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project (2) performing all necessary onsite activities pursuant to Section 4.2. Such access shall be subject to the District's prior approval,which shall not be unreasonably withheld or delayed , as to time and scope. The Company shall assume all risks associated with such activities and indemnify,defend and hold harmless the District and the District Indemnitees in accordance with Section 14.3 from and against all Loss-and-Expense arising therefrom. On and after the Construction Date, except as provided in subsection 4.8(D),the District shall also provide to the Company such easements and licenses in,over,or to the Sites as may be necessary to permit the Company to perform its obligations hereunder for the Term of this Service Contract. SECTION 4.2. COMPANY DEVELOPMENT PERIOD RESPONSIBILITIES. e (A) Obligation to Proceed. The Company shall satisfy the following Company responsibilities as soon as practicable following the Contract Date, each of which shall be a condition precedent to the occurrence of the Construction Date. (1) Project Sites Conditions. The Company shall make all further soil test borings and conduct analyses of subsurface conditions, inspections and applicable site history reviews of the Sites, in each case as necessary under Good Engineering and Construction Practice to prepare for excavation and construction hereunder in accordance with Applicable Law and to obtain all required Governmental Approvals. (2) Project Sites-Related Plans. The Company shall prepare and submit to the appropriate Governmental Body,as required under Appendix 2 and as needed to support any permit applications or meet permit conditions,all Sites-related plans,including those plans set forth in Appendix 5. (3) Construction Governmental Approvals Generally. The Company shall prepare and submit, on its own behalf or on behalf of the District or the City as applicant, completed applications and take all other steps which are necessary under Applicable Law to obtain and maintain all Construction Governmental Approvals in accordance with Section 4.6 and each in form and substance satisfactory to the District. (4) Source Water Pilot Test. The Company shall conduct the source water pilot test in accordance with Section 4.7. (5) Environmental Notification Forms and Impact Reports. The Company shall prepare and submit, on its own behalf or on behalf of the City or the District as applicant, any environmental notification forms and impact reports with respect to the Project which are required under Applicable Law to undertake and complete the Project. (6) Information to Support Site Easements. In the event the District or the City is required to grant Utility easements on the Sites in connection with the 35 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project Design/Build Work, the Company shall provide complete descriptions of all Utility connections and routes on the Sites necessary for such purposes. (7) Survey. The Company shall prepare or have prepared by a surveyor licensed in the State a property line survey of the Sites as of a date subsequent to October 15, 2002 (independent from and in addition to the survey furnished by the District pursuant to item (1) of Section 4.3) showing: (a) the exact dimensions and locations thereof; (b) the exact location of all means of access thereto and all easements relating thereto; (c) that the proposed location of each component of the Project on the Sites is in compliance with all applicable building and setback lines and does not S encroach on or interfere with existing easements in any manner that violates Applicable Law or contractual obligations (whether on, above or below ground); (d) any gaps, zones, projections,protrusions,or encroachments from adjacent property onto the Sites and any encroachments from the Sites onto any adjacent property from sources other than the Project Improvements; and (e) that there will be no encroachments from the Project Improvements extending to adjacent property, nor any other material survey defects arising from the siting of the Project Improvements on the Sites. (8) Zonin¢. The Company shall apply on its own behalf or on behalf of the District or the City as applicant to the appropriate Governmental Body for any required change in the zoning classification applicable to the Sites so that, no later than the Construction Date, a zoning ordinance, or a variance, conditional use permit, or special exception thereto,shall then be effective which permits the construction of the Project on the Sites, and the Company shall furnish confirming evidence thereof satisfactory to the District. (9) Utilities. The Company shall make all arrangements necessary to secure the availability of all Utilities required to construct and operate the Project in the capacities required hereunder, and shall evidence such availability by letters from the providers of such Utilities. (10) Design Documents. The Company shall provide to the District copies of all plans,technical specifications,blueprints,drawings and other design documents relating 0 to the Project sufficient to begin construction prepared by or on behalf of the Company for permitting, regulatory, financing, bonding, credit enhancement and insurance purposes, recognizing that under the design/build approach provided for hereunder the design documents will not be 100% complete at the commencement of construction. 36 368012.15 022806 AGMT s • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project (11) Construction Schedule. The Company shall prepare and provide to the District the"critical path method"schedule for the Design/Build Work covering the major Project Equipment and Project Structures. This schedule may be modified from time to time by the Company at its sole discretion. (12) Desmon,Construction and Membrane System Subcontracts. The Company shall negotiate and execute the design,construction and membrane system services and equipment Subcontracts in accordance with the requirements of subsection 16.7(D). (13) Performance and Payment Bonds. The Company shall obtain and deliver to the District the Construction Performance Bond and the Payment Bond as required by Section 15.2. Each such bond shall be substantially in the form set forth in the Transaction Forms. (14) Required Construction Period Insurance. The Company shall submit to the District certificates of insurance for all Required Construction Period Insurance specified in Appendix 11. (15) Service Contract Letter of Credit. The Company shall obtain and deliver to the District the Service Contract Letter of Credit as required by Section 15.3. The Service Contract Letter of Credit shall be substantially in the form set forth in the Transaction • Forms. (16) Applicable Law Compliance. The Company shall comply with all other requirements of Applicable Law pertaining to the activities constituting the Construction Date Conditions. (17) Company Law Compliance. The Company shall certify to the District as of the Construction Date that it is in substantial compliance with all laws,regulations,rules and orders applicable to its business, non-compliance with which would have a material and adverse effect upon its business or its ability to perform its obligations under this • Service Contract. (18) Confirmation of Service Contract Guaranty. The Guarantor shall execute and deliver a confirmation to the District that the Service Contract Guaranty remains in full force and effect. 0 (19) Financial Condition. The Company shall provide audited financial statements of the Guarantor for the most recently completed fiscal year and quarterly period. Since the Contract Date, there shall not have occurred any change, financial or otherwise, in the condition of the Company or the Guarantor that would materially and • 37 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project adversely affect the ability of the Company or the Guarantor to perform their respective r obligations under this Service Contract and the Service Contract Guaranty. (20) Commencement of Initial Construction. The Company shall commence initial construction of the Project as provided and subject to the limitations set forth in Section 4.4. • (21) Representations. The representations of the Company set forth in Section 2.2 and of the Guarantor set forth in the Service Contract Guaranty shall be true and correct in all material respects as of the Construction Date as if made on and as of the Construction Date, and the Company shall deliver to the District a certificate of an • authorized officer of each to that effect. (22) Documents Evidencing Required Activities. The Company shall have provided to the District copies of all filings and reports conducted, prepared or obtained with respect to or evidencing the Company's activities pursuant to this Section and Section 4.6. (B) Notice of Default. The Company shall provide to the District, promptly following the receipt thereof, copies of any notice of default, breach or non-compliance received under or in connection with any Governmental Approval or Subcontract pertaining to the • Development Period. SECTION 4.3. DISTRICT DEVELOPMENT PERIOD RESPONSIBILITIES. The District shall satisfy the following District responsibilities as soon as practicable following the Contract Date: (1) Survey and Property Description. The District shall deliver to the Company any existing metes and bounds property descriptions and any existing survey information with respect to the Sites. (2) Environmental Remediation. The District shall undertake and complete • any environmental remediation of the Sites which may be required under Section 4.5. (3) Modification of Metropolitan Agreement. The District shall use its best reasonable efforts to secure Metropolitans consent to a modification of the Metropolitan Agreement that extends the required date for production of Allowable Yield from • December 4, 2003 to December 4, 2004. (4) Agreement with San Juan Basin Authority. The District shall use its best reasonable efforts to obtain from the San Juan Basin Authority (a) any water rights necessary for the performance of the obligations of the parties under this Service • Contract, (b) authorization to implement the Project pursuant to the Metropolitan 38 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project Agreement, and (c) agreement that the San Juan Basin Authority will not terminate the Metropolitan Agreement without the consent of the District. (5) Governmental Approvals. The District, subject to the provisions of Section 4.5, shall cooperate with the Company in the submittal of all applications for Governmental Approvals which the Company is obligated to submit pursuant to M Section 4.2. (6) Zonin¢. The District shall (or, if applicable, shall cause the City to) cooperate with and assist the Company in any application for a change in zoning classification governing the Sites undertaken pursuant to Section 4.2. • (7) Representations. The representations of the District set forth in Section 2.1 shall be true and correct in all material respects as of the Construction Date as if made on and as of the Construction Date, and the District shall deliver to the Company a certificate of an authorized officer to that effect. SECTION 4.4. INITIAL CONSTRUCTION. In the event the District does not elect to exercise its right to terminate this Service Contract pursuant to Section 4.11, 13.5, or 13.7, the Company shall promptly commence and continue initial construction of the Project. The initial construction work shall consist of all construction work necessary to be performed in order • to avoid the termination by Metropolitan of the Metropolitan Agreement under Section 9.4(b) thereof. The Company shall pay for all such initial construction work performed prior to the Construction Date, and shall not be entitled to reimbursement therefor if the Construction Date never occurs. Upon the occurrence of the Construction Date, the Company shall be entitled to r receive the milestone payments described in Appendix 21,which include compensation for such initial construction work. Notwithstanding the initial construction work performed by the Company during the Development Period, the Construction Period shall not commence until all of the Construction Date Conditions set forth in Section 4.5 are satisfied or waived. • SECTION 4.5. CONSTRUCTION DATE CONDITIONS. (A) Construction Date Conditions Defined. The obligations of the Company and the District to proceed with their respective obligations hereunder during the Construction Period shall not commence until all of the following conditions necessary for the construction of the Project (the "Construction Date • Conditions") are satisfied or waived: (1) Company Development Period Responsibilities. The Company shall have fulfilled all of its responsibilities with respect to the Development Period under Section 4.2. • 39 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project (2) District Development Period Responsibilities. The District shall have • fulfilled all of its responsibilities with respect to the Development Period under Section 4.3. (3) Modification of Metropolitan Agreement. The Metropolitan Agreement shall have been amended to the effect described in item (3) of Section 4.3. • (4) Agreement with San Juan Basin Authoritu. Agreement with San Juan Basin Authority shall have been reached to the effect described in item(4) of Section 4.3. (5) Construction Governmental Approvals. The Construction Governmental Approvals required to commence and continue construction shall have been issued or • obtained and shall be in full force and effect. (6) Preconstruction Conference. The Company shall have held a preconstruction conference with the District and the District Engineer. (7) Bond Issuance. The Bond Issuance Date shall have occurred. (8) Acceptability and Effectiveness of Documents. All of the documents and instruments identified in this Section shall be in form and substance reasonably satisfactory to both parties, and shall be valid, in full force and effect and enforceable against each party thereto on the Construction Date. It is understood that any such • document,instrument or agreement, the form ofwhich is set forth in aTransaction Form, that is executed and delivered in substantially such form is and shall be deemed to be in form and substance satisfactory to each party. No such document, instrument or agreement shall be subject to the satisfaction of any outstanding condition precedent except those expressly to be satisfied after the Construction Date. No party to any such document, instrument or agreement shall have repudiated or be in default or imminent default thereunder,and each party shall have received such certificates or other evidence reasonably satisfactory to it of such facts as such party shall have reasonably requested. • (9) Legal Proceedings. There shall be no Legal Proceeding, at law or in equity, before or by any court or Governmental Body, pending or threatened, which: (a) challenges, or might challenge, directly or indirectly, (i) the authorization, execution, delivery, validity or enforceability of this Service Contract or the Service Contract • Guaranty, or(ii) the interests of the District in the Sites; (b) seeks to enjoin or restrict the use of the Sites for the purposes contemplated by this Service Contract; or (c) seeks damages, fines, remediation or any other remedy in connection with the environmental condition or any other factor pertaining to the Sites, in any such case which can 40 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project reasonably be expected to materially and adversely affect the District's or the Company's • ability to comply with its obligations hereunder. (10) No Change in Law Affecting the Service Contract. No Change in Law shall have occurred after the Contract Date and before the Construction Date that would make the authorization, execution, delivery, validity, enforceability or performance of this • Service Contract a violation of Applicable Law. (11) Service Contract Letter of Credit. The Company shall have delivered to the District the Service Contract Letter of Credit as required by Section 15.3. (B) Construction Date Conditions for which Both Parties Have Responsibility. • The District and the Company shall each use all reasonable efforts in taking such actions as may reasonably be under their control in order to satisfy the Construction Date Conditions set forth in subsection (A) of this Section as soon as practicable. (C) Project Sites Environmental Condition. Each party acknowledges that it has reviewed the reports of the Phase 1 environmental assessments and the mitigated negative declarations with respect to the Sites prepared on behalf of the District and that,based thereon, neither party requires any further environmental review of the Sites for purposes of this Service Contract prior to the commencement of construction. In the event that during the Development Period Hazardous Materials are discovered on the Sites through any further environmental assessments, geotechnical investigations conducted by the Company or from any other information source, the District shall elect either: (1) to cause the Hazardous Materials so identified to be removed from the Sites at its sole cost and expense; (2) to designate another area within the legal parcels in which the Sites are located for the construction of the Project,in which case the Fixed Design/Build Price and the Service Fee shall be adjusted to the extent necessary to place the Company in the same position following the site redesignation as it was in hereunder as of the Contract Date; or (3) to terminate this Service Contract, with the same effect as if this • Service Contract was terminated under Section 13.7. The discovery of Hazardous Materials on the Sites after the Construction Date shall be treated as an Uncontrollable Circumstance governed by the terms of Section 14.2. SECTION 4.6 COMPANY CONSTRUCTION PERMITTING. (A) Applications for Construction Governmental Approvals and the CADHS Approval. The Company shall make all applications and take all other action necessary to obtain and maintain all Construction Governmental Approvals and the CADHS Approval, including payment of all fees, costs and charges due in connection therewith. Where required under Applicable Law, such applications • shall be made in the name of the District,subject to the District's rights hereunder.The Company 41 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project shall manage the process of obtaining the Construction Governmental Approvals and the CADHS • Approval on behalf of the District for which it is responsible hereunder in a manner which affords the District a reasonable opportunity to review and comment upon material documentation to be submitted to and issued by any Governmental Body.in connection therewith. The Company may proceed to submit any such material documentation within 14 days after the delivery thereof • to the District for review and comment. The Company may request an earlier completion of review, and District will accommodate where practicable. (B) Limited Permitting Assistance by the District. The District shall provide reasonable assistance to the Company in connection with the Company's obligation to obtain and • maintain the Construction Governmental Approvals and the CADHS Approval,including signing permit applications;attending public hearings and meetings of the Governmental Bodies charged with issuing the Construction Governmental Approvals and the CADHS Approval; providing the Company with existing relevant data and documents which are within its control and which are • reasonably required for such purpose; and facilitating the City Building Department's "plan check" approvals of design packages required by law prior to completion of 100% of the design consistent with the design/build approach contemplated by this Service Contract; provided, however, that the District's obligation to provide such reasonable assistance shall be limited, in • light of the Company's primary role in the permitting and development of the Project, only to those actions which are legally required to be taken by the District or the City as permittee or which involve providing information which is solely in the possession of the District or the City; and provided further that the District's obligation to provide such reasonable assistance shall be limited to$10,000,measured using the standard timekeeping records and hourly rates of District personnel and outside consultants. Any such assistance shall be provided only upon the reasonable request of the Company directly to the City's Director of Public Works,and the District shall have no affirmative obligation independently to initiate or provide such assistance. This • covenant shall not obligate the District to staff the Company's permitting efforts, to undertake any new studies or investigations with respect to the Project,or to affirmatively seek to obtain the issuance of the Construction Governmental Approvals or the CADHS Approval. The District shall not, however, take any action which seeks to cause the denial or delay of any application for a • Construction Governmental Approval or the CADHS Approval. With respect to Construction Governmental Approvals required by law to be issued by the City, nothing in this subsection(B) shall obligate the City to issue such Construction Governmental Approval, or affect the City's ministerial duties with respect thereto. • 42 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project (C) Terms and Conditions of Governmental Approvals. The proposal or • determination by a Governmental Body in the permit issuance process to impose any term or condition upon the issuance of any Construction Governmental Approval or the CADHS Approval, unless such proposal or determination is the result of a Change in Law which is generally applicable to all similarly situated projects, shall not constitute an Uncontrollable Circumstance • or operate to increase the Fixed Design/Build Price or the Service Fee,notwithstanding the fact that any such term or condition may result in costs or obligations to the Company which were not anticipated or budgeted for by the Company in agreeing to the Fixed Design/Build Price or the Service Fee. The District acknowledges that any such imposition may be a factor in any • election by the Company to exercise any right of termination under this Section. (D) Change in Law Not Related to Governmental Approvals. Any Change in Law which requires a Capital Modification to the Project, and with respect to which the Company has not assumed risk under this Section, shall be handled as a Change in Law in accordance with • Article XI and Section 14.2, and shall be subject to the provisions of Sections 5.4 and 6.11. SECTION 4.7 SOURCEWATERPILOTTEST. (A) ConductofTest. The Company shall begin to conduct a source water pilot test within 7 days following the Contract Date, and complete such pilot test and deliver the final report with respect thereto to the District within 27 • days following the Contract Date, all in accordance with Appendix 4. The District shall have the right, at its own cost and expense, to independently verify the results of the source water pilot test contained in the final report. (B) Test Results. If the source water pilot test results indicate that the source i water which was subject to the test is not within the Design Raw Water Quality Parameters, the Company shall provide to the District, within 7 days after delivery of its final report, an assessment as to the potential impact of such non-conformity on the Design/Build Price, the Service Fee,Acceptance and the Performance Guarantees,together with a discussion of possible • Uncontrollable Circumstance mitigating measures. Within 7 days after the delivery of such assessment, the District shall have the right to terminate this Service Contract pursuant to Section 13.5 based on the results of the source water pilot test. SECTION 4.8. EXAMINATION OF PRE-EXISTING TITLE CONDITION. (A) Site • Title List. On or before the Contract Date, the Company shall submit to the District a list of actual and potential title issues (each a "Site Title List' and collectively the "Site Title Lists") affecting each Site which may, in the discretion of the Company,include Site Title Lists for some or all of the segments of the Raw Water Transmission Line Site,the Finished Water Transmission • Line Site and the Concentrate Disposal Line Site; provided, however,that the Site Title Lists for 43 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project the Strawberry Hill Booster Pumping Station Site and any Site Title Lists for any segments of the • Raw Water Transmission Line Site, the Finished Water Transmission Line Site and the Concentrate Disposal Line Site that the Company elects to provide shall be delivered to the District as soon as practicable after the Contract Date,but in no event later than September 30, 2002. Each Site Title List shall be based on the applicable PTR for such Site. Each Site Title List • shall identify the Site to which it relates and describe with reasonable particularity the title issues reflected in the applicable PTR for the subject Site that are, or may be, conditions with respect to which the existence or enforcement would materially and adversely affect the Company's ability to timely perform its obligations under this Service Contract. Each Site Title • List shall attach the PTR from which it was prepared and,to the extent that a matter listed on the Site Title List is evidenced by a recorded instrument or agreement, a copy of such instrument or agreement shall also be attached to the Site Title List. Each Site Title List shall also provide, as to each matter listed thereon, the Company's preliminary suggestion of an action that could be • taken by the District or other fee owner of the applicable Site to cure the title matter noted; provided, however, that where the Company is not able to suggest an action for cure of any one or more matter on a Site Title List until the Company has received information from a surveyor as to the location of certain liens or encumbrances,the Company shall so indicate. In preparing • the Site Title Lists, the Company shall rely on the information provided in the PTRs, but the Company does not warrant or guaranty to the District the accuracy or completeness of the PTRs. (B) Amended and Restated Site Title Lists. By no later than September 30, 2002,the Company shall submit to the District an amended and restated Site Title List(each an • "Amended and Restated Site Title List" and collectively the "Amended and Restated Site Title Lists") as to each Site for which a Site Title List was submitted to the District and which may,at the Company's option, include certain segments of the Raw Water Transmission Line Site, the Finished Water Transmission Line Site or the Concentrate Disposal Line Site. Each Amended • and Restated Site Title List shall update and modify the information provided in the Site Title List for the subject Site based on: (1) information received by the Company from a surveyor licensed in the State as to the precise location on the Site of any and all property boundary lines, easements, encroachments, restrictions, setback lines, flood hazard areas, ingress and egress • areas,and other locatable encumbrances and liens shown on the applicable PTR or observed by the surveyor; (2) any new or updated information received by the Company from Chicago Title Insurance Company since the date of the original Site Title List; and(3) information received by the Company from its engineers concerning the availability or the suitability of any one or more • of the segments of the Raw Water Transmission Line Site,the Finished Water Transmission Line 44 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project Site and the Concentrate Disposal Line Site for construction of the applicable portions of the • Project thereon. The Company shall use commercially reasonable efforts, based on the information then available to the Company, to provide, for each title issue listed on each Amended and Restated Site Title List, the Company's good faith estimate of the time and cost required to cure such issue, and the potential impact of any such issue on the performance of • the Contract Services. (C) Review of Title Condition by the Parties. Promptly following the delivery to the District of the Amended and Restated Site Title Lists,the parties shall review and discuss the Company's assessment of the impact of the title issues listed therein, and possible mitigation • measures. The District may, but shall be under no obligation to, cure any such title issue. By no later than October 8, 2002, the District shall provide a written notice to the Company stating which of the title issues listed on the Amended and Restated Site Title Lists the District will cure or otherwise resolve to the reasonable satisfaction of the Company. • (D) Company Responsibility for Obtaining Certain Easements. Appendix 1, Attachment 1, subsection 2(D) obligates the Company to obtain easements, rights of way or encroachment permits with respect to certain of the Sites. All such easements shall be obtained for and in the name of the District or the City and shall be subject to the rights and obligations • of the Company set forth in subsection 4.1(D). (E) Termination Right of the Company Based Upon Title Issues. The Company shall have the right, at any time prior to October 15, 2002, to terminate this Service Contract upon written notice to the District in the event that any title issue raised in the Amended and • Restated Site Title Lists has an actual or potential material and adverse effect on the ability of the Company to perform the Contract Services. Title issues that are Excluded Title Matters shall be deemed not to have any such material and adverse effect. Upon any such termination, the District shall promptly pay the Company an amount equal to the amount of the first installment • of the Transaction Cost Reimbursement Payment made by the Company pursuant to Section 3.1. The parties otherwise shall bear their respective costs incurred prior to any such termination, and neither party shall have any liability to the other as a result of such termination. (F) Excluded Title Matters and Related Costs and Risks. "Excluded Title • Matters"are (1) easements and rights of way for utilities, access, ingress, egress or allowing the existence of encroachments other than those that encumber the majority of the developable area of any Site or which, taken in the aggregate, render the majority of any Site undevelopable; (2) subsurface water, oil, gas or mineral rights lower than 250' below the surface of the Site • without rights of surface entry; and (3) Encumbrances or Liens arising as a result of the 45 368012.15 022806 AGMT • • Company's default under the terms of any of the Service Contract, any Governmental Approval, any Permitted Encumbrance, or any encroachment permits, easements or licenses affecting or creating,in whole or in part,any Site. The Company shall bear the risk and cost of(a) performing • surveys or other investigations of design or construction impacts arising from the condition of title to any one or more of the Sites, (b) modifications to any aspect of the Contract Services arising from the existence or discovery of any Excluded Title Matter affecting any Site, and(c) the need to acquire or maintain easements, encroachment permits or licenses in order to assemble, • create or maintain the Finished Water Transmission Line Site,the Raw Water Transmission Line Site or the Concentrate Disposal Line Site. SECTION 4.9. CLOSING THE DEVELOPMENT PERIOD. The parties shall give each other prompt notice when each Construction Date Condition(as defined in Section 4.5)has • been achieved. Upon the satisfaction or waiver of all of such Construction Date Conditions, the parties shall hold a formal closing on a date and at a location determined by the District, acknowledging such satisfaction,delivering copies of all relevant documents,and certifying that the Construction Date has occurred. The date of such closing shall be deemed to be the • Construction Date hereunder, and thereupon the District shall issue its Notice to Proceed and the Construction Period shall commence. Written documents or instruments constituting or evidencing satisfaction of the Construction Date Conditions shall be furnished to each party prior to or on the Construction Date to the extent practicable. • SECTION 4.10. COMPANY DEVELOPMENT PERIOD GENERAL TERMINATION RIGHT. (A) Termination Right. The Company shall have the right, at any time prior to or on December 31, 2002, or the Construction Date, whichever is earlier, exercisable in its sole discretion,for its convenience and without cause,to terminate this Service Contract upon written • notice to the District. If the Company exercises its termination right under this Section, all obligations of the parties hereunder shall terminate on the effective date of such termination. Neither party shall be liable to the other for the termination of this Service Contract pursuant to this subsection, each of the parties shall bear its respective costs and expenses incurred in • seeking to satisfy the Construction Date Conditions, and the District shall have no obligation to repay the first installment of the Transaction Cost Reimbursement Payment; provided, however, that if (1) the Company exercises its right of termination pursuant to this Section after December 15, 2002, and(2) either(a) the Metropolitan Agreement has not been amended to the • effect described in item (3) of Section 4.3, and in accordance with Section 8.9, or(b) the District has not entered into an agreement with the San Juan Basin Authority to the effect described in item (4) of Section 4.3, the Company shall be entitled, subject to Cost Substantiation, to an amount equal to 100% of the reasonable costs incurred directly by the Company and any • expenses paid or incurred to third parties from the Contract Date to the Termination Date which 46 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project are directly related to the performance of the Design/Build Work(the"Reimbursable Expenses"), • not to exceed the Design/Build Price, in addition to repayment of the first installment of the Transaction Cost Reimbursement Payment. (B) Effect of Election by the Company Not to Terminate. In the event the Company does not elect to exercise its right of termination under subsection (A) of this Section, • the Company shall remain responsible for complying with its obligations under this Service Contract,including its obligations with respect to permitting under Section 4.6, and shall use all commercially reasonable efforts to obtain the Construction Governmental Approvals and the CADHS Approval as expeditiously as practicable. The Construction Date shall be established, • as provided in Section 4.5,when all Construction Date Conditions have been satisfied. (C) Second Installment of Transaction Cost Reimbursement Payment. By no later than the earlier of 2 business days following the Construction Date or January 7, 2003, in the event the Company has not exercised its right to terminate this Service Contract under • subsection(A) of this Section,the Company shall pay the District$1,530,000 from its own funds, as the second installment of the Transaction Cost Reimbursement Payment. (D) Transaction Cost Reimbursement Payment Not Repayable: Exceptions. Neither the first nor the second installment of the Transaction Cost Reimbursement Payment • shall be repayable to the Company under any circumstances except as provided in subsection (A) of this Section in connection with the Company's termination relating to certain principal agreements, subsection 4.8(E) in connection with the Company's termination relating to title issues, Section 4.11 in connection with the District's termination relating to certain principal • agreements and Sections 13.5 and 13.7 in connection with a District buyout of this Service Contract. SECTION 4.11. DISTRICT TERMINATION RIGHT RELATING TO CERTAIN PRINCIPAL AGREEMENTS. (A) Termination Generally. The District shall have the right, at any • time on or before December 31, 2002, to terminate this Service Contract upon written notice to the Company in the event that the District determines,in its sole discretion,that it will be unable to achieve (1) modification of the Metropolitan Agreement to the effect described in item (3) of Section 4.3, or (2) agreement with the San Juan Basin Authority to the effect described in item • (4) of Section 4.3. All obligations of the parties hereunder shall terminate on the effective date of any such termination. (B) Termination Fee On or Before October 15, 2002. If the District exercises its termination right under this Section on or before October 15, 2002,the District shall pay the • Company within 30 days of the Termination Date an amount equal to the amount of the first 47 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IV - Development of the Project installment of the Transaction Cost Reimbursement Payment made by the Company pursuant • to Section 3.1. The parties otherwise shall bear their respective costs and expenses incurred prior to any such termination, and neither party shall have any liability to the other as a result of such termination. (C) Termination Fee After October 15 2002. If the District exercises its • termination right under this Section after October 15, 2002, the District shall pay the Company an amount equal to the sum of(1) the amount of the first installment of the Transaction Cost Reimbursement Payment made by the Company to the District pursuant to Section 3.1;plus(2) subject to Cost Substantiation, an amount equal to 100% of the reasonable costs incurred • directly by the Company and any expenses paid or incurred to third parties from the Contract Date to the Termination Date which are directly related to the performance of the Design/Build Work, not to exceed the Design/Build Price. • • • • • • 48 368012.15 022806 AGMT • • ARTICLE V OWNERSHIP, FINANCING AND DESIGN/BUILD PRICE • SECTION 5.1. PROJECT OWNERSHIP. The Sites, and all Project Improvements other than the Plant, shall be owned by the District or the City at all times. The Plant Site shall be leased to the Issuer pursuant to the Property Lease and the Plant shall be owned by the Issuer, subject to the District's rights provided in the Lease Agreement. The Company shall have • the rights and obligations with respect to the Project provided in Section 5.2. The Company shall perform the Design/Build Work and Operation Services provided for herein as an independent contractor and shall not have any legal,equitable, tax beneficial or other ownership or leasehold interest in the Project. • SECTION 5.2. USE, SALE AND ENCUMBRANCE OF THE PROJECT. (A) Use of Sites. At all times during the Term of this Service Contract, the Company may enter upon, occupy and use the Sites and every part of the Project located thereon, to perform the Contract Services for the benefit of the District, all in accordance herewith, and for no other purpose. No • buildings, structures or other improvements shall be constructed or installed on the Sites other than the Project Improvements. (B) Sale, Lease and Transfer. The Company shall not sell, lease, sublease, convey, transfer, assign or dispose of its rights under subsection (A) of this Section, except as • permitted by Section 10.5 with respect to surplus equipment. Notwithstanding the foregoing,the Company shall have the right to permit its Subcontractors to enter upon, occupy and use the Sites and the Project at such times and in such manner as the Company may reasonably determine in connection with the performance of the Company's obligations under this Service • Contract. (C) Tax Beneficial Ownership. The Company shall not treat itself as tax beneficial owner of the Project Improvements for federal or state income tax purposes, and accordingly shall not claim any income tax credit,deduction or amortization ofleasehold,interest • or other expense for tax purposes with respect to its rights under subsection(A) of this Section. (D) Encumbrances. The Company shall not directly or indirectly,without the District's consent, create or permit to be created or to remain, and shall promptly discharge any Encumbrance on the Project other than Permitted Encumbrances; provided, however, that the • Company shall not be required to discharge any Encumbrance on the Project that is created or permitted to be created by the District. The District shall promptly notify the Company in writing of any Encumbrance or Permitted Encumbrance that it creates or permits to be created against all or any portion of the Project during the Term hereof and shall provide the Company with a • conformed copy of each such recorded Encumbrance or Permitted Encumbrances. 49 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership, Financing and Design/Build Price (E) Use of Sites Following Termination. The Company shall comply with the • requirements of Section 13.11 with respect to the Sites upon termination or expiration of this Service Contract. SECTION 5.3. FINANCING. (A) Bond Structure and Security. The parties shall cooperate with and assist each other to cause the issuance of the Bonds to provide financing for • the Project as soon as practicable following the Contract Date. The Bonds shall be issued on a conduit basis by the Issuer and shall be secured solely by the trust estate pledged therefor under the Trust Agreement. The trust estate shall consist principally of(1) the Property Lease, (2) the Lease Agreement and amounts paid thereunder,(3)the Company Financing Support Agreements, and (4) the amounts held in the funds and accounts under the Trust Agreement pending disbursement thereof. (B) Property Lease. The Plant Site will be leased by the District to the Issuer pursuant to the Property Lease. The Plant shall be owned by the Issuer during the term of the • Property Lease. The Property Lease shall terminate concurrently with the termination of the Lease Agreement. (C) Lease Agreement. The Lease Agreement shall provide generally for the design, construction and Acceptance of the Project by the District through the Company • pursuant to Articles VI and VII of this Service Contract, the use of the proceeds of the Bonds to pay the Design/Build Price to the Company for the Design/Build Work on a milestone basis, the lease of the Plant Site and the Plant to the District, and the payment by the District of Lease Payments in an amount equal to debt service on the Bonds. The Lease Agreement shall • terminate upon the payment or defeasance of all of the outstanding Bonds, or the termination of this Service Contract as a result of an Event of Default by the Company hereunder(following the exercise by the Trustee of any of its cure rights under Section 13.3), and thereupon title to the Plant shall revert to the District and neither the Bondholders nor the Bond Insurer shall have • any interest therein. In the event the District exercises any of its buy-out rights under Article XIII and this Service Contract is thereby terminated, the District thereafter shall have no right to terminate its obligations under the Lease Agreement upon an Event of Default by the Company hereunder. The obligations of the District under the Lease Agreement shall be recourse only to • the District's water utility enterprise fund managed by the City. (D) Company Financing Support Agreements. The Company shall enter into, and shall cause the Guarantor to enter into, such additional agreements as shall be necessary, in the Company's reasonable good faith judgment, to support the issuance of the Bonds (the • "Company Financing Support Agreements"). These are expected to include(1) an insurance and 50 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership Financing and Design/Build Price indemnity agreement between the Company,the District,the Trustee and the Bond Insurer, (2)a • liquidity arrangement to support such insurance and indemnity agreement, such as a reimbursement agreement between the Company and a financial institution issuing a letter of credit to the Bond Insurer as beneficiary, and (3) guaranty agreements by the Guarantor with respect to the foregoing. The Trustee shall be a beneficiary of the Company Financing Support • Agreements as and to the extent appropriate in connection with the insurance and indemnity agreement. In addition, under the insurance and indemnity agreement, the District will reimburse the Bond Insurer for Loss-and-Expense it incurs as a result of the District's failure to perform its obligations under the Financing Documents as and to the extent that the District • would so agree were the Bonds to constitute conventional municipal revenue debt. (E) Trustee Rights Hereunder. This Service Contract grants the Trustee the right to receive notices as to certain matters hereunder, and the Trustee protection rights set forth in Section 13.3. The Company and the District acknowledge that the rights of the Trustee • under such provisions create a third party benefit contract with the Trustee for the benefit of the Bondholders. The Company and the District further acknowledge that such provisions are for the benefit of the Bondholders, are an essential part of the inducement to such Bondholders to acquire the Bonds, shall remain in full force and effect and shall not terminate until the • termination of this Service Contract. (F) Plan of Financing. The parties shall designate an investment banking firm to serve as underwriter in a public offering or institutional placement of the Bonds. The underwriter shall endeavor to structure the financing transaction so as to obtain a policy of • municipal bond insurance on the Bonds based on the undertakings of the parties as provided in this Section if,in the judgment of the District upon the advice of the underwriter,such municipal bond insurance would provide a net economic benefit to the transaction. (G) Company and District Information and Reports. The Company, the • Guarantor and the District each shall provide the Issuer with any information that it may reasonably request in order to effectuate the financing or refinancing of the Project through a public offering of the Bonds. In addition,the Company,the Guarantor and the District each shall make available to the Issuer, its underwriters, their counsel, bond counsel,the Rating Services, • the Independent Engineer or feasibility consultants, credit facility or bond insurance providers and other financing institutions or parties involved in the financing process and the issuance of the Bonds, such information in the control of the Company, the Guarantor and the District, respectively, as may reasonably be requested. The Company, the District and the Guarantor • shall provide certification of, and indemnities for, such information made available by the 51 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership Financing and Design/Build Price Company, the District and the Guarantor, respectively, in connection with the financing or • refinancing of the Project. The Company shall also provide all other reports which may reasonably be required in connection with the issuance of the Bonds, including an independent engineer's feasibility report. The Company shall make available to the Independent Engineer and the feasibility consultant information concerning the Project that they reasonably request so they • can render opinions concerning the Company's ability to perform its obligations under this Service Contract. The District, the Company and the Guarantor shall enter into an agreement to provide certain additional information on an annual basis as reasonably necessary to comply with the requirements of Rule 15(c)(2)-(12)adopted by the United States Securities and Exchange • Commission under the Securities Exchange Act of 1934. (H) Sizing of Initial Bonds. The Bonds shall be issued in an aggregate principal amount equal to (1) the Design/Build Price, as estimated on the Bond Issuance Date, plus (2) estimated Costs of Issuance, plus (3) any other Project development fees and expenses of the • District, plus (4) estimated administrative, legal, engineering and other professional fees and expenses of the District, the Issuer and the Trustee relating to the Project and the Bonds during the Construction Period, plus(5) interest to accrue on the Bonds from the Bond Issuance Date to one year after the Scheduled Acceptance Date or such longer period as may be determined by • the District, plus (6) the amount of any reserves authorized or established under the Trust Agreement,plus(7) an allowance for underwriter's premium or discount,plus(8) any amount for contingencies related to the foregoing agreed to by the District and the Company and approved by bond counsel as consistent with maintaining the tax-exempt status of interest on the Bonds, • plus (9) fees and expenses of the Company relating to obtaining and maintaining the Service Contract Letter of Credit for a period of 24 months, plus(10) fees and expenses of the Company relating to the Company Financing Support Agreements, plus(11) fees and expenses relating to the preparation of the Project feasibility study prepared by the Independent Engineer. The • maturities of the Bonds and all other terms and conditions thereof shall be established by mutual agreement of the District and the Company. Any debt service savings resulting from any refinancing of the Bonds shall be for the account of the District. (I) Completion Bonds. In the event that the proceeds of the Bonds are • insufficient to pay the Company the Design/Build Price in the amounts and at the times provided hereunder, due to additional costs incurred as a result of Uncontrollable Circumstances or Change Orders,the parties shall cooperate with and assist each other to effectuate the issuance of one or more series of additional Bonds by the Issuer based on the undertakings of the parties • hereunder,in order to make sufficient funds available for the payment of the Design/Build Price 52 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership, Financing and Design/Build Price to the Company. The District and the Company each agree to participate in the issuance of any • such additional Bonds which are required for such purposes in an aggregate principal amount up to 25% of the aggregate principal amount of the initial Bonds, and that their respective undertakings hereunder with respect to the initial Bonds shall also apply to any such additional Bonds issued in such amounts. No such additional Bonds shall be issued (1) in an aggregate • principal amount exceeding 25% of the aggregate principal amount of the initial Bonds without the approval of the Company, which shall not unreasonably be withheld, or(2) in any amount, if the Bond Insurer is unwilling to consent to the issuance of and insure such additional Bonds. The District's obligation to make Lease Payments or payments of the Design/Build Price shall not be diminished or altered in any manner whatsoever if(1) the Company does not approve the issuance of any such Bonds exceeding such threshold amount, or (2) the Issuer is, for any reason,unable or unwilling to issue additional Bonds for the Project. SECTION 5.4. DESIGN/BUILD PRICE. (A) Design/Build Price Generally. The District shall pay the Company the Design/Build Price for the Design/Build Work. Payments shall be made on a milestone basis from the proceeds of the Bonds held by the Trustee based on requisitions for payment submitted by the Company to the Trustee and approved by the Independent Engineer in accordance with the terms of Section 5.5 and Article VI. The Fixed Design/Build Price shall be the sum of the Fixed Design/Build Price and the Fixed Design/Build Price Adjustments. (B) Fixed Design/Build Price. The Fixed Design/Build Price is $ S0.3D6�7 0� provided, however, that in the event the District makes an election to require the use of pile • driving for the construction of the Plant foundation pursuant to subsection (E) of this Section, the Fixed Design/Build Price shall be $Aq$190 607=The Fixed Design/Build Price includes(1) an amount equal to the sum of the first and second installments of the Transaction Cost Reimbursement Payment ($1,860,000) payable by the Company to the District pursuant to • Sections 3.1 and 4.10,(2)an amount equal to$70,000,as payment for the source water pilot test work performed by the Company pursuant to Section 4.7, and(3) an amount equal to $100,000, which was paid by the Company to the District prior to the Contract for certain financing-related costs of the District, all of which amounts shall be payable to the Company as part of the first milestone payment of the Design/Build Price. (C) Fixed Design/Build PriceAdiustments. The following items shall constitute the Fixed Design/Build Price Adjustments; (1) An adjustment for the cost of any Change Orders issued by the District,it • being agreed by the parties that only the District is entitled to issue Change Orders; 53 (:0, �368012.15 022806 AGMTT ( a • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership, Financing and Design/Build Price (2) An adjustment for the cost of any modifications to the Design/Build Work • required by Uncontrollable Circumstances pursuant to Section 14.2; and (3) An adjustment for certain San Diego Gas and Electric interconnection costs, as provided in subsection (D) of this Section. (D) Certain Interconnection Costs. In the event the cost paid by the Company • on an upfront basis for interconnecting with the San Diego Gas and Electric utility system for the supply of electric power to the Project exceeds$50,000,there shall be a Fixed Design/Build Price Adjustment equal to (1) 25% of the amount of such excess over $50,000 and under $100,000; and (2) 50% of the amount of such excess over $100,000. There shall be no-mark-up by the • Company on San Diego Gas and Electric's interconnection cost. If the cost of the San Diego Gas and Electric interconnection is in part or in whole paid over time through electric rates, the District shall pay such electric rates as provided in Section 8.7,and the Company shall reimburse the District (on a reasonably estimated one-time basis) with respect to such electric rates so as to bear the same portion of the cost of the interconnection that it would have borne had the cost been paid on an upfront basis. (E) City Election as to Foundation Construction Method. The Fixed Design/Build Price is based on the use of the cast-and-drill foundation construction method for the Plant. The District shall have the right to elect,by written notice to the Company, at any time prior to October 15, 2002, to have the Company use the pile driving foundation construction method for the Plant. In the event of any such District election, the Fixed Design-Build Price shall be reduced as provided in subsection (B) of this Section. • (F) Limitation on Payments for Design/Build Price Costs. TheCompanyagrees that the Design/Build Price shall be the Company's entire compensation and reimbursement for the performance of the Design/Build Work,including obtaining all Utilities that the Company will require to perform the Design/Build Work, starting up Project, and operating the Project during the Acceptance Test. In no event shall the Company be entitled to any payment for Design/Build Work costs in excess of the Design/Build Price(as adjusted from time to time in accordance with subsection(C) of this Section), notwithstanding any cost overruns the Company may incur.The Company shall finance and pay for any such excess costs in any manner it chooses without • reimbursement from or other claim upon the District or the Trustee. Nothing in this subsection shall limit the Company's right to additional compensation on account of Uncontrollable Circumstances as provided in Section 14.2. SECTION 5.5 PAYMENT OF THE DESIGN/BUILD PRICE. (A) Construction • Disbursement Requisition Procedure. Appendix 21 sets forth milestone payments to be made 54 368012.15 022806 AGMT R Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership, Financing and Design/Build Price with respect to the Design/Build Work, and the sum of all such milestone payments equals the Fixed Design/Build Price. Following the Construction Date, the Company shall be entitled to submit Requisitions on a monthly basis and receive from the Trustee on behalf of the District the milestone payments against the Fixed Design/Build Price, which: (1) shall be made only upon achievement of the milestone required to be achieved as the basis for such payment as set forth • in Appendix 21, as achievement shall be determined and certified to the Trustee by the Independent Engineer pursuant to subsection(E) of this Section; and(2) shall be subject to the conditions of payment set forth in this Section. The Fixed Design/Build Price Adjustments shall be payable monthly as and when the cost or expense constituting the Fixed Design/Build Price • Adjustment is paid or incurred. (B) Retainage. Each progress payment will be subject to a 10% retainage holdback. Interest earned on the retainage holdback shall remain in the Trustee's construction fund for disbursement in accordance with the Trust Agreement and this Service Contract. The • Trustee shall release to the Company the accumulated funds (without interest) so retained with respect to the Design/Build Work upon receipt of (1) certification from the Company and confirmation by the Independent Engineer that Final Completion of the Design/Build Work has occurred and (2) the Trustee's receipt of written concurrence from the District that Final • Completion of the Design/Build Work has occurred. The District's concurrence shall not unreasonably be withheld or delayed, and the District shall provide the Company and the Independent Engineer with a written statement of any disagreement within 15 days of receipt of the Company's certification. So long as the Independent Engineer and the District have given • their confirmations concerning Final Completion, as set forth above, the Trustee shall fully release all retainages upon satisfactory completion of the initial tests and inspections called for by Appendix 8,notwithstanding the requirements ofAppendix 8 for subsequent or follow-on tests or inspections in certain instances. • (C) Certification of Requisitions. Each Requisition to the Trustee shall be accompanied by a certificate of an authorized officer of the Company certifying: (1) the portion of the Fixed Design/Build Price which is then payable to the Company based on the milestone schedule set forth in Appendix 21, (2) the amount of any Fixed Design/Build Price Adjustments • which are then payable to the Company,together with Cost Substantiation for such amounts to the extent required hereunder, (3) that the Company is neither in default under this Service Contract nor in breach of any material provision of this Service Contract such that the breach would, with the giving of notice or passage of time, constitute an Event of Default, and (4) that • all items applicable to the milestone entitling the Company to request payment under the 55 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership, Financing and Design/Build Price milestone payment schedule set forth in Appendix 21 have been completed in accordance r therewith and with the Design Requirements. (D) Information Supporting Requisition. The Company shall submit to the Trustee, with copies to the Independent Engineer and the District Engineer, with each Requisition or as part of the monthly progress report to be delivered pursuant to Section 6.8: • (1) a verified statement setting forth the information required under any Applicable Law pertaining to prevailing wages; (2) a reasonably detailed description of all Design/Build Work actually completed to date; • (3) revisions to the progress schedule (or a revised progress schedule) which shall reflect changes in the Company's construction schedule since the date of the last Requisition; (4) notice of any new Liens or Encumbrances that have been recorded and of • which the Company has received actual written notice, together with evidence that the Company has bonded or discharged such Liens or Encumbrances; (5) any other documents or information relating to the Design/Build Work or this Service Contract requested by the Trustee, the Independent Engineer, the District • or the District Engineer as may be required by Applicable Law, this Service Contract, the Trust Agreement or generally accepted accounting principles (but, with respect to the Fixed Design/Build Price, shall not include Cost Substantiation documents or information); and • (6) construction progress photographs. (E) ReviewandPayment ofRequisitioned Amounts. The Independent Engineer shall review the Company's certified Requisitions to the Trustee for each milestone payment and for Fixed Design/Build Price Adjustment payments and, within 15 days of the Trustee's receipt • of the Company's written Requisition as provided in this Section,shall verify or dispute in writing (or by telecommunication promptly confirmed in writing) the Company's certification that the Company has achieved the milestone indicated and is entitled to payment. The Independent Engineer's determination as to milestone completion shall be made in accordance with Appendix • 21. If either (1) the Independent Engineer determines that the work has progressed to the milestone indicated in the Company's certified Requisition or that the costs constituting Fixed Design/Build Price Adjustments have been paid or incurred and the Independent Engineer provides written notice thereof to the Company, the District, the District Engineer and the • Trustee,or(2) the Independent Engineer fails to verify or dispute the certified Requisition within 56 368012.15 022806 AGMs • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership, Financing and Design/Build Price 15 days of the Trustee's receipt thereof, thereupon within 30 days of such determination or • expiration of such 15 day period, the Company shall be entitled to payment of the amounts sought in the applicable certified Requisitions of the Company. Disputes regarding payments of the Fixed Design/Build Price and Fixed Design/Build Price Adjustments shall be resolved in accordance with subsection (G) of this Section. • (F) Permissible Withholdings. The Trustee may disapprove and withhold and retain all or any portion of any payment requested in any Requisition in an amount equal to the sum of: (1) any amounts which are permitted under this Section to be withheld from • any payment requested in any Requisition; (2) any delay liquidated damages which are payable under Section 7.9; (3) any indemnification or other amounts which are due and owing to the Trustee or the District under any provision of this Service Contract; provided, however, • that the Trustee shall not disapprove,withhold or retain any amounts in respect of funds owed to the District by the Company unless the District made a written request therefor to the Trustee and has submitted to the Trustee reasonably detailed documentation evidencing the District's immediate entitlement to the funds that the District has • requested the Trustee to disapprove, withhold and retain and the basis for such entitlement; (4) any deductions which are required by Applicable Law; (5) an amount equal to the cost to the District of performing any work in the • event of a failure by the Company or any Subcontractor to timely perform its obligations under the warranties given pursuant to subsection 6.2(J); (6) any payments with respect to which the Design/Build Work covered by such Requisition(or any previous Requisition)does not comply with this Service Contract; • (7) any payments for Design/Build Work with respect to which anypersonhas recorded a Lien or Encumbrance resulting from the acts or omissions of the Company in performing the Design/Build Work, where such Lien or Encumbrance remains unreleased, unbonded or undischarged; and • (8) all requisitioned payments, if an Event of Default of the Company has occurred under Section 13.2. (G) Disbursement Dispute Procedures. If the Independent Engineer determines pursuant to subsection (E) of this Section and Appendix 21 that the Company has • not achieved completion of the milestone required for any progress payment requested by the 57 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article V - Ownership, Financing and Design/Build Price Company in any certified Requisition submitted, or if the Independent Engineer disputes any • Requisition for Fixed Design/Build Price Adjustments, the Independent Engineer shall provide prompt written notice to the Company, the Trustee, the District and the District Engineer as to the Independent Engineer's reasons,in reasonable detail,for such determination or the basis for such dispute. After receiving such determination notice, the Company may make the necessary • corrections and resubmit a new certified Requisition to the Independent Engineer, which shall be considered by the Independent Engineer at the time and in the manner described in this Section,or the Independent Engineer and the Company maymutually agree on arevised amount, Requisition or estimate,as applicable,in which case the Company and the Independent Engineer shall each promptly notify the Trustee and the District of such agreement and the Company shall thereupon be entitled to payment. Any proceedings undertaken to resolve a dispute arising under this subsection (G) shall immediately terminate if the Company demonstrates to the reasonable satisfaction of the Independent Engineer that the milestone indicated in the • Company's certified Requisition giving rise to the dispute has been achieved or that any disputed certified Requisition is correct. The Company shall not be entitled to payment of the amount so requisitioned and disputed except upon resolution of the dispute in accordance with this subsection (G); provided, however, that the Company shall be entitled to prompt payment of all requisitioned amounts which are not in dispute even if requested in a Requisition as to which some amounts are in dispute. In the event that upon resolution of any such dispute it is determined that the Company was properly entitled to the disputed amount as of a date earlier than the date on which payment is actually made, the Company shall be entitled promptly to • receive such disputed amount,together with interest thereon for the period of dispute calculated at the Prime Rate;provided,however,that the District shall be solely responsible for payment of any such interest owing to the Company upon the resolution of any dispute that arose solely as a result of the District's or District Engineer's disagreement with, or dispute of,all or any portion • of a Requisition submitted by the Company,and any such interest amount shall not be paid out of the Bond funds. Nothing contained in this subsection shall be deemed to alter the rights of the parties,if any,under Article XV hereof,including the right of either party to request a referral of the dispute to Non-Binding Mediation. • (H) Certification of Amounts Due. Whenever requested in writing by the Trustee, the Company shall submit a sworn statement certifying all amounts then due (or yet to become due) the Company for the Design/Build Work(or any portion thereof). • 58 368012.15 022806 AGMr • • ARTICLE VI DESIGN AND CONSTRUCTION OF THE PROJECT • SECTION 6.1. AUTHORIZED REPRESENTATIVE. The District,the Company, the Trustee and the Independent Engineer shall each designate in writing by the Construction Date a person to transmit instructions, receive information and otherwise coordinate service matters arising pursuant to this Service Contract during the Construction Period(each, an "Authorized Representative"). Any party may designate a successor or substitute Authorized Representative at any time by written notice to the other parties. SECTION 6.2. DESIGN/BUILD WORK GENERALLY. (A) Commencement of Design/Build Work. On the Construction Date,the Construction Period shall commence and the • Company shall promptly proceed to undertake,perform and complete the Design/Build Work in accordance with the Contract Standards. The time for completion of the Company's performance of the Design/Build Work shall be computed from the Construction Date. The Company's failure to achieve Provisional Acceptance on or before December 4, 2004 shall result in the assessment of delay liquidated damages under Section 7.9. (B) Title and Risk of Loss. Title to the structures, improvements, fixtures, machinery, equipment and materials constituting the Project shall be in the Issuer, subject to the terms and conditions of the Property Lease and the Lease Agreement. The Company shall • bear all risk of loss concerning such structures, improvements, fixtures, machinery, equipment and materials until Acceptance has occurred, regardless of the extent to which the loss was insured or the availability of insurance proceeds. (C) Elements of the Design/Build Work. In performing the Design/Build Work • generally,the Company shall,in accordance with the Contract Standards and without limitation, as and to the extent applicable hereunder: (1) prepare and excavate the Sites; (2) demolish and remove any existing improvements; (3) re-route or replace any underground Utilities; (4) obtain Governmental Approvals;(5)remove from the Sites and dispose of any demolition or construction • debris resulting from the Design/Build Work and any unused soil excavated therefrom;(6)design and construct the Project; (7) conduct start up operations;and(8) conduct the Acceptance Tests, all so that the Project is suitable and adequate for the purposes thereof. Laydown and staging areas for construction materials shall be located on the Sites in the areas approved by the District • and any other appropriate Governmental Body and arranged and paid for by the Company. (D) Existing Structures and Wells. The Company shall be responsible for the demolition and removal from the Plant Site of the existing Head Start structures currently located thereon, and for the destruction, sealing and filling of certain existing wells located on the Sites, • all in accordance with Appendix 5. 59 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project (E) Well Development. The Company shall develop,drill,construct and install eight Wells within the Wellfield at the specific locations described in Appendix 1. The Company shall dispose of all excavation material and water discharges produced in conducting such activities,including all water discharged and produced prior to the Provisional Acceptance Date. (F) Quality Assurance and Quality Control. The Company shall have full responsibility for quality assurance and quality control for the Design/Build Work. (G) Subcontractors. Section 16.7 shall be applicable to the Company's use of Subcontracts and Subcontractors in connection with the Design/Build Work. (H) Damage or Destruction to the Design/Build Work. The procedures set forth 10 in Section 10.6 shall be applicable in the event of any damage to or the destruction of the Design/Build Work. (I) Encumbrances. The Company shall promptly discharge or bond any Encumbrance arising on the Project, Sites or Design/Build Work arising out of the Company's construction of the Project. (J) Warranties. The Company warrants to the District and the Trustee that the structures, improvements, fixtures, machinery, equipment and materials incorporated in the Project, and in all Capital Modifications that are undertaken or made by the Company or its Subcontractor, will be new, of recent manufacture, of good quality, free from faults and defects, suitable for its intended purpose and in conformity with Appendix 5 and the Contract Standards. The Company shall, for the protection of the District and the Trustee, obtain from all Subcontractors, vendors, suppliers and other persons from which the Company procures • structures, improvements, fixtures, machinery, equipment and materials such warranties and guarantees as are normally provided with respect thereto,each of which shall be assigned to the District to the full extent of the terms thereof. No such warranty or guarantee shall relieve the Company of any obligation hereunder,and no failure of any warranted structures,improvements, fixtures,machinery, equipment or material shall be the cause for any increase in the Service Fee or non-performance of the Contract Services unless such failure is itself attributable to an Uncontrollable Circumstance or District Fault. (K) Payment of Costs. The Company shall pay directly all costs and expenses • incurred in the performance of the Design/Build Work of any kind or nature whatsoever, including all costs of permitting (regardless of permittee); regulatory compliance and Legal Proceedings brought against the Company;obtaining and maintaining the Security Instruments; payments due under the construction contract, subcontracts with Subcontractors or otherwise for all labor and materials; legal, financial, engineering, architectural and other professional 60 368012.15 022806 AGMT R Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project services of the Company; sales, use and similar taxes on building supplies, materials and equipment;general supervision by the Company ofall Design/Build Work;Company preparation of schedules, budgets and reports; keeping all construction accounts and cost records; and all other costs required to achieve Acceptance. (L) Prevailing Wages. The Company shall pay prevailing wages with respect • to the construction portion of the Design/Build Work in accordance with Section 1720 et seq. of the California Labor Code. SECTION 6.3. COMPANY DESIGN. (A) Sole Responsibility and Liability. The Company shall have the sole and exclusive responsibility and liability for the design,construction and performance of the Project hereunder, notwithstanding the Contract Standards or the fact that the RFP for the Contract Services included certain minimum conceptual design criteria for the Design/Build Work and certain performance standards that the Project would be required to meet. The Company shall indemnify, defend and hold harmless the District and the District » Indemnitees in accordance with Section 14.3 from any Loss-and-Expense arising out of the design, construction or performance of the Project. The Company acknowledges that, in the proposal and clarification process leading to the execution of this Service Contract,the Company had the unrestricted right and opportunity not to submit a proposal, and not to execute this Service Contract if the Company had determined that such minimum conceptual design criteria Would in any manner or to any degree impair the Company's ability to perform the Design/Build Work and the Operation Services in compliance herewith. The Company shall have, notwithstanding the foregoing, all of the rights to relief hereunder upon the occurrence of an Uncontrollable Circumstance,including, but not limited to,the receipt of Raw Water outside the range of parameters established by the Design Raw Water Quality Parameters. (B) Conformity of Company Design Documents with the Design Requirements. The Company shall prepare all plans, technical specifications, drawings, blueprints and other • design documents necessary or appropriate for the Company to carry out and complete the Design/Build Work. All Company working and final design documents shall comply strictly with the Design Requirements and shall ensure that the Project is constructed to a standard of quality, integrity, durability and reliability which is equal to or better than the standard established by the Design Requirements. The District and the Independent Engineer shall have the right to review and comment upon such design documents as provided in subsection (E) of this Section and Appendix 6 in order to assure that the Company carries out its obligations under this Section, but shall have no right of approval with respect thereto. Neither compliance by the • Company with the Design Requirements, nor review and comment by the District or the 61 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Projec[ Independent Engineer of the Company's design documents,shall in any way relieve the Company r of full responsibility for the design, construction, operation and performance of the Project in accordance with the Contract Standards.Architects and engineers engaged by the Company for the Project design services shall be experienced and qualified to perform such services and shall be licensed in the State and shall be selected in the manner provided in Section 16.7. • (C) District Interest in the Design Requirements.The Company acknowledges the District's and the Trustee's material interest in each provision of the Design Requirements and, notwithstanding the Acceptance Test Procedures and Standards and Performance Guarantees of the Company and the associated non-performance remedies of the District hereunder and the Trustee under the Company Financing Support Agreements, agrees that no change to the Design Requirements shall be made except upon the terms and conditions set forth in this Section and pursuant to a Change Order. The District reserves the right to review and comment upon the final design of the Project insofar as it relates to all matters of architectural treatment and exterior visual aesthetics, so as to assure that the appearance of the Project is in compliance with Attachment 1 of Appendix 1 with respect to such matters. Any District- requested change to the Design Requirements pertaining to architectural treatment and exterior visual aesthetics shall be handled as a Change Order, and the Company shall be entitled to a Fixed Design/Build Price Adjustment and an adjustment to the Scheduled Acceptance Date as and to the extent provided in Section 6.11. (D) Company Requested Change S.The Company shall have the right to request changes to the Design Requirements, which shall be handled in the same manner as provided • in Section 6.11. The parties shall agree on a form for describing any change to or clarification of the Design Requirements so approved by the District. The completed form pertaining to each such change shall be appended to the Contract Administration Memorandum containing the District's Change Order authorizing the change. • (E) Procedure for District Review of Design Submittals. The District and the Independent Engineer shall review all design submittals in accordance with the procedures set forth in Appendix 6. Upon completion of review of preliminary design documents (including review or approval,if required,by the CADHS and Metropolitan),the Company may proceed with final design and mobilization for construction and will begin procurement oflong-lead time items. (F) Documents at the Plant Site. The Company shall maintain at the Plant Site all design and construction documents, including a complete set of record drawings, in accordance with Appendix 6. These documents shall be available to the District and the • 62 368012.15 022806 AGMs • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project Independent Engineer for reference, copying and use, and a complete set thereof shall be r delivered to the District upon completion of the Design/Build Work. SECTION 6.4. COMPLIANCE WITH APPLICABLE LAW. (A) Compliance with Law and Equipment Operating Requirements. In designing,constructing,starting up and testing the Project, the Company shall comply with Applicable Law, shall construct and operate all A equipment and systems comprising the Project in accordance with the Contract Standards and applicable equipment manufacturer's specifications and recommendations,and shall observe the same safety standards as are set forth in Section 8.8 with respect to the operation of the Project. (B) Compliance with Conditions in Governmental Approvals. The Company r shall comply with all conditions and requirements of all Governmental Approvals required to be made, obtained or maintained under Applicable Law in connection with the continuance of the Design/Build Work, including those set forth in Appendix 9. (C) Governmental Approvals Necessary for Continued Construction. The • Company shall make all necessary filings, applications and reports necessary to obtain and maintain all Governmental Approvals required to be made, obtained or maintained under Applicable Law in connection with the continuance of the Design/Build Work once commenced, including those set forth in Appendix 9. The District, subject to the limitations set forth in • Section 4.6, shall cooperate and, where applicable, shall cause the City to cooperate with the Company in connection with the foregoing undertaking, and shall provide the Company with such relevant data or documents as are within its control and which are reasonably required for such purpose. • SECTION 6.5. CONSTRUCTION PRACTICE. The Company shall perform the Design/Build Work in accordance with the Contract Standards and shall have exclusive responsibility for all construction means, methods, techniques, sequences, and procedures necessary or desirable for the correct, prompt, and orderly prosecution and completion of the • Design/Build Work as required by this Service Contract. The responsibility to provide the construction means, methods, techniques, sequences and procedures referred to above shall include,but not be limited to,the obligation of the Company to provide the following construction requirements: temporary power and light; temporary offices and construction trailers;required design certifications;required approvals;weather protection; Sites clean-up and housekeeping; construction trade management; temporary parking;vehicle traffic;safety and first aid facilities; correction of or compensation for defective work or equipment; Subcontractors' insurance; storage areas; workshops and warehouses; temporary fire protection; Sites security; temporary • Utilities; potable water; sanitary services; Subcontractor and vendor qualification; receipt and 63 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project unloading of delivered materials and equipment; erection rigging; temporary supports; and construction coordination. SECTION 6.6. ENGAGEMENT OF DISTRICT ENGINEER. (A) Duties. The Company shall cooperate with any District Engineer designated by the District to assist it in connection with the administration of this Service Contract and the performance of its duties for the District. In the performance of such services,the Company agrees that the District Engineer may, without limiting other possible services to the District: review and monitor construction progress, review proposed changes to the Design Requirements; review Project plans, drawings and specifications for compliance with the Design Requirements; monitor the Acceptance Tests undertaken by the Company and review the Company's certified Acceptance Test report to determine whether the Acceptance Test Procedures and Standards have been satisfied pursuant to Article VII and Appendix 8; review the validity of the Company's written notice that an Uncontrollable Circumstance has occurred; review the Company's submissions with respect to Capital Modifications pursuant to Article XI; and provide certificates and perform such other duties as may be specifically conferred on the District Engineer hereunder. It is understood that the services intended to be provided by the District Engineer shall be of an observational and review nature only, and that the District Engineer shall not have authority to interfere with, halt or delay in any way the construction of the Project or to require or approve changes to the Design Requirements or the Company's plans and specifications made in accordance therewith. (B) Fees. Any fees of the District Engineer shall be paid by the District. The Company shall reimburse the District for the reasonable fees and expenses of the District Engineer and costs of District personnel for services in connection with repetition of any Acceptance Tests unless such additional or repeated Acceptance Tests are required as a result of District Fault or Uncontrollable Circumstances. Any fees of the District Engineer and District personnel after the Acceptance Date shall be paid by the District without reimbursement by the Company except as otherwise specifically provided by this Service Contract. SECTION 6.7. INDEPENDENT ENGINEER. (A) Duties. The Company shall cooperate with any Independent Engineer designated by the Trustee on behalf of the bondholders to assist it in connection with the oversight of the design and construction of the Project and the disbursement of Bond proceeds. In the performance of such services, the Company agrees that the Independent Engineer may: review and monitor construction progress, review proposed changes to the Design Requirements; review Project plans, drawings and specifications for compliance with the Design Requirements; monitor the Acceptance Tests undertaken by the Company and review the Company's certified Acceptance Test report to determine whether the 64 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Projec[ Acceptance Test Procedures and Standards have been satisfied pursuant to Article VII and Appendix 8; review the validity of the Company's written notice that an Uncontrollable Circumstance has occurred; review the Company's submissions with respect to Capital Modifications pursuant to Article XI; review the Company's milestone payment requests; and provide certificates and perform such other duties as may be specifically conferred on the Independent Engineer as defined hereunder. It is understood that the services intended to be provided by the Independent Engineer shall be of an observational and review nature only, and that the Independent Engineer shall not have authority to interfere with, halt or delay in any way the construction of the Project or to require or approve changes to the Design Requirements or the Company's plans and specifications made in accordance therewith. (B) Fees. Any fees of the Independent Engineer relating to its monitoring of construction, as described herein, shall be paid from the proceeds of the Bonds. SECTION 6.8. PROGRESS SCHEDULE AND REPORTS. The Company shall submit to the District and the Independent Engineer a monthly progress report by the fifteenth day of each month. The Company agrees that the Company's submission of the monthly progress schedule (or any revised progress schedule) is for the District's and the Independent Engineer's information only,and the District's and Independent Engineer's review of and comment upon the monthly progress schedule (or any revised progress schedule) shall not bind the District or the Independent Engineer in any manner. Thus, the District's or Independent Engineer's review of and comment upon the monthly progress schedule (or any revised monthly progress schedule) shall not imply District or the Independent Engineer's approval or consent to any of the matters set forth therein. SECTION 6.9. CONSTRUCTION MONITORING, OBSERVATIONS,TESTING AND UNCOVERING OF WORK. (A) Observation and Design Review Program. During the progress of the Design/Build Work through Acceptance, the Company shall at all times during normal working hours afford the District and the District Engineer and the Independent Engineer every reasonable opportunity for observing all Design/Build Work, and shall comply with the Design/Build Review Procedures set forth in Appendix 6. During any such observation, all representatives of the District Engineer and the Independent Engineer shall comply with all reasonable safety and other rules and regulations applicable to presence in or upon the Site or the Project,including those adopted by the Company,and shall in no material way interfere with the Company's performance of any Design/Build Work. (B) Company Tests and Inspections. The Company shall conduct all tests of the Design/Build Work(including shop tests) or inspections required by the Contract Standards. 65 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project The Company shall use its best efforts to give the District,the District Engineer and Independent Engineer reasonable advance notice (at least 24 hours, if possible) of tests or inspections prior to the conduct thereof, provided, however, that in no event shall the inability, failure or refusal to attend or be present of the District,the District Engineer or Independent Engineer at or during any such test or inspection delay the conduct of such test or inspection or the performance of the Design/Build Work. If required by the Contract Standards, the Company shall engage a registered engineer or architect at its sole cost and expense to conduct or witness any such test or inspection. All analyses of test samples shall be conducted by State certified laboratories. In addition to the foregoing, Acceptance Testing of the performance of the completed Project shall be conducted in accordance with Article VII and Appendix 8. (C) District Tests, Observations and Inspections. The District, its employees, agents, representatives and contractors(which may be selected in the District's sole discretion), and all Governmental Bodies having lawful jurisdiction, may at any reasonable time and with reasonable notice conduct such on-site observations and inspections,and such civil,structural, mechanical, electrical, chemical, or other tests as the District deems necessary or desirable to ascertain whether the Design/Build Work complies with this Service Contract. The costs of such test, observation or inspection shall be borne by the District unless such test, observation or inspection reveals a material failure of the Design/Build Work to comply with this Service Contract or Applicable Law, in which event the Company shall bear all reasonable costs and expenses of such observation, inspection or test actually incurred by the party performing the observation, inspection or test. In the event that any requested test, observation or inspection causes a material delay in the construction schedule, the Scheduled Acceptance Date shall be adjusted to reflect the actual period of time needed for completion as directly caused by the requested testing,but only if such testing,observation or inspection does not reveal any material failure or non-compliance as set forth herein. To the extent that the District's test, observation * or inspection causes the Company to suffer any damages or injuries, the District shall be liable for such damages or injuries. (D) Certificates and Reports. The Company shall secure and deliver to the District promptly, at the Company's sole cost and expense, all construction-related submittals (as further described in Appendix 6) and all certificates of inspection, test reports, work logs, certified payroll and approvals with respect to the Design/Build Work as and when required by the Contract Standards. Upon the written request of the Independent Engineer, the Company shall deliver to the Independent Engineer all such required certificates ofinspection,test reports, worklogs,certified payrolls and approvals with respect to the Design/Build Work. The Company 66 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project shall provide to the District and the Independent Engineer,immediately after the receipt thereof, w copies of any notice of default, breach or non-compliance received by the Company under or in connection with any Governmental Approval, Subcontract or Security Instrument pertaining to the Construction Period. (E) Notice of Covering Design/Build Work. The Company shall give the District reasonable notice in the monthly progress report of its planned schedule with respect to the covering of any Design/Build Work, and shall update such notice, if necessary, within a reasonable time period before such covering. The District shall give the Company reasonable notice (in any event not less than 24 hours notice) of any intended inspection or testing of such • Design/Build Work in progress prior to its covering,which notice shall be sufficient to afford the District a reasonable opportunity to conduct a full inspection of such Design/Build Work. At the District's written request, the Company shall take apart or uncover for inspection or testing any previously-covered Design/Build Work;provided,however,that the District's right to make such requests shall be limited to circumstances where there is a reasonable basis for concern by the District that the disputed Design/Build Work may not conform with the requirements of this Service Contract. The cost of uncovering, taking apart, or replacing such Design/Build Work along with the costs related to any delay in performing Design/Build Work caused by such • actions, shall be borne as follows: (1) by the Company,if such Design/Build Work has been covered prior to any observation or test required by the Contract Standards or if such Design/Build Work has been covered prior to any observation or test for which the District has not been provided • reasonable advance notice hereunder; and (2) in all other cases, as follows: (a) by the Company, if such observation or test reveals that the Design/Build Work does not comply with this Service Contract; or « (b) by the District, if such observation or test reveals that the Design/Build Work complies with this Service Contract. In the event such Design/Build Work does comply with this Service Contract, the delay caused by such observation or test shall be treated as having been caused by District Fault and any costs 0 or other damages incurred with respect to such observation or test shall be borne by the District (through and only through a Fixed Design/Build Price Adjustment). (F) Meetings and Design/Build Review. During the Construction Period,the Company,the Independent Engineer,and the District shall conduct meetings on a monthly basis • at a minimum. At such meetings, discussions shall be held concerning all aspects of the 67 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project Design/Build Work including construction schedules, Capital Modifications, shop drawings, catalogued and dated progress photographs, and any soil boring data and shop test results. The Company shall also attend any on-call meeting which may be reasonably required by the District from time to time in connection with the Design/Build Work,provided that the Company has at least 48 hours notice of such meeting. SECTION6.10. CORRECTION OF DESIGN/BUILD WORK. (A) Correctionof'Non- Conforming Design/Build Work. Throughout the Term of this Service Contract, the Company shall complete, repair, replace, restore, re-perform, rebuild and correct promptly any Design/Build Work which does not conform with the Contract Standards. (B) Election to Accept Non-Conforming Design/Build Work. The District may elect by Change Order,at the Company's request, to accept non-conforming Design/Build Work. The amount by which the value of the Design/Build Work has been reduced as a result of any such non-conformity,as agreed to by the parties upon the District's acceptance thereof, shall be • considered to be a Fixed Design/Build Price Adjustment. (C) Relation to Other Obligations. The obligations specified in this Section establish only the Company's specific obligation to correct the Design/Build Work and shall not be construed to establish any limitation with respect to any other obligations or • liabilities of the Company under this Service Contract. This Section is intended to supplement (and not to limit) the Company's obligations under the Acceptance Test Procedures and Standards, the Performance Guarantees and any other provisions of this Service Contract or Applicable Law. • SECTION 6.11. CHANGE ORDERS AND EXTRA DESIGN/BUILD WORK. (A) Right to Issue Change Orders. The District, subject to the provisions of subsection(F) of this Section, may issue Change Orders pertaining to any and all aspects of the Design/Build Work at any time and for any reason whatsoever, whether and however such Change Orders revise this Service • Contract, add Extra Design/Build Work or omit Design/Build Work or affect the Scheduled Acceptance Date. Change Orders shall pertain only to District-directed modifications. Any modifications necessitated by Uncontrollable Circumstances shall be handled pursuant to the provisions of Section 14.2. (B) Obligation to Complete Extra Design/Build Work. The Company shall, except to the extent excused under subsection (F) of this Section, undertake and complete promptly all Extra Design/Build Work authorized under this Section. The Company shall not commence performance of any Extra Design/Build Work without a Change Order authorized by • 68 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project the District. The Company shall be entitled to additional compensation for Extra Design/Build Work in accordance with this subsection ("Extra Payment"). (C) Effect of Company Fault. The Company shall not be entitled to any Extra Payment for any Extra Design/Build Work required by reason of any Company Fault. The Fixed Design/Build Price shall be reduced for omitted Design/Build Work resulting from any Company Fault by the reduction in the Company's cost of the Design/Build Work pursuant to subsection (D) of this Section. (D) Cost Changes. The Fixed Design/Build Price shall be changed if and to the extent that any Change Order, whether for omitted Design/Build Work or otherwise, results in any change in the Company's cost of the Design/Build Work. (E) Proposal for Extra Design/Build Work. The Company shall submit a written quotation on a lump-sum basis for Extra Design/Build Work covered by any proposed Change Order. The Company shall include with each quotation Cost Substantiation therefor. Any such • quotation shall be deemed the Company's offer to the District,binding for 60 days to perform the Extra Design/Build Work at the price quoted. In addition,each quotation shall include the effect, if any, of the Extra Design/Build Work on the progress schedule, the Performance Guarantees, the Scheduled Acceptance Date, the Design/Build Price, the Service Fee and any of the other • obligations of the Company under this Service Contract. (F) Conditions to Obligation to Proceed. The parties shall promptly proceed to negotiate in good faith to reach agreement on the amount of the Fixed Design/Build Price Adjustment and the effect on the milestone payments to be made on account of the Extra • Design/Build Work and on the effect of the Extra Design/Build Work on any other obligations of the Company under this Service Contract. The Company shall not be obligated to proceed with the Extra Design/Build Work except following agreement as to the amount of such Fixed Design/Build Price Adjustment and as to any adjustments to the Performance Guarantees and • its other obligations hereunder which are necessitated by the Change Order, including proof satisfactory to the Company that the District has or will have sufficient funds to pay for such Extra Design/Build Work. The Fixed Design/Build Price Adjustment shall adjust the Design/Build Price. In order to be entitled to such adjustment, the Company shall submit all Cost Substantiation information to the District and the Independent Engineer on amonthly basis or as soon thereafter as practicable, for amounts specified in this Section as they are incurred. Except to the extent that the District and the Company shall agree, no such work shall modify the Scheduled Acceptance Date, or impair the ability of the Company to meet the Performance • Guarantees, comply with any other term or condition of this Service Contract, affect any right of 69 368012.15 022806 AGMT • f Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project the Company or impose any additional liability or obligation on the Company under this Service Contract. (G) Disputed Work. If the Company is of the opinion that any Design/Build Work which it elects to perform in the absence of any agreement hereunder is Extra Design/Build Work and not original Design/Build Work("Disputed Work"),the Company shall give the District a written notice of dispute before commencing the Disputed Work. (H) Notice: Waiver. The Company shall give at least 10 days (or otherwise as agreed by the parties) advance notice to the District in writing of the scheduling of all Extra Design/Build Work and all Disputed Work. The Company's failure to give such written notice of Disputed Work under this Section shall constitute a waiver of Extra Payment, any extension of time, and all other Loss-and-Expense whatsoever relating to the particular Disputed Work. SECTION6.12. DELIVERABLE MATERIAL. As the Design/Build Work progresses (or upon the termination of the Company's right to perform the Design/Build Work),the Company shall deliver to the District all documents,reports, submittals and other materials ("Deliverable Material") required to be delivered under Appendix 6. The provisions of Section 16.3 shall apply to any Deliverable Material used by the Company in the Design/Build Work. The District shall have the right from and after the Contract Date to use (or permit use of) all such Deliverable Material,all oral information received by the District in connection with the Design/Build Work, and all ideas or methods represented by such Deliverable Material, without additional compensation. SECTION 6.13. PERSONNEL. (A) Personnel Performance. The Company shall enforce discipline and good order at all times among the Company's employees and all Subcontractors. All persons engaged by the Company for Design/Build Work shall have requisite skills for the tasks assigned. The Company shall employ or engage and compensate engineers and other consultants to perform all engineering and other services required for the Design/Build r Work. Each such engineer and consultant shall have current professional registration or certification to practice in the State if required by Applicable Law. (B) Company Construction Superintendent. The Company shall designate an employee of the Company, any Affiliate of the Company, or the Company's General Contractor or construction manager(the"Company Construction Superintendent"),who shall be present on the Sites with any necessary assistants on a full time basis when the Company or any Subcontractor is performing Design/Build Work. The Company Construction Superintendent shall, among other things: 70 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project (1) be familiarwiththeDesign/Build Work and all requirements ofthisService Contract; (2) coordinate the Design/Build Work and give the Design/Build Work regular and careful attention and supervision; (3) maintain a daily status log of the Design/Build Work; and • (4) attend monthly construction progress meetings with the District and the District Engineer. The Company may change the person assigned as Company Construction Superintendent, subject to the provisions of subsection (C) of this Section. • (C) District Rights With Respect to Key Personnel. The Company acknowledges that the identity of the key management and supervisory personnel proposed by the Company and its engineering Subcontractors in its proposal submitted in response to the RFP was a material factor in the selection of the Company to perform this Service Contract. The Company r shall utilize such personnel to perform such services unless such personnel are unavailable for good cause shown. "Good cause shown"shall not include performing services on other projects, but shall include termination for cause, employee resignation, illness and death. In the event of any such permissible unavailability,the Company shall utilize replacement key management and supervisory personnel of equivalent skill, experience and reputation. Any on-site personnel change shall be proposed to the District for its review, consideration and determination of compliance with this subsection with reasonable advance notice. (D) Labor Disputes. The Company shall furnish labor that can work in • harmony with all other elements of labor employed for the performance of the Design/Build Work. The Company shall have exclusive responsibility for disputes or jurisdictional issues among unions or trade organizations representing employees of the Company or its Subcontractors, whether pertaining to organization of the Design/Build Work, arrangement or subdivision of the Design Requirements, employee hiring, or any other matters. The District shall have no responsibility whatsoever for any such disputes or issues. SECTION 6.14. CONSTRUCTION BOOKS AND RECORDS. The Company shall prepare and maintain proper, accurate and complete books and records regarding the Design/Build Work and all other transactions related to the permitting, design, construction, startup and testing of the Project, including all books of account, bills, vouchers, invoices, personnel rate sheets, cost estimates and bid computations and analyses, Subcontracts, purchase orders, time books, daily job diaries and reports, correspondence, and any other documents showing all acts and transactions in connection with or relating to or arising by 71 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VI - Design and Construction of the Project reason of the Design/Build Work, this Service Contract, any Subcontract or any operations or • transactions in which the District has or may have a financial or other material interest hereunder, in each case only to the extent required to determine changes in the Design/Build Price or the Service Fee. The Company shall produce to the District and the Independent Engineer such construction books and records (except financial ledgers and statements) for • examination and copying in connection with the costs of Extra Design/Build Work, Capital Modifications, Uncontrollable Circumstance costs, or other changes in or additions to the Fixed Design/Build Price or the Service Fee for which the District may be responsible with respect to work performed prior to the Acceptance Date. To the extent any such information is delivered • or made available to the District or the Independent Engineer, such information shall be presented in a format such that an independent auditor will be able to perform a review of such information in accordance with generally accepted accounting principles. The Company shall keep and maintain all such construction books and records for at least three years after the • Acceptance Date, or such longer period during which any Legal Proceeding with respect to the Project commenced within three years of the Acceptance Date may be pending. • • r • 72 368012.15 022806 AGMT • • ARTICLE VII PROVISIONAL ACCEPTANCE, ACCEPTANCE AND FINAL COMPLETION OF THE PROJECT • SECTION 7.1 PROVISIONAL ACCEPTANCE, ACCEPTANCE AND FINAL COMPLETION. (A) Independent Measures of Performance. The achievement of Provisional Acceptance,Acceptance and Final Completion are independent measures of performance by the Company. The achievement or the failure to achieve each such performance measure shall have • the particular consequences set forth in this Service Contract. Provisional Acceptance, Acceptance and Final Completion may occur on the same or on different dates, as the facts may warrant. (B) Relation of Acceptance to the Metropolitan Agreement. Provisional • Acceptance and Acceptance shall be determined hereunder without regard to any provision of the Metropolitan Agreement. The Company shall have the right to seek to avoid the termination by Metropolitan of the Metropolitan Agreement under Section 9.4(c) thereof by producing Allowable Yield, notwithstanding the requirements of this Article as to Provisional Acceptance and • Acceptance. SECTION 7.2. SUBSTANTIAL COMPLETION. The Company shall not be permitted to conduct the Acceptance Tests until Substantial Completion has occurred. Substantial Completion shall occur only when all of the following conditions have been satisfied, • unless waived by the District: (1) construction of the Project Improvements in accordance with the Contract Standards has been substantially completed; (2) both water treatment process trains are fully operational; • (3) a preliminary or temporary certificate of occupancy has been issued for the Project, if required by Applicable Law; (4) the Company is authorized by all appropriate Governmental Bodies to perform the procedures necessary to achieve Acceptance and to conduct the Acceptance • Tests under Applicable Law, and such authorization has not been withdrawn, revoked, superseded, suspended, or materially impaired or amended; (5) all Utilities specified or required under this Service Contract to be arranged for by the Company are connected and functioning properly; • (6) the Company has delivered to the District written certification from the manufacturers of the reverse osmosis system and the iron/manganese filters (and from the Company for all other equipment) that such equipment has been properly installed and tested in accordance with the manufacturers' recommendations and requirements; • 73 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance,Acceptance and Final Completion of the Project • (7) the Company has submitted to the District and the District has reviewed and approved the plan for Acceptance Testing as required by Appendix 8; (8) if required by Applicable Law, the CADHS has approved the plan for Acceptance Testing and has issued a notice of permission to conduct the Acceptance • Tests; and (9) the Company has submitted written certification that all of the foregoing conditions have been satisfied. SECTION 7.3. NOTICE OF START-UP OPERATIONS. (A) Submittal of • Acceptance Test Plan. At least 180 days before the earlier of the Scheduled Acceptance Date or the date upon which the Company plans to begin Acceptance Testing,the Company shall prepare and submit to the District and the Independent Engineer for its review and approval a detailed Acceptance Test plan,which shall conform to the requirements of Appendix 8 in all respects. The . District and the Independent Engineer shall have 30 days to approve such plan,which approval shall not be unreasonably withheld. (B) Notice of Substantial Completion. The Company shall give the District Engineer and the Independent Engineer at least 30 days prior written notice of the expected date • of Substantial Completion and of commencement of start-up operations at the Project in preparation for conducting the Acceptance Test. (C) Notice of Commencement of Acceptance Test. The Company shall also provide the District and the Independent Engineer with at least 30 days prior written notice of • the expected initiation of the Acceptance Test in accordance with the requirements of Appendix 8. At least 10 days prior to the actual commencement of Acceptance Testing, the Company shall certify in writing that it is ready to begin Acceptance Testing in accordance with the Acceptance Test plan and Appendix 8. • SECTION 7.4 PRE-ACCEPTANCE TEST RAW WATER QUALITY ANALYSIS. (A) Conduct of Test. The Company shall begin to conduct a pre-Acceptance Test Raw Water quality analysis at least 120 days before the earlier of the Scheduled Acceptance Date or the date upon which the Company plans to begin Acceptance Testing, and complete such analysis and . deliver a final report with respect thereto to the District and the Independent Engineer within 30 days thereafter. The pre-Acceptance Test Raw Water quality analysis is to be conducted by the Company for purposes of determining whether the actual quality of the Raw Water from the Wells is within the Design Raw Water Quality Parameters as set forth in Appendix 3. The pre- . Acceptance Test Raw Water quality analysis shall be performed in accordance with Good Industry Practice and CADHS requirements for the testing of Raw Water that is to be processed through 74 368012.15 022806 AGMT w Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article Vll - Provisional Acceptance, Acceptance and Final Completion of the Project a reverse osmosis plant for distribution into the potable water supply. The District shall have the w right,at its own cost and expense,to independently verify the results of the pre-Acceptance Test Raw Water quality analysis contained in the final report. (B) Test Results. If the pre-Acceptance Test Raw Water quality analysis results indicate that the Raw Water which was subject to the analysis is not within the Design Raw w Water Quality Parameters, the Company shall provide to the District and the Independent Engineer,within 15 days after delivery of its final report,an assessment as to the potential impact of such non-conformity on the Acceptance Test,Design/Build Price,the Service Fee,Acceptance, and the Performance Guarantees, together with a discussion of possible Uncontrollable Circumstance mitigating measures. SECTION 7.5. RAW WATER SUPPLY AND DELIVERY OF FINISHED WATER DURING START-UP, COMMISSIONING AND TESTING. For the purpose of start-up, commissioning and testing prior to Acceptance for the Project, the Company shall supply from the Wellfield the quantities of Raw Water specified in the Company's approved Acceptance Test plan. The Company shall not supply Finished Water to the Water System during start-up, commissioning and testing unless approved by CADHS. The Company shall dispose of all Raw Water used in the conduct of start-up operations and commissioning in accordance with w Applicable Law and Appendix 8. The delivery of Raw Water and the supply of Finished Water during the Acceptance Test, if approved by CADHS, shall be as specified in the Acceptance Test plan. SECTION 7.6. CONDUCT OFACCEPTANCE TEST. The Company shall conduct w the Acceptance Test, following Substantial Completion, in accordance with Appendix 8 and the Acceptance Test plan, and shall notify the District and the Independent Engineer when the test shall occur. The Company shall permit the designated representatives of the District and the Independent Engineer to inspect the preparations for an Acceptance Test and to be present for w the conduct of Acceptance Test for purposes of ensuring compliance with the Acceptance Test plan and the integrity of the Acceptance Test results. SECTION7.7. ACCEPTANCE DATE CONDITIONS. The following conditions shall constitute the "Acceptance Date Conditions," each of which must be satisfied in all material w respects by the Company in order for the Acceptance Date to occur, and each of which must be and remain satisfied as of the Acceptance Date: (1) Construction Date Conditions. Each of the Construction Date Conditions shall be and remain satisfied as of the Acceptance Date; I • 75 368012.15 022806 AGMT L • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance, Acceptance and Final Completion of the Project (2) Substantial Completion. The Company shall demonstrate that Substantial • Completion has occurred; (3) CADHSApproval. CADHS has issued the CADHS Approval,and it is lawful to introduce Finished Water into the Water System; (4) Other Operating Governmental Approvals. All other applicable • Governmental Approvals required under Applicable Law which are necessary for the continued routine operation of the Project shall have been duly obtained by the Company and shall be in full force and effect. Copies of all such Governmental Approvals, to the extent not in the District's possession,certified by the Company shall have been delivered 0 to the District; (5) Achievement of Acceptance Standards. The Company shall have completed all required Acceptance Tests and such tests shall have demonstrated that the Project has met the Acceptance Test Procedures and Standards; and • (6) No Default. There shall be no Event of Default by the Company under this Service Contract or by the Guarantor under the Service Contract Guaranty Agreement, or event which with the giving of notice or the passage of time would constitute an Event of Default by the Company hereunder or an Event of Default by the Guarantor under the • Service Contract Guaranty Agreement. SECTION 7.8. PROVISIONAL ACCEPTANCE. (A) Company Certification. The Company shall have the right, following the conduct of the Acceptance Tests as provided in Section 7.6 and the delivery of the Acceptance Test report pursuant to Section 7.10, to certify • Acceptance on a provisional basis. In order to certify Acceptance on a provisional basis, the Company shall deliver a written certification to the District and the Independent Engineer that, in the good faith judgment of the Company based on all information available to it at the time of the certification, all of the Acceptance Date Conditions have occurred.The date upon which the • Company's provisional Acceptance certification is delivered is referred to herein as the "Provisional Acceptance Date,"and thereupon"Provisional Acceptance"shall be deemed to have occurred. (B) Effect of Provisional Acceptance. Upon the occurrence of Provisional • Acceptance, the Operation Period shall commence and all of the Operation Period rights and obligations of the parties hereunder shall apply on a permanent basis(including the Performance Guarantees of the Company, the Service Fee payment obligations of the District, and the obligation of the Company to pay liquidated damages for any failure to meet the Performance • Guarantees). The Initial Term of this Service Contract shall commence on the Provisional 76 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance, Acceptance and Final Completion of the Project • Acceptance Date, and thereafter the parties shall be bound as if Acceptance had permanently occurred, except as provided in Section 7.11 in the event the District disputes the Company's Provisional Acceptance certification. SECTION 7.9. DELAY LIQUIDATED DAMAGES. (A) Provisional Acceptance Prior to December 4,2004. In the event that Provisional Acceptance(or,if Provisional Acceptance • is not certified by the Company, Acceptance) occurs prior to December 4, 2004, the Company shall have no obligation to pay delay liquidated damages under this Section. The Company shall, however, following the Provisional Acceptance Date (or, if Provisional Acceptance is not certified e by the Company, the Acceptance Date),be responsible for all performance-related damages and liquidated damages provided for in this Service Contract during the Operation Period. (B) Provisional Acceptance Subsequent to December 4, 2004 - Liquidated Damages Payable to District. In the event that Provisional Acceptance (or, if Provisional Acceptance is not certified by the Company, Acceptance) occurs subsequent to December 4, A 2004, the Company shall pay to the District daily delay liquidated damages for each day that the Provisional Acceptance Date (or, if Provisional Acceptance is not certified by the Company, the Acceptance Date) falls after December 4, 2004 in an amount equal to the Lease Payments . (including payments with respect to both interest and principal)accrued by the District on a daily basis, up to the end of the Extension Period and thereafter until any termination of this Service Contract for an Event of Default by the Company. The accrual of such Lease Payments shall be determined on the basis of the amount of the Lease Payments actually payable to the Issuer under the Lease Agreement, whether such payments are in fact made by the District directly or from proceeds of the Bonds borrowed in order to capitalize interest. Such damages shall be payable on the first day of each month and,upon any such termination, the date of termination, and shall be secured by the Service Contract Letter of Credit. w SECTION 7.10. TEST REPORT. Within 30 days following the completion of the Acceptance Test, the Company shall furnish the District Engineer with ten copies of a certified written test report describing and certifying(1) the Acceptance Test conducted, (2) the results of the Acceptance Test, and(3) the level of satisfaction of the Acceptance Standard relating thereto . or all other requirements specified in Appendix 8. Within that same 30 day period,the Company shall provide a copy of the certified written test report to the Independent Engineer. The written test report shall include copies of the original data sheets, log sheets and all calculations used to determine performance during the applicable Acceptance Test,and copies of laboratory reports . conducted in conjunction with the applicable Acceptance Test,including all laboratory sampling and test results. 77 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance, Acceptance and Final Completion of the Project SECTION 7.11. CONCURRENCE OR DISAGREEMENT WITH TEST RESULTS. • (A) Acceptance Date Concurrence. If the Company certifies Provisional Acceptance in the written report delivered pursuant to Section 7.8 that the Acceptance Date Conditions have been satisfied, the District shall determine, with the Independent Engineer's concurrence,within 60 days of its receipt of such report, whether it concurs in such certification. If the District states in writing • that the District and the Independent Engineer concur with the Company's certification, the Project shall be deemed to have achieved Acceptance and the Acceptance Date shall be deemed to have been established on a permanent basis as of the Provisional Acceptance Date. (B) Acceptance Date Disagreement. If the District determines at any time • during such 60-day review period that it does not concur with the Company's certification of Provisional Acceptance,the District shall immediately send written notice to the Company of the basis for its disagreement. In the event of any such non-concurrence by the District,either party may elect to refer the dispute to Non-Binding Mediation for resolution pursuant to Section 13.15. • The Mediator shall issue a decision within 60 days of the dispute referral unless both parties agree that more time is appropriate. In the event that the Mediator fails to issue a decision within 60 days, then either party may initiate judicial proceedings. The parties acknowledge and agree that any decision rendered by the Mediator as to whether Acceptance has occurred shall be non- binding. Acceptance shall not be deemed to have been achieved unless the Acceptance Test, conducted in a unified and continuous manner as provided in the Acceptance Test plan and in Appendix 8, demonstrates that all of the Acceptance Test Procedures and Standards have been met. In the event the Company, in conducting the Acceptance Test, does not successfully meet • the Acceptance Test Procedures and Standards, the Company shall re-test the Project in accordance with Appendix 8. Nothing in this Section shall prevent the Company from bringing an action or from repeating any Acceptance Test in order to establish the achievement of Acceptance. The Company shall provide the District with at least three days'written notice of any • re-test of the Acceptance Test. No disagreement as to the achievement of Acceptance shall prevent the Company from operating the Project so as to produce Allowable Yield and avoid the automatic termination of the Metropolitan Agreement. SECTION 7.12 SCHEDULED ACCEPTANCE DATE. (A) Scheduled Acceptance • Date Defined. The Scheduled Acceptance Date shall be September 1, 2004, except as adjusted under subsection (B) of this Section. (B) Adjustment of Scheduled Acceptance Date. In the event one or more delays in the Design/Build Work caused by Uncontrollable Circumstances, District-requested Change Orders or District Fault occur during the Construction Period, the Scheduled Acceptance Date 78 368012.15 022806 AGMT • • Capistrano Valley Water I)istrict Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance, Acceptance and Final Completion of the Project shall not be September 1,2004,but shall be the date determined by adding to September 1,2004 • the aggregate number of days of delay in the performance of the Design/Build Work by the Company caused by such Uncontrollable Circumstances,District-requested Change Orders,and District Fault. In the event of any such adjustment, delay liquidated damages payable by the • Company under Section 7.9, if any, shall be payable from the adjusted Scheduled Acceptance Date and not from September 1, 2004. SECTION 7.13 EFFECT OF UNEXCUSED DELAY - METROPOLITAN AGREEMENT. (A) Company Acknowledgment. The Company acknowledges that the Final GRP Contribution payment required to be made by Metropolitan under the Metropolitan Agreement • to the District constitutes a material inducement for the District to undertake the Project through this Service Contract, and that the Metropolitan Agreement is subject to automatic termination (as provided in paragraphs (b) or (c) of Section 9.4 thereof) if construction has not commenced by December 4, 2002 or if no Allowable Yield is produced by December 4, 2004. • (B) Termination of the Metropolitan Agreement. In the event (1) the Metropolitan Agreement terminates under paragraphs (b) or (c) of Section 9.4 thereof, and (2) such termination is the result of a failure to commence construction or a failure to produce • Allowable Yield that is not caused by the occurrence of an Uncontrollable Circumstance or District Fault,the Company shall pay the District for each Contract Year during the Term of this Service Contract, as liquidated damages for such failure, an amount calculated as follows: LD = AW D x FC where, AWD = The total number of acre feet of Finished Water actually demanded by the District in such Contract Year pursuant to its demand rights under Section 9.3. FC = The amount, expressed in dollars per acre foot, which the Final • GRP Contribution would have been in such Contract Year had the Metropolitan Agreement not been terminated. The liquidated damages shall be applied as a credit to reduce the Service Fee payment due in the applicable Contract Year pursuant to Section 12.6, and shall be paid in cash to the extent it • exceeds such Service Fee payment. SECTION 7.14. EFFECT OF UNEXCUSED DELAY-EXTENSION PERIOD. (A) Right to Repeat Tests. It is agreed that time is of the essence in the performance of the • Design/Build Work. If Acceptance shall not have occurred on or before the Scheduled 79 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance, Acceptance and Final Completion of the Project • Acceptance Date (as adjusted pursuant to Section 7.12), the Company shall be entitled to continue to seek to achieve Acceptance during the Extension Period. (B) Failure to meet Acceptance Standard. If,as of the last day of the Extension Period, the Acceptance Tests have not been conducted or have failed to demonstrate that . Acceptance has been achieved, an Event of Default by the Company will be deemed to have occurred under Section 13.2 notwithstanding any absence of notice,further cure opportunity or other procedural rights accorded the Company thereunder,and the District shall thereupon have the right to terminate this Service Contract upon written notice to the Company and the Trustee. • Upon any such termination, the District and the Trustee shall have all of the rights provided in Article XIII upon a termination of the Company for cause. SECTION 7.15 FINAL PUNCH LISTAND CLAIMS STATEMENT. (A) Final Punch List. Within 30 days after the Acceptance Date, the Company shall submit a proposed Final Punch List to the District and the District Engineer when the Company believes that the • Design/Build Work has been substantially completed in compliance with this Service Contract. The "Final Punch List" shall be a statement of repairs, corrections and adjustments to the Design/Build Work, and incomplete aspects of the Design/Build Work,which in the Company's • opinion: (1) the Company can complete before the Company's agreed date for Final Completion and with minimal interference to the occupancy, use and lawful operation of the Project; and • (2) would represent,to perform or complete,a total cost of not more than 2.5% of the portion of the Fixed Design/Build Price applicable to the Project(unless the District determines that a higher percentage is acceptable). The Final Punch List shall be approved by the District, and completion of the Final Punch List work shall be verified by a final walls-through of the Project conducted by the District and the • District Engineer with the Company and the Company's engineer. (B) Claims Statement. Within 30 days after the Acceptance Date,the Company shall deliver to the District a claims statement setting forth in detail all claims of every kind whatsoever of the Company connected with,or arising out of, the Design/Build Work pertaining • to the Project, and arising out of or based on events prior to the date when the Company gives such statement to the District. SECTION 7.16. FINAL COMPLETION. (A) Requirements. The Company shall • achieve Final Completion within 180 days after the Acceptance Date. "Final Completion" shall occur when all of the following conditions have been satisfied: 80 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance, Acceptance and Final Completion of the Project • (1) Certificate ofOccupancyIssue d. A certificate of occupancy has been issued for the Project, if required; (2) Acceptance Achieved. The Acceptance Test has been conducted, the Acceptance Test Procedures and Standards have been achieved, and Acceptance has • occurred; (3) Design/Build Work Completed. All applicable Design/Build Work (including all items on the Final Punch List and all clean up and removal of construction materials and demolition debris) is complete and in all respects is in compliance with this • Service Contract, and there are no outstanding legally valid "stop notices"; (4) Equipment Manufacturer Certification. The District has approved in writing, such approval not to be unreasonably withheld,the certification by the Company that all Design/Build Work pertaining to the Project has been completed to the level • reasonably required under Good Engineering and Construction Practice and under Applicable Law in order to conduct the Acceptance Tests, and that such Design/Build Work is in all respects in compliance with the Design Requirements; (5) Final Operation and Maintenance Manual. The Company has delivered to • the District the final Operation and Maintenance Manual in accordance with Appendix 13; (6) Required Operation Period Insurance. The Company has submitted to the District certificates of insurance for all Required Operation Period Insurance specified in Appendix 11; • (7) Deliverable Material Furnished.The Company has furnished to the District all Deliverable Material required to be delivered prior to Acceptance; (8) Record Drawings. The Company shall have delivered to the District a final and complete reproducible set of record drawings, together with six copies thereof, in a • size and form reasonably required by the District and as required by the Design Requirements and shall certify that the Project was constructed in accordance with the Design Requirements,including any Change Orders. Such record drawings shall include one mylar copy. The Company shall also provide an electronic file in Autocad/DXF • format to the extent drawings are prepared in such format; and (9) Equipment Warranties and Manuals. The Company shall be in possession of, and shall have delivered to the District, copies of the warranties of machinery, equipment, fixtures and rolling stock constituting a part of the Project, together with • copies of all related operating manuals supplied by the equipment supplier. 81 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VII - Provisional Acceptance, Acceptance and Final Completion of the Project • (B) Final Certificate and Claims Statement. The Company shall also prepare and submit to the District as soon as practicable following the Acceptance Tests, for purposes of demonstrating Final Completion: (1) a certificate of the Company Contract Representative certifying (a) that the Design/Build Work has been completed in accordance herewith and with the Design Requirements, and (b) that Acceptance of the Project has occurred; and(2) a claims statement setting forth a detailed, itemized description, related dollar amount and grounds for all claims of every kind whatsoever against the District in connection with or arising out of the Design/Build Work the Company may have. The District shall review the certificate and the • claims statement and shall verify or dispute them in writing within 30 days of receipt. SECTION 7.17. NO ACCEPTANCE, WAIVER OR RELEASE. Unless other provisions of this Service Contract specifically provide to the contrary, none of the following, without limitation, shall be construed as the District's acceptance of any Design/Build Work • which is defective, incomplete, or otherwise not in compliance with this Service Contract, as the District's release of the Company from any obligation under this Service Contract, as the District's extension of the Company's time for performance, as an estoppel against the District, or as the District's acceptance of any claim by the Company: (1) the District's review of any drawings, submissions, punch lists, other documents, certifications(other than certificates relating to completion or Acceptance of the Project), or Design/Build Work of the Company or any Subcontractor; (2) the District's review of any construction applications, means, methods, • techniques, sequences, or procedures for the Design/Build Work; (3) the District's entry at any time on the Sites (including any area in which the Design/Build Work is being performed in compliance with Section 6.9); (4) any observation of any Design/Build Work(whether firiishedorinprogress) . by the District or any other person; and (5) any other exercise of rights or failure to exercise rights by the District hereunder. SECTION 7.18. NO SERVICE FEE PAYMENT PRIOR TO PROVISIONAL • ACCEPTANCE. Prior to Provisional Acceptance, the Company shall not be entitled to payment of the Service Fee. All costs for design, construction,permitting,start-up,testing for Provisional Acceptance, and operations prior to the Provisional Acceptance Date, including costs for labor, materials, chemicals and Utilities shall be borne by the Company without reimbursement by the • District. 82 368012.15 022806 AGMT • ARTICLE VIII OPERATION AND MANAGEMENT • SECTION 8.1. COMPANY OBLIGATIONS GENERALLY. (A) Operation and Management Responsibility. Commencing on the Provisional Acceptance Date (or,if Provisional Acceptance is not certified by the Company,Acceptance),the Company shall operate and manage the Project on a 24-hour per day, 7-day per week basis, and shall treat Raw Water, produce and • supply Finished Water,transport and dispose of Plant By-Products and operating wastes,provide all information necessary to secure Governmental Approvals,and otherwise operate and manage the Project so as to comply with the Contract Standards applicable to such activities,each of the plans pertaining thereto set forth in the Appendices, and the other terns and conditions of this • Service Contract. (B) Transfer and Application of Industry Experience. The Company shall use all reasonable efforts to transfer to and apply at the Project the benefit of the advances and improvements in technology, management practices and operating efficiencies which are • developed by the Company over the full Term of this Service Contract, and which are useful and appropriate in the good faith judgment of the Company for carrying out the Contract Services in a manner which improves upon the Contract Standards. SECTION 8.2. DISTRICT OBLIGATIONS GENERALLY. The District,in addition • to the obligations it has accepted elsewhere in this Service Contract, shall: (1) Make available to the Company upon request all information relating to the Project which is in the possession of the District and material to the Company's performance hereunder; • (2) Grant and assure the Company access to the Project for the performance of its obligations hereunder; (3) Maintain and repair in good working order all Water System assets which are not included in the Project(including,after Acceptance,the Booster Pumping Station); • and (4) Pay the Service Fee and any other amounts due the Company in accordance with the terms and conditions of this Service Contract. SECTION 8.3. SERVICE COORDINATION AND CONTRACT ADMINISTRATION. • (A) Company's Facilities Manager. The Company shall appoint a manager of the Project and the Operation Services(the"Facilities Manager")who shall be trained, experienced and proficient in the management and operation of water treatment systems comparable to the Project. The Facilities Manager shall be responsible for the management and provision of the Operation • Services provided to the District hereunder,and shall serve as the business representative of the Company in the performance of this Service Contract. The Company acknowledges that the 83 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management performance of the individual serving from time to time as the Facilities Manager will have a • material bearing on the quality of service provided hereunder, and that effective cooperation between the District and the Facilities Manager will be essential to effectuating the intent and purposes of this Service Contract. In the event the District determines that an unworkable relationship continues to exist between the Facilities Manager and the District,the District shall • give the Company documentation of conflicts between the District and the Facilities Manager, a reasonable opportunity for corrective action, and a final notice requesting replacement. The Company shall have the right to contest a final notice requiring replacement of the Facilities Manager within 7 days of receipt of such notice. The City Manager,after giving due consideration • to any such Company contest, shall have the right to make a final determination as to whether the Facilities Manager shall be replaced. Absent such a contest, or following the City Manager's determination, the Company within 3 months of the final notice or the determination shall replace the Facilities Manager. • (B) Project Operator. The Company shall appoint a full-time Project Operator whose sole employment responsibility shall be operating the Project and managing the execution of the Operation Services. The Project Operator shall have an operators certification as required by CADHS, and be otherwise appropriately trained, experienced and certified under Applicable • Law. The Project Operator may also be the Company's Facilities Manager. (C) Immediate Contact Representatives. The Company shall identify an individual who may be contacted by the District immediately at any time on a 24 hour per day, 7-days per week, 365 days per year basis, for emergency response, information, or any other • purpose hereunder. The Company shall provide the District at all times with current communications information (telephone, fax, beeper, e-mail) for the individual servicing as the Company's immediate contact representative. (D) Company's Senior Supervisors. The Company shall appoint and inform the • District from time to time of the identity of the corporate officials of the Company and the Guarantor with senior supervisory responsibility for the Project and the performance of this Service Contract(the"Senior Supervisors"). The Company shall promptly notify in writing to the District of the appointment of any successor Senior Supervisors. The Senior Supervisors shall • cooperate with the District in any reviews of the performance of the Facilities Manager which the District may undertake from time to time, and shall give full consideration to any issues raised by the District in conducting such performance reviews. (E) District's Contract Administrator. The District shall designate an individual • or firm to administer this Service Contract and act as the District's liaison with the Company in 84 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management connection with the Operation Services (the "Contract Administrator"). The Company understands and agrees that the Contract Administrator has only limited authority with respect to the implementation of this Service Contract, and cannot bind the District with respect to any Service Contract amendment or to incurring costs in excess of the amounts appropriated therefor. Within such limitations, the Company shall be entitled to rely on the written directions of the • Contract Administrator. (F) District Approvals and Consents. When this Service Contract shall require any approval or consent by the District to a Company submission,request or report,the approval or consent shall be given by the Contract Administrator in writing and such writing shall be • conclusive evidence of such approval or consent, subject only to compliance by the District with the Applicable Law that generally governs its affairs. Unless expressly stated otherwise in this Service Contract, and except for requests, reports and submittals made by the Company that do not, by their terms or the terms of this Service Contract, require a response or action, if the • District does not find a request,report or submittal acceptable, it shall provide written response to the Company describing its objections and the reasons therefor within 30 days of the District's receipt thereof. If no response is received from the Company within a subsequent 30-day period, the request, report or submittal shall be deemed rejected and the Company may resubmit the • same, with or without modification. Requests, reports and submittals that do not require a response or other action by the District pursuant to some specific term of this Service Contract shall be deemed acceptable to the District if the District shall not have objected thereto within 30 days of the receipt thereof. • (G) Communications and Meetings. On or before the Acceptance Date, the Company shall inform the District and the Trustee of the telephone, fax and beeper numbers, e- mail address and other means by which the Facilities Manager and Senior Supervisors may be contacted. The District shall furnish to the Company comparable communications information • with respect to the Contract Administrator. The Company shall meet with the District each month to review the contents of the operations reports required to be prepared pursuant to Section 8.14. The Facilities Manager and, if reasonably requested by the District, the Senior Supervisors each shall personally attend the monthly operations meetings with the District,and • all special meetings which the District may reasonably request from time to time, to review management,operational,performance and planning matters arising with respect to the System and this Service Contract. Any issue in dispute which the parties are unable to resolve at such monthly and special meetings may be referred to Non-Binding Mediation, and the resolution of • 85 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management any issues resolved at such meetings or through Non-Binding Mediation shall be reflected in a • Contract Administration Memorandum. (H) Customer Service. The Company shall respond in a timely and effective manner to all complaints and communications received by the Company or the District regarding the treatment of water, odor and air emissions, noise, construction or any other matter related • to the Contract Services. The Company shall investigate each such complaint and communication and, if it has a valid basis, the Company shall promptly rectify the matter. Complaints and communications concerning spillages, leaks, breaks and emergencies shall be responded to within two hours, and other communications within 24 hours. All customer • communications shall be immediately logged and promptly responded to in writing, faxed to the District expeditiously if urgent, and reported to the District as part of the monthly operations reports delivered pursuant to Section 8.14. The Company shall establish, maintain and make freely known a telephone number, e-mail address and mailing address to which customer • complaints and communications may be directed. SECTION 8.4. OPERATION AND MAINTENANCE MANUAL. (A) Company Responsibility. The Operation Services shall be performed substantially in compliance with the Operation and Maintenance Manual and the Company's computerized maintenance management • system. The Company shall keep the Operation and Maintenance Manual current, shall make all appropriate updates, supplements or revisions thereto, and shall make the Operation and Maintenance Manual available for review and copying by the District upon reasonable notice. Any such updates shall preserve the standards set forth in the initial Operation and Maintenance • Manual. Notwithstanding any such review by and discussion with the District,the Operation and Maintenance Manual shall remain, at all times, the responsibility of the Company. Any review of the Operation and Maintenance Manual shall not: (1) relieve the Company of any of its responsibilities under this Service Contract; (2) be deemed to constitute a representation by the • District that operating the Project pursuant to the Operation and Maintenance Manual will cause the Project to be in compliance with this Service Contract or Applicable Law; or (3) impose any liability upon the District. (B) Supplements for Capital Modifications. The Company shall prepare • supplements and revisions to the Operation and Maintenance Manual which are required due to the design, construction and installation of all Capital Modifications. Such supplements and revisions shall be provided, reviewed and approved in the same manner as provided in this Section with respect to the initial Operation and Maintenance Manual. The cost and expense of • all such supplements and revisions shall be borne by the Company, except with respect to 86 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management supplements and revisions necessitated by Capital Modifications directed by the District or • required by a Change in Law or other Uncontrollable Circumstance. SECTION 8.5. STAFFING AND PERSONNEL TRAINING. (A) Staffing. The Company shall staff the Project during the Term of this Service Contract with personnel who are sufficient in qualifications to be capable of performing the Operation Services in accordance • herewith. In the event any Governmental Body mandates that a minimum stalling level is required for the operation of the Project, the Company shall comply with such minimum staffing requirements. Any such mandate imposed on or prior to the Acceptance Date shall not constitute a Change in Law; any such mandate imposed after the Acceptance Date shall • constitute a Change in Law unless it arises out of an enforcement action taken by a Governmental Body resulting from an unexcused failure by the Company to comply with Applicable Law. The Company shall discipline or replace, as appropriate, any employee of the Company or any Subcontractor engaging in unlawful, unruly or objectionable conduct. The • Company may use telemetry and automatic alarm paging for"off-hours"coverage at the Project. (B) Training. The Company shall be responsible for training the Facilities Manager, operations supervisors and other Company personnel. Such personnel training program shall include the personnel training guidelines, policies and procedures established: • (1) by the District, the CADHS and the EPA; (2) in any Governmental Approval or operator's certificate required or issued by any Governmental Body; and (3) in any other Applicable Law. SECTION 8.6. TRAINING OF DISTRICT PERSONNEL. (A) Ongoing Training. The District shall have the right to send not more than three District employees to any Company- provided annual training programs. The District shall be responsible for the cost of training such District employees, and the District shall be responsible for all employee expenses (travel, lodging, meals, etc.) incurred while participating in such training programs. (B) Permanent Operations. The Company shall,on not less than 30 days'prior • written notice from the District, conduct a training program for the District and its designees in order to enable the District or its designee to assume operating and management responsibility for the Project at the expiration or termination of this Service Contract. The program shall train supervisory and operating personnel in sufficient numbers and job classifications so as to allow • the District and its designees to operate and manage the Project in such circumstances in accordance herewith and with the same degree of skill and performance as the Project has been operated by the Company during the Term hereof. The training afforded to District employees or designees shall be substantially equivalent to the training afforded the Company's and • Subcontractor's employees in connection with the start-up of the Project prior to the Acceptance 87 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management Tests. In addition, the Company shall permit District supervisory and operating personnel to • observe the Company's operation of the Project for a period of up to six months prior to expiration or termination of the Service Contract, which observation activities shall not interfere unreasonably with the Company's performance of the Contract Services. All costs pertaining to the observation and training activities of District supervisory and operating personnel shall be • bome by the District. SECTION 8.7. ELECTRICITY SUPPLY, PAYMENT AND UTILIZATION. (A) Supply. The District shall have the exclusive right to arrange for the supply of electricity to the Project, and to negotiate and establish electric rates with the supplier. The Company shall • cooperate with and assist the District in making such arrangements, and the District shall give reasonable consideration to any requests and recommendations made by the Company as to the terms and conditions of electricity supply. (B) Payment and Utilization. The District shall pay all electricity bills. The • Company guarantees that electricity usage and demand shall not exceed the levels established under the Guaranteed Maximum Electricity Utilization. In the event that electricity usage or demand exceeds such levels for reasons other than Uncontrollable Circumstances or District Fault, the Company shall, as provided in Section 12.9, pay or credit to the District an amount • equal to the portion of the electric bill paid by the District which is attributable to such excess; provided, however that the Company shall have no obligation to make such payment or credit if and to the extent that such payment would not reduce the Effective Rate for Finished Water. In the event that electricity usage or demand is less than the levels established under the • Guaranteed Maximum Electricity Utilization, the District shall, as and to the extent provided in subsection 12.5(D),pay the Company the electricity savings element of the Service Fee;provided, however, that the District shall be obligated to pay such electricity savings element only if and to the extent that the savings shall reduce the Effective Rate for Finished Water. The Company • shall operate the Project in a manner which minimizes, to the maximum extent reasonably practicable in light of its obligation to provide the Contract Services, charges to the District for electricity use, demand, transmission and distribution hereunder. SECTION 8.8. SAFETY AND SECURITY. (A) Safety. The Company shall • maintain the safety of the Project at a level consistent with the Contract Standards. Without limiting the foregoing, the Company shall: (1) take all reasonable precautions for the safety of, and provide all reasonable protection to prevent damage,injury or loss by reason of or related to the operation of the Project to, (a) all employees working at the Project and all other persons who • may be involved with the operation, construction, maintenance, repair and replacement of the 88 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management Project, (b) all visitors to the Project, (c) all materials and equipment under the care, custody or control of the Company on the Sites, (d) other property constituting part of the Project, and (e) Municipal Property; (2) establish and enforce all reasonable safeguards for safety and protection,including posting danger signs and other warnings against hazards and promulgating safety regulations; (3) give all notices and comply with all Applicable Laws relating to the safety • of persons or property or their protection from damage, injury or loss; (4) designate a qualified and responsible employee at the Project whose duty shall be the supervision of plant safety, the prevention of fires and accidents and the coordination of such activities as shall be necessary with federal, State and District officials; (5) operate all equipment in a manner consistent with • the manufacturer's safety recommendations; (6) provide for safe and orderly vehicular movements; and (7) develop and carry out a Sites-specific safety program, including employee training and periodic inspections, designed to implement the requirements of this Section. (B) Security. The Company shall be responsible for the security of the Project, and shall maintain suitable fences, gates and locks at the Project. The Company shall guard against and be responsible for all damage or injury to such properties caused by trespass, negligence, vandalism or malicious mischief of third parties. SECTION 8.9. COMPLIANCE WITH METROPOLITAN AGREEMENT. • (A) General. Except as provided in Section 7.13 with respect to delays in achieving Acceptance, the Company shall perform all of the District's obligations under the Metropolitan Agreement, including the reporting obligations of the District as further provided in Section 8.14, notwithstanding the fact that the Company is not a party to the Metropolitan Agreement. In the • event the Metropolitan Agreement is terminated due to a failure of the Company to comply with its obligations under this Section, and such failure is not caused by an Uncontrollable Circumstance, District-directed Change Order or District Fault, the Company shall pay the District for each remaining Contract Year or portion thereof during the Term of this Service • Contract, liquidated damages in the amounts specified in subsection 7.13(B). (B) Amendments and Forebearance. The District shall not amend the Metropolitan Agreement in a manner that materially and adversely affects the Company without the consent of the Company, whether such amendment is in connection with the modification • contemplated in item (3) of Section 4.3 or otherwise. In the event Metropolitan agrees to amendments to or interpretations of the Metropolitan Agreement that are favorable to the District, or agrees to reinstate the Metropolitan Agreement following its termination, or agrees to forebear in the enforcement of any of the terms thereof, the Company shall have the benefit • 89 368012.15 022806 AGMT 0 • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management of any such amendment, interpretation, reinstatement or forebearance with respect to its • obligations under this Section. SECTION 8.10. COMPLIANCE WITH APPLICABLE LAW. (A) Compliance Obligation. The Company shall perform the Contract Services in accordance with Applicable Law, and shall cause all Subcontractors to comply with Applicable Law. The Company shall comply • with the terms of all Governmental Approvals and other Applicable Law pertaining to the Project, Raw Water and Finished Water, notwithstanding the fact that the Company may not be a permittee or co-permittee to some of the Governmental Approvals. (B) Sampling,Testing and Laboratory Work. The Company shall perform and • provide all sampling, laboratory testing and analyses, and quality assurance and quality control procedures and programs required by the Contract Standards. All testing laboratories shall be CADHS and EPA, as applicable, certified for the applicable test. All sampling and test data shall be available for review by, and reported to, the District in accordance with Section 8.14 and • Appendix 16. The Company explicitly assumes the risk of incorrect sampling, testing and laboratory work and any consequences thereof or actions taken or corrections needed based thereon, whether such work is performed by itself or third parties, both as to failures to detect and as to false detections. The Company shall permit the District, at the District's expense, to • perform any testing, sampling or analytical procedure it deems appropriate,using the Project or otherwise. (C) InvestigationsofNon-Compliance. In connection with any actual or alleged event of non-compliance with Applicable Law,the Company shall,in addition to any other duties • which Applicable Law may impose: (1) fully and promptly respond to all inquiries,investigations, inspections, and examinations undertaken by any Governmental Body; (2) attend all meetings and hearings required by any Governmental Body;(3)provide all corrective action plans,reports, submittals and documentation required by any Governmental Body; (4) in conjunction with the • District, communicate in a timely and effective manner with the general public as to the nature of the event,the impact on the public, and the nature and timetable for the planned remediation measures; and(5) immediately upon receipt thereof, provide the District with a true, correct and complete copy of any written notice of violation or non-compliance with Applicable Law,and true • and accurate transcripts of any verbal notice of non-compliance with Applicable Law, issued or given by any Governmental Body. The Company shall furnish the District with an immediate written notice describing the occurrence of any event or the existence of any circumstance which does or may result in any such notice of violation or non-compliance to the extent the Company • 90 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management has knowledge of any such event or circumstance, and of any Legal Proceeding alleging such • non-compliance. (D) Fines, Penalties and Remediation. Except to the extent excused by Uncontrollable Circumstances or District Fault, in the event that the Company or any Subcontractor fails at any time to comply with Applicable Law with respect to the Project, Raw • Water, Finished Water, air emissions, odor, Residuals or other environmental or operating conditions, the Company shall, without limiting any other remedy available to the District upon such an occurrence and notwithstanding any other provision of this Service Contract: (1) immediately correct such failure and resume compliance with Applicable Lav, (2) bear all • Loss-and-Expense of the Company and indemnify and hold harmless the District from any Loss and Expense resulting therefrom; (3) pay or reimburse the District for any resulting damages, fines, assessments, levies, impositions, penalties or other charges; (4) make all Capital Modifications and changes in operating and management practices which are necessary to assure • that the failure of compliance with Applicable Law will not recur; and (5) comply with any corrective action plan filed with or mandated by any Governmental Body in order to remedy a failure of the Company to comply with Applicable Law. (E) No Nuisance Covenant. The Company shall keep the Project neat, clean • and litter-free at all times,ensure that the operation of the Project does not create any odor,litter, noise, fugitive dust, vector, excessive light or other adverse environmental effects constituting, with respect to each of the foregoing, a nuisance condition under Applicable Law. Should any such nuisance condition occur which is not caused by Uncontrollable Circumstances, the • Company shall immediately remedy the condition, pay any fines or penalties relating thereto, make all Capital Modifications and changes in operating and management practices necessary to prevent a recurrence of the nuisance condition, and indemnify and hold harmless the District from any Loss-and Expense relating thereto in the manner provided in Section 14.3. • (F) Effects of Construction Activiri. The District acknowledges that the construction of the Plant using the cast-and-drill foundation construction process will create certain unavoidable adverse environmental impacts affecting the City Hall, adjacent structures and surrounding property, including continuous ground vibration, large amounts of temporary • muck, and additional large vehicles in the traffic pattern. The Company shall use its best reasonable efforts to minimize the duration and extent of such adverse environmental effects,and in any event shall comply with Applicable Law and not create a nuisance condition under Applicable Law. • 91 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management SECTION 8.11. OPERATING GOVERNMENTAL APPROVALS. (A) Applications • and Submittals. The Company shall make all filings,applications and reports necessary to obtain and maintain all Governmental Approvals required to be made, obtained or maintained by or in the name of the Company or the District under Applicable Law in order to operate the Project, including those set forth in Appendix 9. With respect to Governmental Approvals which are • required to be obtained in the name of the District,the Company shall:(1)prepare the application and develop and furnish all necessary supporting material; (2) supply all data and information which may be required; (3) familiarize itself with the terms and conditions of such Governmental Approvals; (4) attend all required meetings and hearings; and(5) take all other action necessary • in obtaining, maintaining, renewing, extending and complying with the terms of such Governmental Approvals. Except asset forth in subsection 4.2(A),permit and filing fees required in order to obtain and maintain Governmental Approvals for the Contract Services shall be paid by the Company, regardless of the identity of the applicant, except Governmental Approvals • required in connection with an Uncontrollable Circumstance. The Company shall agree to be named as a co-permittee on any Governmental Approval if so required by the issuing Governmental Body. The Company shall not knowingly disadvantage the District in any application, data submittal or other communication with any Governmental Body regarding • Governmental Approvals. The final terms and conditions of any Governmental Approval shall be subject to the District's approval. (B) Data and Information. All data, information and action required to be supplied or taken in connection with the Governmental Approvals required for the Contract • Services shall be supplied and taken on a timely basis considering the requirements of Applicable Law and the responsibilities of the District as the beneficial owner of the Project and primary permittee. The data and information supplied by the Company to the District and all regulatory agencies in connection therewith shall be correct and complete in all material respects,and shall • be submitted in draft form to the District sufficiently in advance to allow full and meaningful review and comment by the District. To the extent that a Change in Law subsequent to the Contract Date requires additional information or data to be supplied for Governmental Approvals, the Company shall be reimbursed for the reasonable additional costs incurred by the Company • to collect, develop and provide such data. The Company shall be responsible for any schedule and cost consequences which may result from the submission of materially incorrect or incomplete information. The District reserves the right to reject, modify, alter, amend, delete or supplement any information supplied by the Company pursuant to this Section. The District • shall pay the costs of collecting, developing and providing any additional data and information 92 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management which must be supplied to a Governmental Body for a Governmental Approval as the result of any • Change in Law. (C) Non-Compliance and Enforcement. The Company shall report to the District,immediately upon obtaining knowledge thereof,all violations of the terms and conditions of any Governmental Approval or Applicable Law pertaining to the Project. The unexcused failure • of the Company to comply with any Governmental Approval shall constitute a breach of this Service Contract as well as an event of non-compliance with the Governmental Approval and shall, with respect to unexcused failures to comply with water quality standards, obligate the Company to pay liquidated damages as and to the extent provided in subsection 9.2 (C) and • Appendix 7. (D) Reports to Governmental Bodies. The Company shall prepare all periodic and annual reports, make all information submittals and provide all notices to all Governmental Bodies required by all Governmental Approvals and under Applicable Law with respect to the • Project,including sampling and testing results and monthly discharge monitoring reports. Such reports shall contain all information required by the Governmental Body, and may be identical to comparable reports prepared for the District,if such are acceptable to the Governmental Body. The Company first shall provide the District with copies of such regulatory reports for review, • comment and signature, as applicable, at least seven days before their filing with the Governmental Body and, in any case,within 15 days after the end of each month, and then with the Governmental Body. The District shall review, comment upon and sign such reports in a timely manner, and any unjustified failure or delay by the District signing in any required • regulatory report shall constitute an Uncontrollable Circumstance affecting the Company hereunder. Neither party shall interfere with any regulatory reporting responsibility of the other party under Applicable Law. The Company shall provide the Trustee with copies of such reports within 30 days after such reports are provided to the Governmental Bodies. • (E) Potential Regulatory Change.The Company shall keep the District regularly advised as to potential changes in regulatory requirements affecting the water treatment industry and the Project, and provide recommended responses to such potential changes so as to mitigate any possible adverse economic impact on the District should a Change in Law actually occur.The • Company, at the request of the District, shall participate in performance evaluation surveys conducted by the CADHS and the EPA. SECTION 8.12. DISTRICT ACCESS TO PROJECT. The District shall have the right at any time, on a 24-hour per day, 365-day per year basis, to visit and inspect the Project • and observe the Company's performance of the Contract Services.The Company shall permit and 93 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management facilitate access to the Project for such purposes by District personnel and by agents and • contractors designated by the District. All such District visitors shall comply with the Company's reasonable operating and safety procedures and rules,and shall not interfere with the Company's operations of the Project,but no Company rule or procedure shall unreasonably impede, impair or delay such access. Keys or passwords,as applicable,for the facilities or structures comprising • the Project shall be provided to the District's Contract Administrator by the Company in accordance with the Company's physical security plan and key control program. When visiting any portion of the Project that is staffed by the Company at the time of the visit, all District employees, agents and contractors shall announce themselves to the staff and Company • employees may elect to accompany any District employees, agents and contractors during the visit. The District shall indemnify the Company pursuant to Section 14.4 herein for any damages or injuries caused by the District during District representatives or District invitee visits to the Project. • SECTION 8.13. ASSET AND FINANCIAL RECORDS. (A) Proiect Records. The Company, on and after the Acceptance Date, shall maintain a computerized information system with respect to the Project for operations and maintenance data and process control, including the information necessary to verify calculations made pursuant to this Service Contract and • demonstrate compliance with the Contract Standards. Daily log books may be kept manually. The Company shall promptly provide the District, upon reasonable request, with copies of all operations and maintenance data and other information kept by the Company in its performance of the Contract Services. • (B) Availability of Project Records to District. The Company shall make available to the District all operations, maintenance, performance, Plant By-Products management, process control and similar non-financial records and data as are available to the Company's Facilities Manager. The District shall have real time,continuous,read-only computer • access to such records and data, and hard copy reproduction capability, through information systems installed and maintained by the Company at a location in the District outside the Plant designated by the District. (C) Record Documents. The Company shall maintain at the Project and make • available to the District upon request for review and copying: (1) all final designs, drawings, blueprints, plans, specifications and"as-built"or record drawings and documents pertaining to the Project copies of which were delivered to the District by the Company pursuant to Appendix 6; and(2) similar documents relating to any Capital Modifications.The Company shall: • (1) keep current all such records to show any changes to the Project (including valves, pipes, 94 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management pumps, meters and other assets) made by the Company in the performance of the Contract • Services; and (2) provide advice and assistance to the District, based on such records, in establishing and maintaining any District geographic mapping and information systems. (D) Financial Records. The Company shall prepare and maintain proper, accurate, complete and current financial books, records and accounts, in accordance with • generally accepted accounting principles, with respect to all aspects of the Project and Contract Services, including direct and indirect personnel expenses, Subcontractor costs, the costs of material, equipment and supplies, maintenance, repair and replacement items, operating expenses and overhead. These financial records shall be in form and substance sufficient to • support all financial reporting, including Cost Substantiation,required hereunder. In the event the Company fails to prepare or maintain any books,records or accounts as required under this Section, the Company shall not be entitled to any requested payments or adjustment for which Cost Substantiation was required hereunder to the extent such failure prevented Cost • Substantiation. The Company shall keep the relevant portions of the books, records and accounts maintained with respect to each Contract Year until at least the third anniversary of the last day of each such Contract Year(or such longer period as may be appropriate to account for any dispute then pending). For those circumstances that require Cost Substantiation under • Section 16.6, the Company shall make such books and records available to the District for inspection, audit and copying upon reasonable notice during business hours to the extent necessary to allow the District to determine to its reasonable satisfaction the accuracy, completeness, currency and propriety of any charge or request for payment hereunder. • (E) Annual Audited Report Required under the Act. Notwithstanding any other provision hereof, in accordance with Section 5956.6 of the California Government Code, the Company shall prepare an annual audited report accounting for the income received and expenses to operate the Project, and shall make that report available to the District and,for a cost • not to exceed the cost of production of the report, to any member of the general public. (F) Information Required Under the Metropolitan Agreement. Notwithstanding any other provision hereof,the Company shall furnish to the District and to Metropolitan all data and information required under the Metropolitan Agreement at the time and in the form required • thereunder. The Company shall comply with all Metropolitan requests for data and information made by Metropolitan in compliance therewith, and shall not take or fail to take any action with respect to data and information submittals required under the Metropolitan Agreement which would result in a District breach of the Metropolitan Agreement. The Company acknowledges • that the data and information which may be required to be submitted under the Metropolitan 95 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management Agreement may result in the disclosure of profit and loss information and balance sheet and • financial statement information which the Company would otherwise deem proprietary,and that data and information pertaining to cost may be required to be disclosed in a format(such as that required by Exhibits A, B and C of the Metropolitan Agreement) which is unique and may require special record keeping and accounting practices to be followed. The Company also shall • cooperate with and assist the District, should the Final GRP Contribution be required to be determined on the basis of the Company's internal costs rather than on the basis of the District's Service Fee payable hereunder, in asserting the District's view that in such circumstances any operating profits should be reduced by prior years' operating losses plus interest from the time • the loss was incurred. If the Company complies with its obligations with respect to the Metropolitan Agreement under this subsection and under Section 8.9, the Company shall have no responsibility for any disputes the District may have with Metropolitan as to the proper determination of the amount of the Final GRP Contribution under the Metropolitan Agreement. (G) Inspection, Audit and Adjustment. The District shall have the right to perform or commission an inspection or independent audit of the financial information required to be kept under this Section, subject to possible reimbursement as provided in this Section. If an inspection or audit reveals that the Company has overstated the Service Fee, then the • Company shall, at the election of the District, either immediately reimburse to the District or offset against future Service Fee payments, as a Service Fee adjustment,the overstated amount, in addition to interest, from the time such amount was initially overpaid until reimbursed or credited to the District, at the Prime Rate. If an inspection or audit contemplated by this • Section discloses an overpayment of the Service Fee to the Company of 1% or more of the total amount that should have been properly paid by the District during the period audited, then the Company shall, in addition to the reimbursement or credit of such overpaid amount, with interest, reimburse the District for any and all Fees and Costs incurred in connection with the • inspection or audit.The foregoing remedies shall be in addition to any other remedies the District may have, including remedies for an Event of Default by the Company. SECTION 8.14. PERIODIC REPORTS. (A) Monthly Operations. The Company shall provide the District with monthly operations reports,in a form mutually agreed upon by the • parties, no later than 15 days after the end of each Billing Period, including the following operating data: (1) a summary of all notices and laboratory tests and other reports filed with or received from all Governmental Bodies pursuant to the Governmental Approvals; • 96 368012.15 022806 AGMT s Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management (2) a summary of the quantities, qualities and characteristics of Raw Water, • Finished Water, Brine and Residuals produced during such month; (3) a summary of quantities and types of chemicals and other agents used in the treatment of Raw Water; (4) the quantities of electricity, natural gas, water and other Utility services • used during such month; (5) a description of the quantities (expressed in volume and weight) of Residuals generated in the month, and the nature and location of their disposal; (6) a summary and description of the static water levels during such month; • (7) a summary and description of the pumping water levels and pumping rates during such month; (8) a summary and description of the status and production of Wells during such month; • (9) a summary of the quantities and qualities of wastewater that is disposed of through the District's sewer system during such month; (10) a summary and description of the blending percentages of the Finished Water and the recovery of the Water System during such month; • (11) a summary of any noise or other complaints made relating to the Company's performance of the Contract Services, and a description of the action taken by the Company to respond to and address such complaints and to prevent similar complaints in the future; • (12) the Company's personnel organizational chart for the Project; (13) a description of the maintenance, repair and replacement activities performed and Capital Modifications made during the prior month and anticipated during the current month; (14) a list of Project property disposed of as surplus property pursuant to Section 10.5; (15) a list of major machinery and equipment which was out of service during the prior month, and a timetable for repair and replacement; • (16) any adverse conditions which may reasonably be expected to arise during the current month that may affect the ability of the Company to receive Raw Water and produce Finished Water in accordance herewith; (17) the results of any regulatory or property insurance inspections conducted • during the prior month and all activities performed to comply with such inspections; 97 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article VIII - Operation and Management (18) information on any Utility outages occurring during the prior month; • (19) any failure to meet the Enhanced Standards; (20) the results of any environmental, health or safety tests or monitoring procedures conducted by any Governmental Body, during the prior month, and copies of any reports or other submittals made to or received from any such Governmental Body; • and (21) any notices of violations of any Governmental Approval received during the prior month. The Company shall provide the Trustee with reports setting forth a summary of the above- referenced operating data on a quarterly basis. (B) Annual Operations and Maintenance Reports. The Company shall furnish the District, the Trustee and the Independent Engineer, within 60 days after the end of each Contract Year, an annual summary of the information contained in the monthly operations reports in the form of a summary report and analysis of Project operations during such Contract Year.The Company shall also perform and report to the District,as part of its annual operations report, the results of a comprehensive performance evaluation which reviews and analyzes the administrative, operational and maintenance practices employed in the management of the • Project. (C) Default Reports. The Company shall provide to the District and the Trustee, immediately after the receipt thereof, copies of any written notice of a material default, breach or noncompliance received or sent under or in connection with the Subcontracts relating to design, construction and membrane system services and equipment, the Construction Loan Agreement, and the Sale and Assignment Agreement. (D) Permit Communications and Reports. The Company shall provide to the District copies of all communications and reports furnished to any Governmental Body pursuant to Section 8.11 simultaneously with their submittal to the Governmental Body. Such reports shall be provided to the Trustee within 30 days after their submittal to the Governmental Body. SECTION 8.15. EMERGENCIES. (A) EmeI¢encV Plan. Within 60 days following the Acceptance Date, the Company shall provide the District with a plan of action to be implemented in the event of an emergency,including fire,weather,environmental,health,safety and other potential emergency conditions. The plan shall:(1)provide for appropriate notifications to the District and all other Governmental Bodies having jurisdiction and for measures which facilitate coordinated emergency response actions by the District and all such other appropriate • Governmental Bodies; (2) specifically include spill prevention and response measures; and 98 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article Vlll - Operation and Management (3) assure the timely availability of all personnel required to respond to any emergency (no later • than two hours during nights, weekends or holidays). The emergency plan shall be reviewed by the parties annually as part of the review of the annual operations report, and updated when necessary. (B) Emergency Action. Notwithstanding any requirement of this Service • Contract requiring District approval or consent to reports or submittals, if at any time the Company determines in good faith that an emergency situation exists such that action must be taken to protect the safety of the public or its employees, to protect the safety or integrity of the Project, or to mitigate the immediate consequences of an emergency event, then the Company shall take all such action it deems in good faith to be reasonable and appropriate under the circumstances. As promptly thereafter as is reasonable, the Company shall notify the District of the event at an emergency phone number from a list supplied by the District, and the Company's response thereto. The cost of the Company's response measures shall be borne by • the Company except to the extent the emergency event was caused by an Uncontrollable Circumstance or District Fault, in which case the District shall bear the cost. SECTION 8.16. COST REDUCTION AND SERVICE IMPROVEMENT. In the event either party offers the other party any idea,approach or concept for lowering the Company's cost, reducing the District's Service Fee or total costs, or improving the Company's service, the other party shall reasonably consider and explore the development and implementation of the concept. Neither party shall be obligated to negotiate or to agree to amend this Service Contract to effectuate any such idea, approach or concept except in its sole discretion and upon terms and conditions acceptable to it. r • 99 368012.15 022806 AGMT ARTICLE IX PERFORMANCE SECTION 9.1. WATER SYSTEM. (A) Reliance. The Company acknowledges that the Project will constitute a primary component of the Water System and that the District, in meeting the water supply requirements of the Service Area, is providing an essential public service, and in complying with Applicable Law, will rely on the performance by the Company of its obligations hereunder. (B) District Management ofWater System. Except for the property and facilities delineated in Appendix 1 as being subject to the management responsibility of the Company,the District has and shall retain full management responsibility for the Water System. (C) Project Interface with Water System. The Company shall manage the Project in a manner which serves and complements the requirements of the Water System and in accordance herewith, and agrees that no provision hereof shall confer upon the Company any right the exercise of which may adversely affect the Water System or the ability of the District to • operate the Water System in a manner which serves the water needs of the Service Area in compliance with Applicable Law. (D) Water Ownership and Limitations on Company Rights. The District is and shall remain the owner of all Raw Water and the Finished Water, notwithstanding the services provided by the Company hereunder. The Company shall not treat water other than Raw Water, and shall not use the Project for any purpose other than the purposes contemplated hereby or to serve or benefit any person other than the District and its customers in the Service Area. The Company shall not impose a fee or charge on any person for the supply of Finished Water. The • only compensation to the Company for providing the Operation Services shall be the Service Fee payable by the District hereunder. SECTION 9.2. WATER TREATMENT GUARANTEE. (A) Applicable Law Limits. Except to the extent relieved by Uncontrollable Circumstances or District Fault, the Company shall operate the Project on a continuous 24-hour per day, 7-day per week basis so as to treat Raw Water and to produce and distribute Finished Water to the Water System in compliance with the requirements of Applicable Law. (B) Enhanced Standards. In addition to its obligations to comply with the Finished Water requirements imposed by Applicable Law as provided in subsection (A) of this Section and except to the extent relieved for Uncontrollable Circumstances or District Fault,the Company shall treat Raw Water and produce and distribute Finished Water in compliance with the contract requirements set forth in Appendix 2 (the "Enhanced Standards"), except that with respect to the Enhanced Standards established in Table 2-2 of Appendix 2, the Company shall be obligated only to use its best reasonable efforts to achieve such Enhanced Standards. 100 368012.15 022806 AGMT s Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX- Performance (C) Liquidated Damages and Other Remedies for Breach of Water Treatment Guarantee. Except to the extent relieved for Uncontrollable Circumstances or District Fault,the Company shall pay liquidated damages in the amounts set forth in Appendix 7 (which amounts shall not be subject to escalation) for the Company's failure to comply with certain Water Treatment Guarantee parameters. These liquidated damages have been established to address minor, occasional exceedences of the applicable regulatory standards and the Enhanced Standards. Major or repeated unexcused failures of compliance with the Water Treatment Guarantee are not intended to be events of non-compliance as to which liquidated damages apply, but instead shall be deemed to be breaches of this Service Contract, as to which the • District may seek actual damages and exercise its other remedies under Section 13.1. The District shall have no right of termination except pursuant to Section 13.2 upon the occurrence of a material breach. If any such unexcused failure by the Company to comply with the Water Treatment Guarantee results in a requirement that a"boil water"or other public notice be issued, or results in a significant regulatory enforcement action by a Governmental Body,the nature and extent of the unexcused non-compliance and of the resulting public notice or regulatory enforcement action shall be taken into account in determining the level of actual damages and establishing any other remedies which are appropriate to the breach. • (D) Applicability of Water Treatment Guarantee. The Water Treatment Guarantee shall apply,except to the extent excused by Uncontrollable Circumstances or District Fault, (1) without any allowance for scheduled or unscheduled downtime or Plant maintenance, repair or replacement, which the Company acknowledges has been factored into the Water Treatment Guarantee, and (2) so long as the actual Raw Water supply conditions are in conformity with the Design Raw Water Quality Parameters. (E) Conditions to Relief. In the event and for any period during which the actual Raw Water supply conditions are not in conformity with the Design Raw Water Quality Parameters, the Company shall use its best reasonable efforts to comply with the Water Treatment Guarantee during the period of non-conformity. Any such non-conformity of the actual Raw Water supply conditions with the Design Raw Water Quality Parameters shall be considered to be an Uncontrollable Circumstance hereunder. • (F) Indemnity for Loss-and-Expense from Non-Complying Finished Water. In the event that any Finished Water supplied to the Water System fails to comply with the requirements of subsections (A) and (B) of this Section, except to the extent such failure of compliance is caused by an Uncontrollable Circumstance or District Fault, the Company shall • indemnify,defend and hold harmless the District and the District Indemnities in accordance with 101 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX - Performance Section 14.3 from the Loss-and-Expense of any tort, environmental, contract or other liability • resulting in any Legal Proceeding originated by any third party arising from the supply of such non-complying Finished Water. This indemnity shall extend to any liability resulting from property loss or damage or death or personal injury suffered or alleged to be suffered by any person from exposure to or as a result of using or consuming such non-complying Finished Water • based on any theory ofrecovery,including theories of product liability,toxic tort or environmental impairment. The Loss-and-Expense to which the indemnity provided in this Section extends shall not be construed to constitute consequential or other damages as set forth in Section 13.13, as to which both parties have waived any rights of recovery. (G) Change in Law Affecting Finished Water. The parties acknowledge that a Change in Law may affect Finished Water standards or impose more stringent requirements relating to equipment or processes than those established hereunder as of December 31, 2001. In the event a Change in Law occurs, the Company shall not be entitled to performance relief or • additional compensation under Section 14.2 unless: (1)such Change in Lawimposes aregulatory standard or operating requirement with respect to any particular Finished Water characteristic or parameter which is more stringent or burdensome to comply with than the Contract Standards applicable to such characteristic or parameter, or requires equipment or processes not then in place or practiced at the Project; and (2) the Company is unable, after taking all reasonable mitigation measures required under Section 14.2 with respect to such a Change in Law,to avoid the necessity for such performance relief or additional compensation. SECTION 9.3. WATER DELIVERY GUARANTEE. (A) District Demand Rights. Except as provided in subsections (H) and (1) of this Section with respect to scheduled and unscheduled Plant downtime and except as the Company's obligations hereunder may be limited upon the occurrence of an Uncontrollable Circumstance or District Fault,the District shall have the right throughout the Operation Period to demand the delivery of Finished Water to the Finished Water Transmission Line at Flow Rates of 5.14, 2.57 or 0 MGD reflecting two-train or single train operation, or full shut down. The Company shall use its best efforts, within the physical capacity of the Plant, to meet the District's demand for the delivery of Finished Water in accordance with the provisions of this Section. • (B) Proiected Firm Demand Schedule. The District shall furnish weekly advance demand estimates to the Company. Such estimates may be provided by the District during or at any time before the week preceding the week to which the estimates apply. For example, 52 weekly estimates may be given at the commencement of each Contract Year. Not later than the close of business on each day (5 p.m. Pacific Time) during the Operation Period, 102 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX- Performance the District shall furnish the Company with a firm Finished Water demand schedule for the following day(midnight to midnight), which may conform to or deviate from the advance weekly estimate. The schedule shall specify the Flow Rates for the entire 24-hour period and may call for no more than eight Flow Rate changes to the Finished Water Transmission Line. (C) Modified Firm Demand Schedule. The District shall have the right on any day to modify the firm Finished Water demand schedule which was established on the prior day, subject to the following limitations: (1)no modification in Flow Rate demand shall take effect less than four hours after the modification is requested; and (2) in any event, the Flow Rates scheduled on the prior day shall not be changed more than four times during any day. • (D) Establishing Firm Daily Water Demand Volumes. The "Firm Daily Water Demand Volume", for purposes of this Service Contract, shall be the volume of Finished Water demanded by the District based on the Flow Rates specified in the "day-before" firm Finished Water demand schedules furnished by the District pursuant to subsection(B) of this Section, as adjusted by any "day-of' modifications thereto made by the District pursuant to subsection (C) of this Section. The District and the Company, by mutual agreement from time to time and as appropriate, shall establish the means of communication by which defuritive District Finished Water demands may be made and definitive Company confirmations may be given, and • appropriate evidence thereof. Except to the extent excused by Uncontrollable Circumstances or District Fault and except as adjusted pursuant to subsections (H) and (1) of this Section, the Company shall operate the Project so as to deliver Finished Water to the District each day during the Operation Period in volumes at least equal to the Firm Daily Water Demand Volume established under this subsection with respect to such day (the "Water Delivery Guarantee"). (E) Surplus Water Deliveries. The Company may not deliver Finished Water to the District on any day during the months of December, January, February and March, in a volume which is greater than the Firm Daily Water Demand Volume established by the District with respect to such day. The Company may, however, during the months of April through November, deliver Finished Water to the District on any day in a volume up to 5% more (or up to 9%more, subject to District approval)than the Firm Daily Water Demand Volume established by the District with respect to such day,but subject to a maximum overall limit of 5,231 acre feet per Contract Year. The purpose of the Company's surplus delivery rights under this Section is to give the Company an opportunity to mitigate any daily delivery shortfalls occurring in a Contract Year. The Company shall not be entitled to any additional compensation for any such surplus daily deliveries. The Company shall give reasonable notice to the District of its intention to make any such surplus deliveries. The Company shall have the right to apply surplus water 103 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article 1X- Performance deliveries achieved in the first 60 days of any Contract Year against Finished Water delivery shortfalls occurring in the last 60 days of the preceding Contract Year, so as to reduce any liquidated damages that may be payable pursuant to subsection (F) of this Section. (F) Liquidated Damages. If, in any Contract Year, (1) the cumulative amount of any Finished Water delivery shortfalls under the Water Delivery Guarantee pursuant to subsection (D) of this Section exceeds (2) the cumulative amount of any permissible surplus Finished Water deliveries pursuant to subsection (E) of this Section, the Company shall pay liquidated damages to the District, for each acre foot of such Finished Water delivery shortfalls, in an amount equal to the sum of(1) Metropolitan's Prevailing Full Service Treated Water Rate (expressed in dollars per acre foot) plus, (2) the Final GRP Contribution with respect to such Contract Year (expressed in dollars per acre foot), plus (3) the administrative and operation and maintenance charge (expressed in dollars per acre foot)imposed by MWDOC on the District with respect to such Contract Year (exclusive of any elements thereof which are attributable to r services provided by MWDOC which are substantially different in scope or quantity than the services historically provided by MWDOC to the District prior to the Contract Date); provided, however, that the amount described in item (2) shall not be payable if,pursuant to Section 7.13, the Metropolitan Agreement has been terminated in the circumstances described therein and the Company has paid liquidated damages as a result thereof as and to the extent provided therein. (G) Extraordinary Flow Rate Change. The District shall have the right at any time during which the Plant is not shut down for scheduled or unscheduled maintenance, repair or replacement and for any emergency or other reasonable purpose to require the Company to change the Flow Rate upon 60 minutes notice,notwithstanding the four-hour notice requirement for Flow Rate changes provided in subsection(C) of this Section. The District also shall have the right to require the Company during any shutdown to resume normal operations as expeditiously as practicable for any such purpose. Any such extraordinary Flow Rate change or resumption of operations required under this subsection shall be considered an Uncontrollable Circumstance, and the Company shall be relieved of its normal obligations under this Section. Notwithstanding the foregoing, the Company shall use its best reasonable efforts to comply with Section 9.5 in responding to any extraordinary Flow Rate changes under this subsection. • (H) Permitted Downtime for Scheduled Maintenance.Repair and Replacement Activities. The Company shall be permitted to schedule downtime for Plant maintenance,repair or replacement as follows: (1) Winter Months. In each of the months of December, January, February and March, the Company may schedule 2 days of no Finished Water production. In 104 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX- Performance addition, in the months of January, February and March, the Company may schedule 7 days of Finished Water production of not more than 2.57 MGD. For each successive day on which the Company schedules no Finished Water production, the Company shall operate the Plant at a Flow Rate of 5.14 MGD (or such lesser volume as may be requested by the District) for two days in succession thereafter before scheduling additional downtime. For example, a block of 2 days in succession on which no Finished Water production is scheduled shall be followed by 4 successive days of production at a Flow Rate of 5.14 MGD. For each successive day on which the Company schedules at a Flow Rate of not more than 2.57 MGD of Finished Water production, the Company shall operate the Plant at a Flow Rate of 5.14 MGD (or such lesser volume as may be requested by the District) for one day in succession thereafter before scheduling additional downtime. For example, a block of 7 days in succession on which Finished Water production is scheduled at a Flow Rate of 2.57 MGD shall be followed by 7 successive f days of Finished Water production at a Flow Rate of 5.14 MGD. Scheduled downtime shall not overlap successive months. (2) Summer Months. In the period from April 1 through November 30, the Company may schedule 12 days of no Finished Water production. There shall be no more than 1.5 days of such scheduled downtime per month during such eight month period. Scheduled downtime shall not overlap successive months. In order for the District to coordinate such scheduled downtime with customer demand and water availability from other sources,the Company shall provide the District with 90 days prior written notice of the proposed dates for undertaking such scheduled maintenance activities. Downtime shall not be scheduled at times which may overlap with periods during which Metropolitan may reasonably be expected to be unable to provide potable water to meet the District's full demand. On any day on which the Plant is shut down in accordance with this subsection,the District shall not have the right to demand Finished Water under subsection (A) of this Section. (I) Permitted Downtime for Unscheduled Maintenance, Repair and Replacement. In addition to its shutdown rights under subsection (J) of this Section, the Company shall also be entitled to take 3 days in each Contract Year on which no Finished Water is produced, and shut down the Plant in order to conduct unscheduled maintenance,repair and replacement work, without restriction as to the month in which such days are taken. The Company shall use its best efforts to minimize the duration of such unscheduled periods of downtime,and any adverse effect on the District's water supply to its customers. On any day on 105 368012.15 022806 AGMT s • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX - Performance which the Plant is shut down in accordance with this subsection, the District shall not have the • right to demand Finished Water under subsection (A) of this Section. (J) District-Directed Curtailments and Shutdowns. The Company acknowledges that operating conditions in the Water System as a whole may require the immediate curtailment or cessation of delivery of Finished Water from the Plant. Such conditions may occur as a result of mechanical or structural failure within the Water System, emergency conditions originating in other parts of the Water System or other unexpected factors. The Company shall curtail or cease supplying Finished Water at the Finished Water Pumping Station immediately upon receipt by the Company's Contract Representative or the Facilities Manager of such a directive by the District's Contract Representative, and the issuance of any such directive shall constitute an Uncontrollable Circumstance. The Company shall resume operations of the Plant within 24 hours of receipt by the Company of a written resumption directive issued by the District's Contract Representative. (K) No District Obligation to Demand Water. The District shall have the right, but not the obligation, during the Operation Period to demand Finished Water in accordance herewith. The District shall pay the Service Fee as provided in Article XII irrespective of the volume of Finished Water actually demanded by the District hereunder, but shall not be liable in damages or otherwise for any failure to demand Finished Water. (L) Insufficiency of Wellfield Supply of Raw Water. In the event that at any time during the Term hereof the eight Wells originally installed by the Company, when designed, constructed, operated and maintained by the Company in accordance with the Contract Standards, do not produce a supply of Raw Water sufficient to enable the Company to meet the Water Delivery Guarantee, the Company shall design, drill, construct, install and operate additional Wells in the Wellfield as required to provide an adequate supply of Raw Water. If a ninth or further additional Wells are required, the District shall bear all of the capital and additional operating, maintenance, repair and replacement costs of such tenth and additional Wells and related pipelines required to connect the Well to the existing Wellfield. The District shall pay the electricity bills incurred from the operation of all such additional wells, as provided and subject to the limitations set forth in subsection 8.7(B). The Company shall be relieved of its obligation to comply with the Water Delivery Guarantee to the extent of such Raw Water supply insufficiency,pending the completion of the additionally required Wells. The District shall have the right to direct the Company to design, drill, construct, install and operate such additional Wells to remedy any such insufficiency, or to modify the Water Delivery Guarantee to • account for such insufficiency. The Company shall mitigate,to the maximum extent practicable, 106 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX - Performance any such additional costs to be borne by the District in the event that groundwater supplies thereafter increase to a level sufficient to permit the discontinuance of the operation of some or all of such additional Wells. SECTION 9.4. PRODUCTION EFFICIENCY GUARANTEE. Except to the extent excused by Uncontrollable Circumstances or District Fault, the Company shall operate the Project to achieve a Raw Water to Finished Water production efficiency of no less than 80%of the Raw Water volumes over the course of each Contract Year following the Acceptance Date. SECTION 9.5. HYDRAULIC TRANSIENTS GUARANTEE. Except to the extent relieved for Uncontrollable Circumstances or District Fault, the Company shall operate the Project so as to avoid the occurrence of sudden, significant changes in the Flow Rate and pressure of Finished Water delivered to the Water System. SECTION 9.6. DISTRICT REMEDIES FOR NON-COMPLIANCE WITH PERFORMANCE GUARANTEES. If the Company fails to comply with any Performance Guarantee and is not excused from performance as a result of an Uncontrollable Circumstance or District Fault,the Company shall,without relief under any other Performance Guarantee,and in addition to any other remedy provided herein, allowed by Applicable Law or required by a Governmental Body: (1) promptly notify the District within 24 hours of the Company's having knowledge of any such non-compliance;(2)promptly provide the District within 24 hours with copies of any notices sent to or received from the EPA,the CADHS or any other Governmental Body having regulatory jurisdiction with respect to any violations of Applicable Law; (3) pay liquidated damages in the amounts provided for herein; (4) pay (directly, if levied against the Company and through the indemnification provisions of Section 14.3 if levied against the District) any other resulting damages,fines,levies,assessments,impositions,penalties or other charges resulting therefrom; (5) take any action (including, without limitation, making all repairs, replacements, Capital Modifications and operating and management practices changes) necessary, in light of the • nature, extent and repetitiveness of such non-compliance, in order to comply with such Performance Guarantee,to continue or resume performance hereunder and eliminate the cause of, and to assure that such non-compliance will not recur; (6) promptly prepare all public notifications required by Applicable Law, and submit such notifications for publication; and • (7)assist the District with all public relations matters necessary to adequately address any public concern caused by such non-compliance, including, but not limited to, preparation of press releases, attendance at press conferences, and participation in public information sessions and meetings. • 107 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX - Performance SECTION 9.7. SERVICE COORDINATION. Prior to the commencement of each Contract Year, the Company and the District shall establish operating arrangements for the treatment of Raw Water at the Plant and the supply of Finished Water to the Water System, consistent with the Company's Performance Guarantees and the terms and conditions of this Service Contract. The operating arrangements shall set forth all practices and procedures which are necessary or useful in coordinating the activities of the parties hereunder, including particularly the establishment and modification from time to time of the District's demands for Finished Water, and all operational and informational communications between the District and the Company. The operating arrangements also shall provide for such matters as the parties may mutually deem necessary or desirable in the implementation of this Service Contract. The District's Contract Representative and the Company's Contract Representative shall be responsible for coordinating all matters relating to the operating arrangements. SECTION 9.8. METERING AND TESTING. (A) Testing. The Company shall conduct all tests of Raw Water and Finished Water at State certified laboratories to the extent required by the Contract Standards and shall be conducted at the Company's sole cost and expense, except to the extent such tests are required by a Change in Lav or any other Uncontrollable Circumstances and are not required under the terms hereof as of the Contract Date. (B) Metering and Weighing. The Company shall maintain in good working order, and repair and replace when necessary, devices at the Plant capable of: (1) metering the daily volume of Raw Water received; (2) metering the daily volume of Finished Water supplied; and(3) metering or weighing the daily amount of Plant By-Products for disposal. The District at all times shall have full access to such meters,instruments, controls,recorders,scales and other metering and weighing devices to determine their accuracy. All operating data produced by such metering and weighing devices shall be subject to audit,and shall be summarized in the monthly r operations reports delivered to the District pursuant to Section 8.14. All such metering and weighing devices shall be calibrated to the accuracy required by, and shall be operated and maintained in accordance with the requirements of, the Contract Standards. To the extent any metering or weighing device is incapacitated or is being tested, the Company shall estimate as accurately as practicable the data required by the Company to perform the Contract Services. This estimate and methodology shall, with the District's approval, be used as the basis for determining the operating data required hereunder during the outage. The District,accompanied by a Company representative,shall have the right to monitor,inspect and test such metering and weighing devices which are part of the Plant at any time and for any purpose, and to meter Raw 108 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX - Performance Water and Finished Water and to take measurements regarding Plant By-Products without unreasonably interfering with the Company's ordinary operations. If the District tests or inspects the metering or weighing devices outside the presence of a Company representative, the test or inspection results shall have no force and effect with respect to whether the devices comply with the Contract Standards. SECTION 9.9. RELEASES, LEAKS AND SPILLS. (A) Unauthorized Releases. The Company shall operate the Project in such a manner that Raw Water,Finished Water or Plant By-Products Will not contaminate, or be released, leak or spill on or into the environment other than as permitted by the Contract Standards. (B) Notification and Reporting. The Company,after first notifying the District, shall be responsible for fulfilling all notification of and reporting requirements established by Applicable Law related to any unauthorized release into the environment from or in connection with its operation and management of the Project. The Company shall prepare a memorandum evidencing such notification and reporting and provide copies thereof to the District, along with any documents provided to the relevant Governmental Body regarding the release. (C) Cleanup and Costs. The Company shall coordinate with the District in identifying the source of any unauthorized release and cooperate with the District and all appropriate Governmental Bodies in effectuating the prompt remediation thereof.The Company shall, in the most expeditious manner possible under the circumstances, cause any waste or material released without authorization to be cleaned up,removed from the Project or other point of release, and transported to and discharged or disposed of at a landfill or other disposal site which constitutes an Acceptable Disposal Site,and perform all necessary remediation measures. All costs associated with the identification,testing,cleanup,removal,transportation and disposal of such waste or material and performing necessary remediation measures shall be home by the Company, except to the extent the release of the waste or material resulted from an r Uncontrollable Circumstance or District Fault, in which case the appropriate portion of such costs shall be borne by the District. (D) Pre-Existing Environmental Conditions. The Company shall operate and manage the Project so as not to aggravate the effect of any Pre-Existing Environmental Condition. If at any time a Pre-Existing Environmental Condition is determined to exist which requires an action under Applicable Law,then the District shall within 60 days after written notice from any Governmental Body or the Company of the presence or existence thereof,or within 60 days after the District's obtaining actual knowledge thereof, commence and diligently prosecute such actions as may be necessary to dispose of, remediate or otherwise correct the Pre-Existing 109 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX - Performance Environmental Condition or otherwise make the Pre-Existing Environmental Condition comply with Applicable Law. The District shall have the right to contest any determination of a Pre- Existing Environmental Condition and shall not be required to take any action under this subsection so long as: (1) the District is contesting any determination of a Pre-Existing Environmental Condition in good faith by appropriate proceedings conducted with due diligence; (2)the District indemnifies the Company in connection therewith;and(3)Applicable Law permits continued operation of the Project pending resolution of the contest, so that the Company shall have no liability as a result of the failure of the District to dispose of, remediate or otherwise correct such Pre-Existing Environmental Condition during the period of contest. Notwithstanding • the foregoing, to the extent that a Pre-Existing Environmental Condition is discovered which causes imminent and substantial danger to human health and safety and adversely impacts the operation of the Plant, the District shall promptly take all necessary action to dispose of, remediate or otherwise mitigate such imminent condition. Any such Pre-Existing Environmental Condition or imminent Pre-Existing Environmental Condition shall constitute an Uncontrollable Circumstance which relieves Company of its obligations to perform hereunder. SECTION 9.10. COMPANY DISPOSAL OF RESIDUALS. (A) Residuals Management. The Company shall locate an Acceptable Disposal Site and make all necessary arrangements with the owner or operator thereof for the disposal of all Residuals during the Term of this Service Contract. The Company shall store Residuals at the Plant in an enclosed building in accordance with the Design Requirements. The Company shall operate the Plant and treat Raw Water so as to minimize the production of Residuals and comply with the Performance Guarantees. The Company shall transport all Residuals to an Acceptable Disposal Site in a safe and environmentally sound manner and in accordance with Applicable Law. (B) Acceptable Disposal Site. An "Acceptable Disposal Site" as used herein, means either a sanitary landfill or other waste disposal or management facility, which: (1) is • located in the United States; (2) does not appear on any federal or state list of sites, such as but not limited to the National Priority List or the CERCLIS list under CERCLA, maintained for the purpose of designating landfills which are reasonably expected to require remediation on account of the release or threat of release of Hazardous Materials; and (3) is being operated at the time • of disposal or delivery in accordance with Applicable Law, as evidenced by the absence of any significant regulatory sanctions or any significant enforcement actions with respect to material environmental matters. The Company shall provide evidence satisfactory to the District, from time to time as requested, that the intended disposal location conforms with the requirements • of this Section. 110 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX- Performance (C) Transportation Operations. In the event of a release, spill, leak or loss of Residuals during transfer or transit, the Company shall immediately arrange for the clean-up of the material and transportation to a Acceptable Disposal Site, pay any resulting fines, assessments,penalties or damages resulting therefrom in accordance with subsection(F) below. (D) Acceptable Disposal Site Information. The Company shall keep and maintain such logs, records, manifests, bills of lading or other documents pertaining to the Residuals as are necessary or appropriate to comply with Governmental Approvals and to monitor and confirm compliance by the Company with the requirements of this Section, and shall collect and promptly provide the District with a copy of all weights and measures data and information • relating to Residuals quantities generated and disposed of hereunder. (E) Documentation. The District, only to the extent required by Applicable Law,shall sign all permits,manifests or similar documents required for handling, transportation or disposal of Residuals. • (F) Indemnity. The Company shall indemnify, defend and hold and harmless the District in accordance with, and subject to the limitations set forth in, Section 14.3 from all Loss-and-Expense that may result from the generation, processing, transportation or disposal of Residuals. • SECTION 9.11. COMPANY DISPOSAL OF BRINE. The District shall pay a one- time fee of $599,640 to the Santa Margarita Water District for the purchase of the right to discharge up to 1.2 MGD of Brine concentrate, which Brine concentrate shall consist solely of reverse osmosis concentrate,into the Southeast Regional Reclamation Authority's ocean outfall. The parties acknowledge that the Project includes the construction and maintenance ofdischarge pipes connecting the Plant and such ocean outfall. In the event such ocean outfall becomes unavailable or restricted in use for the disposal of brine concentrate for any reason other than Company Fault, such unavailability or restriction shall constitute an Uncontrollable Circumstance, and the District shall pay the cost of providing an alternate disposal method and the Company shall be relieved of the Performance Guarantees until the alternate disposal method becomes available. The Company shall, at its own cost and expense, treat and dispose of all Brine produced at the Plant during the Term of this Service Contract through such ocean outfall, • and shall bear all risk and expense associated with the siting, permitting, design, construction, and operation of any pipelines and other assets necessary for the conveyance of the Brine to the ocean outfall; provided, however, that if the Company is operating the Plant in compliance with the Production Efficiency Guarantee,the District will pay any additional charges that are imposed • by the Santa Margarita Water District as a result of the discharge of excessively concentrated or 111 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX - Performance voluminous Brine to the ocean outfall which is attributable to the treatment of Raw Water having parameters which are outside the Design Raw Water Quality Parameters. Notwithstanding the foregoing, the Company shall not produce more than 1.2 million gallons of Brine for every 5.14 million gallons of Finished Water delivered to the District. The Company shall operate the Plant and treat Raw Water so as to minimize the production of Brine and comply with the Performance Guarantees. SECTION 9.12. COMPLIANCE FAILURES AND LIQUIDATED DAMAGES. (A) Compliance Failures. The Company shall perform the Contract Services in accordance with the Contract Standards. Except to the extent the Company is relieved for Uncontrollable Circumstances or District Fault, the Service Fee shall be reduced by the amounts provided in subsection (B) of this Section for the Company's failures of compliance indicated below: (1) failure to report any exceedence as required by the Contract Standards. (2) failure to calibrate or verify calibration of flow meters in accordance with the manufacturer's specifications or, if not specified in the manufacturers specifications, semi-annually. (3) failure to respond to a written request for information related to this Service Contract made by the Contract Administrator and designated as a "priority request'within 3 business days. (4) failure to provide any plan, proposal, report or other deliverable required hereunder with respect to Uncontrollable Circumstances or any regulatory matter by the deadline agreed upon by the parties with respect thereto. (5) failure to keep monthly maintenance logs as required by Section 10.1. (6) failure of Company staff' to attend District meetings as reasonably requested, with adequate advance notice from the District. (7) failure to provide any reports required hereunder within 7 days of the due date. (8) failure to maintain proper certification as required by CADHS. (9) failure to maintain adequate quantities of chemicals at the Sites which leads to a violation of a Performance Guarantee. (10) failure to respond to alarms at the Plant.as required hereunder. (11) failure to properly sample, test or report the results thereof as required by Applicable Law. (B) Liquidated Damages. If the Company fails to comply with any of its performance obligations as set forth in subsection(A) of this Section,the District,within 30 days 112 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article IX- Performance of its discovery of such violation, shall notify the Company in writing of its alleged failure to • perform. The Company shall have the right to cure any violation described in items (2), (4), (8) and (9) above within 15 days of receipts of the District's notice of violation; any other such violation shall not be subject to cure. The Company shall pay to the District, as liquidated damages, the following amounts (which amounts shall not be subject to escalation): • (1) Nothing for the first failure to perform in any Contract Year. (2) $250 for the second failure to perform in any Contract Year. (3) $500 for the third failure to perform in any Contract Year. (4) $1,000 for the fourth failure to perform in any Contract Year. • (5) $3,000 for the fifth failure to perform in any Contract Year. (6) $5,000 for the sixth failure to perform in any Contract Year. (7) $7,000 for each of the seventh and any subsequent failure to perform in any Contract Year. The Company shall have the right to contest the occurrence of any alleged violation or alleged failure to cure, and the Company shall have no obligation to pay such contested amounts until the contest is resolved. • w • • • 113 368012.15 022806 ACMT • • ARTICLE X MAINTENANCE, REPAIR AND REPLACEMENT • SECTION 10.1. MAINTENANCE, REPAIR AND REPLACEMENT GENERALLY. (A) Ordinary Maintenance. The Company shall perform all normal and ordinary maintenance of the machinery, equipment structures, improvements and all other property constituting the Project, shall keep the Project in good working order, condition and repair, in a neat and orderly • condition and in accordance with the Contract Standards, and shall maintain the aesthetic quality of the Project as originally constructed and in accordance with the Design Requirements. The Company shall provide or make provisions for all labor,materials,supplies,equipment,spare parts, Consumables and services which are necessary for the normal and ordinary maintenance • of the Project and shall conduct predictive, preventive and corrective maintenance of the Project as required by the Contract Standards. The Company shall keep maintenance logs for the Project in accordance with the Contract Standards. This subsection (A) is not intended to include any major maintenance, repair and replacement responsibilities, which are separately undertaken • by the Company under subsection (C) of this Section. (B) Repair and Maintenance of Sites. The Company, in accordance with the Contract Standards,shall keep the grounds of the Sites in a neat and orderly condition(including the cleanup of litter and debris on a daily basis or more frequently as required). The Company • shall also maintain and repair all Sites signage, fencing and other security systems. In addition, the Company shall provide all landscaping services for the Sites. (C) Major Maintenance,Repairand Replacements. The Company shall perform all major maintenance, repairs and replacement of the machinery, equipment, structures, • improvements and all other property constituting the Project during the Term of this Service Contract required under the Contract Standards,including membrane replacement and all other maintenance, repair and replacement which may be characterized as "major" or "capital" in nature. The District's approval for any such maintenance, repair or replacement shall not be • required unless it constitutes a Capital Modification, other than a Small Scale Capital Modification,in which event the District shall have the approval rights set forth in Article XI. The obligations of the Company under this Article are intended to assure that the machinery, equipment, structures and improvements constituting the Project are properly and regularly • maintained in order to preserve their reliability and in a way such that when the Project is returned to the District at the end of the Term it is in a condition which does not require the District to undertake a significant overhaul or immediate replacements in order to continue to provide water treatment and delivery services of the nature provided hereunder. The Company • shall prepare and submit to the District within 90 days before each of the fourth, ninth, fourteenth and nineteenth anniversaries of the Acceptance Date,a five-year forecast of the major 114 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X - Maintenance Repair and Replacement repair and replacement activities that the Company believes needs to be performed at the Project • during such five-year period to keep the Project in good working condition and repair so as to be able to properly perform the Contract Services. To the extent any repair or replacement is required as a result of Uncontrollable Circumstances or District Fault,the District shall pay the costs thereof as provided in Section 14.2. (D) Relation to Metropolitan Agreement. The obligation of the Company to perform its maintenance, repair and replacement obligations, and the obligation of the District to pay the entire Service Fee,is independent of any provision of the Metropolitan Agreement. The District shall pay the Service Fee whether or not and regardless of the extent to which it is • reimbursed by Metropolitan for membrane replacement costs and replacement costs exceeding $100,000 pursuant to Schedule D of the Metropolitan Agreement. The Company shall cooperate with and assist the District and provide all information reasonably requested in order to support the District's claim for reimbursement by Metropolitan with respect to such costs. (E) Replacements Constituting Capital Modifications. The Company shall bear the cost and expense of all maintenance, repairs and replacements required under this Article, including the cost and expense of any maintenance, repair or replacement that may constitute a Capital Modification, unless otherwise provided in Article XI. • SECTION 10.2. PROJECT EVALUATIONS. (A) Baseline Project Record. The Independent Evaluator shall, within 180 days following the Acceptance Date, photograph and prepare an itemized inventory of all property constituting the Project and having an installed cost greater than$1,000,including records of assets originally installed,manufacturer,identification • number and original cost data(the"Baseline Project Record"). The Baseline Project Record shall be prepared in accordance with Appendix 16, shall distinguish Project Equipment and Project Structures, and shall reflect, based on the Fixed Design/Build Price and the Design Requirements, the condition, functionality, value and useful life of the Project as originally constructed by the Company hereunder. The purpose of the Baseline Project Record shall be to establish an informational baseline for determining compliance by the Company with its maintenance, repair and replacement obligations under this Article. (B) Final Evaluations of the Project. Not later than six months following the • sixteenth anniversary of the Acceptance Date, the Independent Evaluator shall conduct a final evaluation of the Project in accordance with the protocol established in Appendix 16 and shall utilize standard utility property evaluation methods. In connection with the final asset evaluation, the Company shall furnish the District and the Independent Evaluator with the • Baseline Project Record prepared pursuant to Appendix 16 and all data base information 115 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X - Maintenance, Repair and Replacement developed in connection with the implementation of the Company's computerized maintenance • management system pursuant to Section 10.4. The evaluation of the Project Structures shall determine and establish the physical condition of the Project Structures. The evaluation of the Project Equipment shall determine and establish the weighted average useful life of the Project Equipment as of the date of evaluation (expressed as a single number of years, carred to one • decimal place), taking into account the performance capability and value of each piece of Project Equipment. The final evaluation shall exclude the value of any Capital Modifications to the extent paid for by the District, directly or indirectly, other than those made on account of Uncontrollable Circumstances or District Fault. The Independent Evaluator shall also conduct • such a final evaluation not later than six months prior to the Termination Date resulting from the expiration of this Service Contract. The Contract Year 16 evaluation shall be for the informational purposes of the parties only. The Contract Year 20 evaluation shall be used for the purpose of determining compliance with the Company's obligations under subsections (C) and (D) of this • Section. (C) Required Condition of Project Structures Upon Return to the District. The Project Structures shall be returned to the District in good condition, working order and repair as when new, with ordinary wear and tear excepted as determined in light of the Company's • maintenance, repair and replacement obligations under Section 10.1. At the end of the Initial Term, each individual Project Structure listed in the Baseline Project Record must have a functionality and structural integrity rating of at least "3" (as described in Appendix 16). In the event the final audit establishes a functionality and structural integrity rating deficiency, the • Company shall, at the election of the Company, either remedy the deficiency or make a cash payment to the District sufficient to enable the District to remedy the deficiency. (D) Required Condition of Project Equipment Upon Return to the District. The Project Equipment shall be returned to the District in a condition and state of repair such that, • in the aggregate,the weighted average useful life of the Project Equipment at the end of the Initial Term is equal to or greater than (1) 3 years,in the case of Project Equipment having an installed cost of$2,500 or greater, and (2) 2 years, in the case of Project Equipment having an installed cost of between $1,000 and$2,500. There shall be no weighted average useful life requirement • with respect to Project Equipment having an installed cost of less than$1,000. In the event the final audit establishes a maintenance, repair and replacement weighted average useful life deficiency, the Company shall, at the election of the Company, either remedy the deficiency or make a cash payment to the District sufficient to enable the District to remedy the deficiency. • 116 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X - Maintenance, Repair and Replacement (E) Capital Modifications. In the event that Capital Modifications constituting • Project Structures are made during the Term, such assets shall be returned to the District on the Termination Date in good condition, working order and repair, with ordinary wear and tear excepted as determined in light of the Company's maintenance, repair and replacement obligations under Section 10.1. In the event that Capital Modifications constituting Project • Equipment are made during the Term and are paid for by the District, such Capital Modifications shall be disregarded in preparing the final evaluation of the Plant pursuant to subsection (B) of this Section. The weighted average useful life of all such assets as an aggregate which are paid for by the District,however,shall be separately determined in the final asset evaluation,and shall • be equal to or greater than the weighted average useful life for Project Equipment as provided in subsection(D) of this Section. Reasonable conventions may be adopted in the weighting analysis to take account of the varying dates of installation. Capital Modifications and other maintenance, repairs and replacements paid for by the Company, including computer and other replacement • systems installed based on advances in technology,shall be included in the final asset evaluation conducted pursuant to subsection (B) of this Section, and their remaining useful life included in such final evaluation. (F) Effect of Election to Renew. In the event the parties elect to renew this • Service Contract at the end of the Initial Term, the final asset evaluation required by this Section shall not be performed six months prior to the end of the Initial Term, but instead shall be performed six months prior to the end of the Renewal Term. The standards established by this Section for the condition of the Plant upon return to the District shall apply notwithstanding any • such renewal. (G) Expense and Disputes. The expense of the Independent Evaluator for all services performed pursuant hereto shall be borne by the District. The determination by the Independent Evaluator as to any matter arising under this Section which is in dispute between • the District and the Company and which involves amounts less than $250,000 (as adjusted annually from the Contract Date based on the Adjustment Factor)shall be final and binding upon the parties; for disputes involving amounts greater than$250,000,the Independent Evaluator's determination shall be advisory only, and any such dispute shall be handled as provided in • Sections 13.15 and 13.16. SECTION 10.3. PERIODIC MAINTENANCE INSPECTIONS. (A) Annual Maintenance Inspection. The District may, upon reasonable written notice, perform an inspection of the Project and relevant-non-financial records of the Company each Contract Year • to determine compliance with the Contract Standards generally. The Company shall cooperate 117 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X - Maintenance, Repair and Replacement fully with the inspections, which shall not interfere unreasonably with the Company's • performance of the Contract Services. (B) Full-Scale Triennial Inspections. Every full third Contract Year there shall be a full-scale inspection and review of the state of repair, working condition and performance capability of the Project. The inspection and review shall be performed by or on behalf of the • District by a District Engineer at the District's expense, and shall take place at such time as the District,with Company approval as to timing, shall determine upon three months'written notice to the Company. The principal purpose of the inspection and review shall be to permit the District to ascertain the extent to which the Company is complying with its obligations under this • Article. The inspection shall include a concurrent review of all relevant non-financial data, records and reports. The Company shall cooperate fully with the inspections, which shall not interfere unreasonably with the Company's performance of the Contract Services. (C) Remediation. Based on the annual operations and maintenance reports • submitted by the Company pursuant to Section 8.14 or the annual or triennial inspections and reviews conducted pursuant to this Section, the District within 30 days may submit a statement to the Company detailing any alleged deficiencies found with regard to the Company's obligations under this Article. The Company shall promptly review any such deficiency report and shall • accept or reject the allegation within 10 days. If it accepts the allegation, the Company shall submit for the District's approval a plan of remediation in a time frame agreeable to both parties. Any such remediation plan shall be sufficient to reasonably demonstrate that, if implemented, the Project will be promptly brought into compliance with the requirements of this Article. If the • District accepts the remediation plan,the Company shall thereupon correct all deficiencies noted in accordance therewith. Any disputes with respect to the cause or amounts specified in the District's allegation of deficiencies, not resolved to the mutual satisfaction of the parties, shall be determined by Non-Binding Mediation as provided in Section 13.16. • (D) Unscheduled Inspections. Nothing in this Section shall limit the District's right, in accordance with Section 8.12, at any time to inspect the Project and relevant non- financial records of the Company to determine compliance with this Article. The Company shall cooperate fully with the inspections,which shall not interfere unreasonably with the Company's • performance of the Contract Services. SECTION 10.4. COMPUTERIZED MAINTENANCE MANAGEMENT SYSTEM. The Company shall install, maintain, upgrade, repair and replace, as appropriate throughout the Term, a computerized maintenance management system capable of providing a record of repair • and replacement of the Project on a detailed, item-by-item basis; scheduling, carrying out, 118 368012.15 022806 AGMT 0 • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X- Maintenance, Repair and Replacement monitoring and controlling predictive, preventive and corrective maintenance programs; issuing • work orders and purchase orders; maintaining a spare parts inventory; and issuing exception, equipment status and repair priority reports. The computerized maintenance management system shall be developed consistently with the Baseline Project Record, and shall be modified and as when appropriate during the Term to take account of removals from and additions to the • Project. The Company shall utilize the computerized maintenance management system to provide the District with documentation which allows it to efficiently monitor compliance by the Company with its maintenance obligations hereunder. The District shall have ready and reasonable access to the data and reports from such system. The Company shall permit all • electronic data to be replicated and provided to the District for review by the District Engineer. SECTION 10.5. DISPOSAL OF SURPLUS EQUIPMENT. The Company may remove, dispose of and sell, in accordance with Applicable Law, equipment constituting part of the Project that is obsolete or no longer needed. The proceeds from any cash sale shall be the • property of the District, but in the event of a trade-in or like-kind exchange of such surplus property, the Company shall be entitled to the benefit thereof. SECTION 10.6. LOSS, DAMAGE OR DESTRUCTION TO THE PROJECT. (A) Prevention and Repair. The Company shall use care and diligence, and shall take all • appropriate precautions, to protect the Project from loss, damage or destruction. The Company shall promptly report to the District and the insurers, upon obtaining knowledge thereof, any damage or destruction to the Project and as soon as practicable thereafter shall submit a full report to the District. The Company shall also submit to the District within 24 hours of receipt • copies of all accident and other reports filed with, or given to the Company by, any insurance company, adjuster or Governmental Body. The parties shall cooperate so as to promptly commence and proceed with due diligence to complete the repair, replacement and restoration of the Project to at least the character or condition thereof existing immediately prior to the loss, • damage or destruction, in accordance with and subject to the procedures set forth in Article XI and Article XIV, as applicable. The District shall have the right to monitor, review and inspect the performance of any repair,replacement and restoration work by the Company as if such work constituted part of the Project as originally constructed hereunder. • (B) Insurance and Other Third-Party Payments. To the extent that any repair, replacement or restoration costs incurred pursuant to this Section can be recovered from any insurer or from another third-party, each party shall assist each other in exercising such rights as it may have to effect such recovery. Each party shall provide each other with copies of all • relevant documentation at no cost to the other party, and shall cooperate with and assist the 119 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X - Maintenance, Repair and Replacement other party upon request by participating in conferences, negotiations and litigation regarding insurance claims. (C) Uninsured Costs. The District shall provide all funds necessary to pay the costs of repairing, replacing and restoring the Project in accordance with this Section and all insurance proceeds and recoveries from third parties resulting from damage to or the loss or destruction of the Project shall be for the account of the District; provided, however, that such costs not covered by insurance proceeds or third-party payments shall be borne by the Company to the extent the loss, damage or destruction was not caused by Uncontrollable Circumstances or District Fault. (D) Repair of Municipal and Private Property. The Company shall promptly repair or replace all Municipal Property and all private property damaged by the Company or any officer, director, employee, representative or agent of the Company in connection with the performance of, or the failure to perform, the Contract Services,except(1) to the extent any such damage was caused by Uncontrollable Circumstances or District Fault,or(2)for reasonable wear and tear resulting from heavy construction activities prior to the Acceptance Date to Del Obispo Road and the City parking lot resulting from the performance of the Design/Build Work in accordance herewith. The repair and replacements shall restore the damaged property, to the maximum extent reasonably practicable,to its character and condition existing immediately prior to the damage. 120 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X - Maintenance Repair and Replacement other party upon request by participating in conferences, negotiations and litigation regarding • insurance claims. (C) Uninsured Costs. The District shall provide all funds necessary to pay the costs of repairing, replacing and restoring the Project in accordance with this Section and all insurance proceeds and recoveries from third parties resulting from damage to or the loss or destruction of the Project shall be for the account of the District; provided, however, that such costs not covered by insurance proceeds or third-party payments shall be home by the Company to the extent the loss, damage or destruction was not caused by Uncontrollable Circumstances or District Fault. • (D) Repair of Municipal and Private Property. The Company shall promptly repair or replace all Municipal Property and all private property damaged by the Company or any officer, director, employee, representative or agent of the Company in connection with the performance of, or the failure to perform, the Contract Services,except(1) to the extent any such • damage was caused by Uncontrollable Circumstances or District Fault,or(2)for reasonable wear and tear resulting from heavy construction activities prior to the Acceptance Date to Del Obispo Road and the City parking lot resulting from the performance of the Design/Build Work in accordance herewith. The repair and replacements shall restore the damaged property, to the • maximum extent reasonably practicable,to its character and condition existing immediately prior to the damage. • • • 120 368012.15 022806 AGMT • ARTICLE XI CAPITAL MODIFICATIONS • SECTION 11.1. CAPITAL MODIFICATIONS GENERALLY. (A) Purpose. The parties acknowledge that it may be necessary due to an Uncontrollable Circumstance, or desirable from the standpoint of either party, to make Capital Modifications, Capital Modifications may be desirable,for example,to improve the performance or increase the capacity • of the Project, to address or anticipate the obsolescence of portions of the Project, to reduce the cost to the Company of performing this Service Contract or to reduce the Service Fee payable by the District as provided in subsection (D) of this Section. A Contract Administration Memorandum shall be prepared to confirm and evidence the terms and conditions of any Capital • Modification. (B) District Approval. The District shall have the right, in its sole discretion, to approve all Capital Modifications;provided,however, that the Company may implement Small Scale Capital Modifications without District approval, if the requirements of Section 11.2 are • complied with.All Capital Modifications shall be made and implemented in accordance with this Article. The District shall have the express right to condition its approval of Capital Modifications upon the sharing of net cost savings expected to result therefrom as provided in subsection (D) of this Section. • (C) Party Responsible for Costs. In the event any Capital Modification is made, the Company shall bear the cost and expense thereof and all related operation, maintenance, repair and replacement costs, unless the Capital Modification is directed by the District (other than as part of an enforcement action taken in response to a breach hereof) or is necessitated by • District Fault or is necessary to address an Uncontrollable Circumstance, in each case as provided in Sections 11.3 and 11.4. (D) Cost Savings. In the event any Capital Modification other than a Small Scale Capital Modification is reasonably expected to result in a net cost savings to the Company, • the parties shall negotiate in good faith the extent to which any such net cost savings shall be shared with the District, and the Service Fee shall be reduced accordingly. (E) Applicability to the Original Project. Articles VI and VII govern the obligations of the parties with respect to the design, construction, start-up and Acceptance • Testing of the Project. This Article shall not apply to the original Project unless Capital Modifications are made thereto and except as otherwise provided herein. SECTION 11.2. CAPITAL MODIFICATIONS AT COMPANY REQUEST. The Company shall give the District written notice of, and reasonable opportunity to review and • comment upon,any Capital Modification proposed to be made at the Company's request,whether before or after Acceptance. The notice shall contain sufficient information for the District to 121 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XI - Capital Modifications determine that the Capital Modification: (1) does not diminish the capacity of the Project to be • operated so as to meet the Contract Standards; (2) does not impair the quality, integrity, durability and reliability of the Project; (3) is reasonably necessary or is advantageous for the Company to fulfill its obligations under the Service Contract; and (4) is feasible. The Company shall not be entitled to any adjustment in the terms of this Service Contract as a result of any such Capital Modification unless approved by the District or made a condition of approval by the District in its sole discretion. SECTION 11.3. CAPITAL MODIFICATIONS DUE TO UNCONTROLLABLE CIRCUMSTANCES. Upon the occurrence of an Uncontrollable Circumstance, the District shall • promptly proceed, subject to the terms, conditions and procedures set forth in this Article and Section 14.2, to make or cause to be made all Capital Modifications reasonably necessary to address the Uncontrollable Circumstance. The Company shall consult with the District concerning possible means of addressing and mitigating the effect of any Uncontrollable • Circumstance, and the Company and the District shall cooperate in order to minimize any delay, lessen any additional cost and modify the Project so as to permit the Company to continue providing the Contract Services in light of such Uncontrollable Circumstance. The design and construction costs of any such Capital Modification, and any related operation, maintenance, • repair and replacement costs, shall be borne by the District except to the extent provided in Section 14.2 pertaining to cost sharing. The District shall pay the Capital Modification costs and any such related operation,maintenance,repair and replacement costs for which itis responsible in the manner established in accordance with the procedures set forth in Sections 11.5, 11.6 • and 11.7. SECTION 11.4. CAPITAL MODIFICATIONS AT DISTRICT DIRECTION. The District shall have the right to make Capital Modifications at any time and for any reason whatsoever,whether and however the exercise of such rights affects this Service Contract so long • as the Company's rights are protected as provided in Section 11.8. The design and construction costs of any such Capital Modification made at the District's direction under this Section, and any related operation,maintenance,repair and replacement costs,shall be borne by the District, through District financing and through an adjustment to the Service Fee pursuant to Article XII. • The Company shall have no responsibility for any such costs unless the Company agrees in its sole discretion to participate in the financing thereof pursuant to subsection 11.7(B)upon terms and conditions acceptable to the Company. The District shall have no obligation to direct the Company to make any Capital Modification. • 122 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XI - Capital Modifications SECTION 11.5. PRIMARY PROCEDURE FOR IMPLEMENTING CAPITAL • MODIFICATIONS. (A) Primary Implementation Procedure. Unless the District determines pursuant to Section 11.6 that an alternative implementation procedure be employed, the implementation procedure set forth in this Section shall apply with respect to all Capital Modifications except Small Scale Capital Modifications, which the Company may implement by means of its own choosing. (S) Preliminary Company Plan and District Review. At the request of the District, the Company may, at its election, cost and expense, prepare and deliver to the District a preliminary plan for the implementation of the Capital Modification. The preliminary plan shall • include recommendations as to technology, design, construction, equipment, materials, and operating and performance impacts. Preliminary schedule and capital and operating cost estimates shall be included,together with an assessment of possible alternatives.The preliminary plan shall specifically evaluate reasonable alternatives to the mix of Capital Modifications and • changed operating and management practices which the Company isrecommending. The District shall review the Company's preliminary plan and recommendations, and undertake discussions with the Company in order to reach agreement on a basic approach to the Capital Modification. (C) Company Implementation Proposal. Following agreement on a basic • approach to the Capital Modification, at the request of the District the Company may, at its election, cost and expense, submit a formal implementation proposal to the District for its consideration. The implementation proposal shall contain: (1) aCompany services element;and (2) a third-party construction services element, to be implemented through third-party • contracting. The Company services element shall contain: (i) the Company's offer to perform design, construction management and acceptance testing services with respect to the Capital Modification for a fixed price, and shall include a guarantee of the performance of the Capital Modification through an acceptance test and a guaranteed maximum construction price if so • requested by the District and agreed to by the Company; and(ii) the Company's offer to operate, maintain, repair, replace and manage the Capital Modification following construction and acceptance for a fixed fee to be added to the Service Fee,and shall include long-term performance guarantees with respect to the Capital Modification. The third-party construction services • element shall be a proposal by the Company to conduct,as allowed by Applicable Law, a bidding or competitive proposal process for the construction work as the design/build work involved in completing the Capital Modification. The bidding process shall include an advertisement for bids and a construction contract award to the lowest responsible bidder, and shall be conducted in accordance with the requirements of Applicable Law which govern construction projects 123 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XI - Capital Modifications undertaken by the District. The resulting construction or design/build contract shall be held by i and executed in the name of the District or the Company, as determined by the District and agreed to by the Company in compliance with Applicable Law. A competitive proposal process shall include a request for proposals and a design/build contract award to the most advantageous proposer. The District shall be a party to all such construction contracts or design/build contracts unless the District determines otherwise as permitted by Applicable Law. (D) Negotiation and Finalization of Company Implementation Proposal. The parties shall proceed, promptly following the District's review of the Company's submittal and quotation, to negotiate to reach an agreement on price and any adjustment to the terms and conditions of this Service Contract required under Section 11.8. Any final negotiated agreement for the implementation of a Capital Modification under this Section shall address, as applicable: (1) design requirements; (2) construction management services; (3) acceptance tests and procedures; (4) a guarantee of completion and acceptance; (5) performance guarantees; (6) any changes to the Performance Guarantees or other Contract Standards to take effect as a consequence of the Capital Modification;(7) apayment schedule for the design and construction management-related services; (8) provisions for District Engineer review; (9) any adjustments to the Service Fee resulting from the Capital Modification, including any related operation, M maintenance,repair and replacement costs and disruption costs to the Company;(10)afnancing plan; and (11) any other appropriate amendments to this Service Contract. The Company shall not be obligated to undertake any Capital Modification under Section 11.3 or 11.4 except following agreement as to such negotiated adjustments, unless otherwise required on an r emergency basis. The District shall have no obligation to reimburse the Company for any costs incurred pursuant to this Section, and the Company shall have no obligation to implement any Capital Modification, except as part of a negotiated amendment to this Service Contract. (E) Implementation Procedures. With respect to each Capital Modification to be made by the Company, other than Small Scale Capital Modifications, the District shall have the same substantive and procedural rights that it has with respect to the design, construction and acceptance of the Project, as set forth in Articles VI and VII and in Appendices 2, 3, 4, 5, 6, 7. 8 and 21. SECTION 11.6. ALTERNATIVE PROCEDURES FOR IMPLEMENTING CAPITAL MODIFICATIONS. (A) Capital Modifications. The District shall be under no obligation to utilize the primary implementation procedure for Capital Modifications set forth in Section 11.5, and may instead, in its sole discretion, utilize any other implementation procedure available to it or required under the Applicable Law. Alternative implementation procedures may include,without 124 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XI - Capital Modifications limitation and to the extent permissible under Applicable Law: (1) contracting with the Company • on a sole source basis to implement the Capital Modification on a design/build basis; (2)contracting with the Company to manage a competition for design/build services to implement the Capital Modification; and (3) contracting with third parties for the implementation of the Capital Modification on a traditional design/bid/build basis, with the District rather than the • Company responsible for the design and construction of the Capital Modification, or with the Company acting as the District's agent in the design/bid/build process. While it is the intention of the District to have the Company operate, maintain, repair, replace and manage Capital Modifications on an integrated basis with the Project, the District is not obligated to do so and • may contract for such services with a third-party. The District may determine to proceed with an alternative implementation procedure for Capital Modification at any time,whether before or after entering into negotiations with the Company under the primary implementation procedure specified under Section 11.5. No alternative implementation procedure for Capital Modifications • shall impair the Company's rights under Section 11.8. (B) Maintenance,Repair and Replacement Exceptio The Company may carry out all maintenance,repair and replacement work which it is obligated to perform under Article X using any procurement procedure of its choosing, whether or not such work may be deemed to • be a Capital Modification. SECTION 11.7. FINANCING CAPITAL MODIFICATIONS. (A) District Financing. The District shall provide financing for any Capital Modification for which it is financially responsible under this Article, and shall make the proceeds of the financing available to the • Company to pay the negotiated price on the milestone schedule and subject to any retainage negotiated by the parties pursuant to this Section. The District in its sole discretion may voluntarily, if requested by the Company, provide financing for the Capital Modifications for which the Company is financially responsible hereunder, on terms and conditions established • by the District in its sole discretion. (B) Company Financing. The District may request the Company to finance all or any portion of the cost of any Capital Modification. The terms and conditions of any such financing and its impact on this Service Contract shall include,but are not limited to,any District right to refinance any such Company financing and any reimbursement due the Company with respect to the unamortized principal amount of such financing if this Service Contract is terminated prior to the end of its scheduled Term. If the Company agrees to provide financing for any Capital Modifications and assigns this Service Contract as security therefor, the loan documents related to such financing may require that all or a portion of each Service Fee 125 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XI - Capital Modifications payment be paid to a trustee or paying agent, either on a regular basis or upon the occurrence of certain stated events. In such a case, upon being notified in writing of such requirement by the Company, the District shall make payment as required therein and the Company shall, as between it and the District,accept any payment made to such trustee or paying agent as required therein as payment to the Company. SECTION 11.8. COMPANY NON-IMPAIRMENT RIGHTS. No Capital Modification, other than a Company-requested Capital Modification, shall be made that materially impairs any right, materially impairs the ability to perform, imposes any material additional obligation or liability, or materially increases the costs of the Company hereunder, including operating, maintenance, repair and replacement costs related to such Capital Modification. Any Capital Modification undertaken by the District which violates the Company's rights under this Section shall relieve the Company from its Performance Guarantee and indemnity obligations hereunder to the extent such obligation is affected by the unauthorized Capital Modification. • 126 368012.15 022806 AGMT • ARTICLE XII SERVICE FEE AND OTHER PAYMENTS • SECTION 12.1. SERVICE FEE GENERALLY. From and after the Acceptance Date, the District shall pay the Service Fee to the Company as compensation for the Company's performing the Operation Services under this Service Contract. Examples of the calculation of the Service Fee and the application of the Adjustment Factor are included in Appendix 19. • SECTION 12.2. SERVICE FEE FORMULA. The annual Service Fee shall be calculated in accordance with the following formula: SF = BOC + EI where, SF = Service Fee BOC = Base Operating Charge EI - Extraordinary Items Charge or Credit Each component of the Service Fee shall be determined in accordance with this Article. SECTION 12.3. BASE OPERATING CHARGE. (A) Formula. The Base Operating • Charge shall be calculated in accordance with the following formulas: BOC = FC + VC FC = OMC + LC + RC VC = DAE + ESE • where, BOC = Base Operating Charge FC = Fixed Component OMC = Operation and Maintenance Component LC = Labor Component • RC = Replacement Component VC = Variable Component DAE1 = First Water Demand Adjustment Element DAE2 = Second Water Demand Adjustment Element ESE = Electricity Savings Element (B) Adiustment Factor. The "Adjustment Factor"for purposes of this Service Contract, when used with respect to the second and each subsequent Contract Year, shall be determined as follows: AF„ = 1 + {(0.90) x [(CPI-U„_1 - CPI-Ur_2) . CPI-U„_211 • where, AF„ = The Adjustment Factor for Contract Year "n" CPI-U„_1 = The average of the 12 month CPI-U values occurring in the Contract Year preceding the Contract Year with respect to which a calculation is to be made hereunder. 127 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XII - Service Fee and other Payments CPI-U„_2 = The average of the 12 month CPI-U value occurring • in the Contract Year two years preceding the Contract Year with respect to which a calculation is to be made hereunder. SECTION 12.4 FIXED COMPONENT. (A) Fixed Component Generallv. The Fixed Component of the Base Operating Charge shall be the sum of: (1) the Operation and Maintenance Component, (2) the Labor Component, and (3) the Replacement Component. The Fixed Component of the Base Operating Charge represents compensation for the District's right to demand the production and delivery of up to 4,800 acre feet of Finished Water per Contract • in accordance with Section 9.3. The Company shall be compensated for the production and delivery of Finished Water in volumes in excess of 4,800 acre feet per Contract Year through the Variable Component of the Base Operating Charge under Section 12.5. (B) Operation and Maintenance Component. The Operation and Maintenance ea • Component for the Contract Year ending on June 30, 2003 shall be $_6)(tyOO— The Operation and Maintenance Component for each subsequent Contract Year shall be determined by multiplying (1) the Operation and Maintenance Component for the previous Contract Year, times (2) the Adjustment Factor. • (C) Labor Component. The Labor Component for the Contract Year ending on June 30,2003 shall be$ 1701 600 Do . The Labor Component for each subsequent Contract Year shall be determined by multiplying(1)the Labor Component for the previous Contract Year,times (2) the Adjustment Factor. • (D) Replacement Component. The Replacement Component for the Contract Vol Year ending on June 30, 2003 shall be $-3IA"gOO . The Replacement Component for each subsequent Contract Year shall be determined by multiplying (1) the Replacement Component for the previous Contract Year, times (2) the Adjustment Factor. • SECTION 12.5. VARIABLE COMPONENT. (A) Variable Component Generally. The Variable Component of the Base Operating Charge shall be the sum of: (1) the First Water Demand Adjustment Element, (2) the Second Water Demand Adjustment Element and (3) the Electricity Savings Element. • (B) First Water Demand Adjustment Element. The Companyisobligated under Section 9.3 to produce and deliver up to 5,231 acre feet of Finished Water per Contract Year on the terms and conditions provided therein. In the event that the District's demand for Finished Water in any Contract Year is greater that 4,800 acre feet and less than 5,231 acre feet, the • District shall pay the Company as the First Water Demand Adjustment Element an amount equal 128 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XII - Service Fee and other Payments to the product of: (1) $151 per acre foot of Finished Water(for the Contract Year ending June 30, • 2003 and adjusted annually thereafter based on the Adjustment Factor), and (2) the difference between the volume of Finished W ater delivered to the District by the Company(measured in acre feet of Finished Water) and 4,800 acre feet. (C) Second Water Demand Adjustment Element. If the District requests, and • the Company supplies at its election,more than 5,231 acre-feet of Finished Water in any Contract Year, the District shall pay to the Company as the Second Water Demand Adjustment Element an amount equal to the product of: (1) $228 per acre-foot of Finished Water(for the Contract Year ending June 30, 2003 and adjusted annually thereafter based on the Adjustment Factor), and • (2)the difference between the volume of Finished Water delivered to the District by the Company (measured in acre-feet of Finished Water) and 5,231 acre-feet. (D) Electricity Savings Element. The Electricity Savings Element shall be payable only if and to the extent provided in subsection 8.7(B). The Electricity Savings Element • in a Contract Year shall be the sum of (1) the Electricity Consumption Savings and (2) the Electricity Demand Savings. If the annual electricity consumption for the Project in a Contract Year is greater than the Guaranteed Maximum Electricity Consumption applicable for that Contract Year, or the average monthly electricity demand for the Project for the Contract Year is • greater than the Guaranteed Maximum Electricity Demand applicable for that ContractYear,then the Electricity Savings Element for that Contract Year shall be equal to zero. If the annual electricity consumption for the Project in a Contract Year is less than 95% of the Guaranteed Maximum Electricity Consumption applicable for that Contract Year, and the average monthly electricity demand for the Project for the Contract Year is less than or equal to the Guaranteed Maximum Electricity Demand for the Contract Year, then the Company shall be entitled to an incentive payment (i.e., the Electricity Consumption Savings) equal to 50% of the product of: (1) twelve; (2) the average "generation charges" representing the total cost of electricity (i.e., all • charges based upon kilowatt hours consumed, including any directly related prorated charges, including,but not limited to, transmission charges, deregulation fees and taxes)for the Contract Year, measured in dollars per kilowatt hour consumed($/kWh); and(3) the difference between (a) 95% of the Guaranteed Maximum Electricity Consumption and (b) the actual annual • electricity consumed, measured in kilowatt hours, for the Project in the Contract Year. If the average monthly electricity demand for the Project in a Contract Year is less than the 95%of the Guaranteed Maximum Electricity Demand applicable for that Contract Year, and the annual electricity consumption for the Project for the Contract Year is less than or equal to the Guaranteed Maximum Electricity Consumption for the Contract Year, then the Company shall 129 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XII - Service Fee and other Payments be entitled to an incentive payment (i.e., the Electricity Demand Savings) equal to 50% of the product of. (1) twelve; (2) the average "demand charges" (i.e., all charges based upon monthly kilowatt demand, including any directly related prorated changes and taxes) for the Contract Year, measured in dollars per kilowatt demanded($/kW); and(3) the difference between(a) 95% of the Guaranteed Maximum Electricity Demand and(b) the actual average monthly demand for • the Project in the Contract Year. The Electricity Savings Element shall not be paid to the Company for electricity consumption or demand savings generated by District actions or initiatives. SECTION 12.6. EXTRAORDINARY ITEMS CHARGE OR CREDIT. The • Extraordinary Items component of the Service Fee, which may be a charge or a credit, shall be equal to the sum of. (1) the amounts payable by the District for increased operation, maintenance or other costs incurred on account of the occurrence of an Uncontrollable Circumstance which is chargeable to the District hereunder,net of any operation, maintenance • or other cost savings achieved by the Company in mitigating the effects of the occurrence of such an Uncontrollable Circumstance; plus(2) the adjustments to the Service Fee resulting from any Capital Modifications the costs of which are payable by the District, or the benefits of which accrue to the District, under the provisions of this Service Contract; minus (3) any liquidated • damages or Service Fee reductions due to Company non-performance specifically provided for under any other provision hereof;plus or minus(4) any other increase or reduction in the Service Fee provided for under any other Article of this Service Contract. SECTION 12.7. BILLING AND PAYMENT. (A) Billine. The District shall pay the • Service Fee in monthly installments in an amount equal to the sum of. (1) one-twelfth of the annual Fixed Component; (2) an estimated monthly Variable Component; (3) any monthly Reimbursable Costs; (4) any Extraordinary Items determined on a monthly basis; (5) one-twelfth of any Extraordinary Items determined on an annual basis; and (6) any adjustments, plus or • minus, to reconcile any prior monthly Variable Component or Reimbursement Cost payments. Any overpayment from prior months shall be credited against the monthly Service Fee payment. There shall be no estimated Electricity Savings Element included in any monthly invoice. Any amount due the Company on account of the Electricity Savings Element and any amount due the • District on account of exceedences of the Guaranteed Maximum Electricity Consumption or the Guaranteed Maximum Electricity Demand shall be paid as part of the Annual Settlement Statement. (B) Payment. The Service Fee for each month shall be on account of the Operation Services rendered during the prior month. If the Company provides the District with 130 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XII - Service Fee and other Payments an invoice by the fifteenth day of each month which sets forth the monthly portion of the Service • Fee for the prior month and which shows the annual Service Fee and each component thereof as calculated for the then current Contract Year, together with the accumulated payments for each component to the date of such invoice and such other documentation or information as the District may reasonably require to determine the accuracy and appropriateness of the invoice, then the District shall pay the invoice within 45 days of receipt. The District shall pay interest at the Overdue Rate on all late payments. SECTION 12.8. ESTIMATES AND ADJUSTMENTS. (A) Pro Rata Adjustments. Any computation made on the basis of a stated period shall be adjusted on a pro rata basis to • take into account any initial or final period which is a partial period. For purposes of this subsection, a month shall be taken as a month containing 30 days and a year shall be taken as a year containing 360 days. (B) Budgeting. For District budgeting purposes, no later than 90 days • preceding each Contract Year, the Company shall provide to the District a written statement setting forth for such Contract Year its reasonable estimate of the aggregate Service Fee, each component thereof, and the Adjustment Factor. The estimate shall not be binding on the Company but shall establish the basis for monthly billing for such Contract Year, subject to annual settlement pursuant to this Article. (C) Adjustment to Service Fee. If any adjustment to the Service Fee is required pursuant to any express provision of this Service Contract, the party requesting the adjustment shall submit to the other party a written statement setting forth the cause of the adjustment,the anticipated duration of the adjustment,and the amount of the adjustment,as appropriate.Except to the extent that a longer period is otherwise specifically provided for in this Service Contract, any request for adjustment of the Service Fee hereunder shall be accepted or rejected by the party receiving the request within 45 days of receipt. If the receiving party does not notify the requesting party of its rejection and the reasons therefor within such 45 day period, the request shall be deemed rejected. A rejected request may be resubmitted, with or without change, and this paragraph shall apply to such resubmitted request as it applies to an original request. Any Service Fee adjustment request which is not rejected or deemed rejected shall take effect as of • the next monthly billing period thereafter, or as otherwise agreed to by the parties. SECTION 12.9. ANNUAL SETTLEMENT. Within 30 days after the end of each Contract Year, the Company shall provide to the District an annual settlement statement (the "Annual Settlement Statement") setting forth the actual aggregate Service Fee payable with • respect to such Contract Year and a reconciliation of such amount with the amounts actually 131 368012.15 022806 AGMs • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIl - Service Fee and other Payments paid by the District with respect to such Contract Year. As part of the annual settlement process, • the District shall pay the Company any Electricity Savings Element, and the Company shall pay or credit the District,but only if and to the extent provided in subsection 8.7(B),an amount equal to any overpayment made by the District for electricity which would have been avoided had the Company met the Guaranteed Maximum Electricity Utilization, together with interest on such overpayment at the Overdue Rate computed from the time such guarantee was exceeded. The District or the Company, as appropriate, shall pay all known and undisputed amounts within 60 days after receipt or delivery of the Annual Settlement Statement. If any amount is then in dispute or is for other reasons not definitely known at the time the Annual Settlement Statement is due, the Annual Settlement Statement shall identify the subject matter and reasons for such dispute or uncertainty and, in cases of uncertainty, shall include a good faith estimate by the Company of the amount in question. When the dispute is resolved or the amount otherwise finally determined, the Company shall file with the District an amended Annual Settlement Statement which shall, in all other respects, be subject to this Section. SECTION 12.10. BILLING STATEMENT DISPUTES. If the District disputes any amount billed by the Company, the District may either (1) pay the disputed amount when otherwise due, and provide the Company with a written objection indicating the amount that is being disputed and providing all reasons then known to the District for its objection to or disagreement with such amount, or (2) withhold payment of the disputed amount and provide the Company with written objection as aforesaid within the time when such amount would otherwise have been payable. When any billing dispute is finally resolved, if payment by the District to the Company of amounts withheld or reimbursement to the District by the Company of amounts paid under protest is required,such payment or reimbursement shall be made within 45 days of the date of resolution, with interest at the Overdue Rate. SECTION 12.11 TAX EXEMPTION OF MANAGED ASSETS. It is the intent of the • parties that the Managed Assets shall continue to be municipally owned property and not subject to real property or possessory interest taxation. If(1) the Company has exercised due diligence and taken all steps necessary to obtain all such tax exemptions on a timely basis, and (2) the Company is nonetheless required to pay any real property or possessory interest tax on account • of the Project,the Company shall be entitled to recover the amount paid as a Reimbursable Cost. SECTION 12.12. SALES AND BUSINESS TAXES. In its performance of the Contract Services, the Company acknowledges that (1) construction materials and supplies initially acquired by the Company or any Subcontractor in connection with the Project a Improvements or any Capital Modification, and operating supplies relating to the performance 132 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XII - Service Fee and other Payments of the Management Services, are subject to State sales tax,and(2) the Company is subject to the • City's"business tax".The Company further acknowledges that these taxes have been priced into the Design/Build Price and the Service Fee, and agrees to pay all such taxes without reimbursement from the District. SECTION 12.13. COMPLIANCE WITH INTERNAL REVENUE SERVICE REV. PROC. 97-13. Any provision hereof to the contrary notwithstanding, the District and the Company agree that the District shall be under no obligation to,and shall not,pay compensation for services to the Company for any Contract Year, to the extent that such payment would result in less than 80%of the Company's compensation for services for such Contract Year being based • on a periodic fixed fee or would result in any portion of the Company's compensation being based on net profit, as such terms are defined in Rev. Proc. 97-13. The District and the Company further agree that any such payment or portion thereof that is not made by virtue of the preceding sentence shall be paid to the Company,with interest at the Prime Rate,during the next annual period in which such payment will not result in less than 80% of the Company's compensation being based on a periodic fixed fee or in which such payment will be based on net profit,all as defined by Rev. Proc. 97-13. It is the intent of the District and the Company that this Service Contract shall be construed and applied so as to constitute a management contract that does not result in private business use of property financed by the District within the meaning and intent of Rev. Proc. 97-13. t i 133 368012.15 022806 AGMT • ARTICLE XIII BREACH, DEFAULT, REMEDIES AND TERMINATION • SECTION 13.1. REMEDIES FOR BREACH. The parties agree that, except as otherwise provided in Article IV and this Article XIII with respect to termination rights, in the event that either party breaches this Service Contract, the other party may exercise any legal rights it may have under this Service Contract, under the Security Instruments and under . Applicable Law to recover damages or to secure specific performance, and that such rights to recover damages and to secure specific performance shall ordinarily constitute adequate remedies for any such breach. Neither party shall have the right to terminate this Service Contract for cause except upon the occurrence of an Event of Default. Notwithstanding any other provision 40 hereof, in the event either party breaches this Service Contract, the other party shall be entitled to all available legal or equitable remedies as provided in and within the meaning of Section 5956.6 of the Government Code. SECTION 13.2. EVENTS OF DEFAULT BY THE COMPANY. (A) Events of Default • Not Requiring Previous Notice or Cure Opportunity for Termination. In the event the Company fails to achieve Acceptance by the last day of the Extension Period, an Event of Default by the Company shall be deemed to have occurred, on the basis of which the District, by notice to the Company, may terminate this Service Contract without any requirement of having given notice previously or of providing any further or additional cure opportunity. (B) Events of Default Requiring Previous Notice and Cure Opportunity for Termination. It shall be an Event of Default by the Company upon which the District may terminate this Service Contract, by notice to the Company, if: ' (1) Representations and Warranties. Any representation or warranty of the Company hereunder or the Guarantor under the Service Contract Guaranty Agreement was false or inaccurate in any material respect when made,and the legality of this Service Contract or the Service Contract Guaranty Agreement or the ability of the Company to carry out its obligations hereunder or the ability of the Guarantor to carry out its obligations thereunder is thereby materially and adversely affected; or (2) Payment or Performance. The Company fails,refuses or otherwise defaults in its duty (a) to pay any amount required to be paid to the District under this Service Contract within 60 days following the due date for such payment, or (b) to perform any material obligation under this Service Contract (unless such default is excused by an Uncontrollable Circumstance or District Fault as and to the extent provided herein); or (3) Insolvency. The insolvency of the Company or the Guarantor as determined under the Bankruptcy Code; or 134 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default Remedies and Termination (4) Voluntary Bankruptcy. The filing by the Company or the Guarantor of a • petition of voluntary bankruptcy under the Bankruptcy Code; the consenting of the Company or the Guarantor to the filing of any bankruptcy or reorganization petition against the Company or the Guarantor under the Bankruptcy Code; or the filing by the Company or the Guarantor of a petition to reorganize the Company or the Guarantor pursuant to the Bankruptcy Code; or (5) Involuntary Bankruptcy. The issuance of an order of a court of competent jurisdiction appointing a receiver, liquidator, custodian or trustee of the Company or the Guarantor or of a major part of the Company's or the Guarantors property, respectively, • or the filing against the Company or the Guarantor of a petition to reorganize the Company or the Guarantor pursuant to the Bankruptcy Code,which order shall not have been discharged or which filing shall not have been dismissed within 90 days after such issuance or filing, respectively. No such default (other than that set forth in subsection (A) of this Section) shall constitute an Event of Default giving the District the right to terminate this Service Contract for cause under this subsection unless: (1) The District has given prior written notice to the Company stating that in its opinion a specified default in its duty to pay or perform exists which gives the District a right to terminate this Service Contract for cause under this Section, and describing the default in reasonable detail; and (2) The Company neither challenged in an appropriate forum the District's conclusion that such a failure or refusal to perform has occurred or constitutes a material breach of this Service Contract, nor initiated within a reasonable time (in any event not more than 30 days from the initial default notice) and continued with due diligence to carry out to completion all actions reasonably necessary to correct the default and prevent its recurrence; except that if the Company shall have initiated within such reasonable time and continued with due diligence to carry out to completion all such actions, the default shall not constitute an Event of Default during such period of time (in any event not more than 120 days from the initial default notice) as the Company shall continue • with due diligence to carry out to completion all such actions. (C) Other Remedies Upon Company Event of Default. The right of termination provided under this Section upon an Event of Default by the Company is not exclusive. If this Service Contract is terminated by the District for an Event of Default by the Company,the District shall have the right to pursue a cause of action for actual damages and to exercise all other 135 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination remedies which are available to it under this Service Contract, under the Security Instruments • and under Applicable Law. SECTION 13.3. PROTECTION OF TRUSTEE. (A) Lease Agreement. During the Lease Term, the Trustee, as assignee of the rights of the Issuer under the Lease Agreement, shall be entitled to the protections set forth in this Section if the Trustee has (1) provided the District with the Trustee's address for notices hereunder, (2) acknowledged the District's rights with respect to the Company, the Trustee and the Project as provided hereunder, and (3) paid any non-performance liquidated damages to the District which are due and owing by the Company, as provided in subsection (H) of this Section. • (B) Limitation of District's Rights. The Trustee shall be protected as described below, until such time as the Lease Agreement expires or has been terminated: (1) The District shall not consent to any amendment or modification of this Service Contract (including any amendment or modification effectuated through non- 0 binding mediation or arbitration conducted pursuant to Sections 13.15 and 13.16)which materially and adversely affects the rights and interests of the Trustee without the prior written consent of the Trustee, such written consent to be submitted by the Company. (2) Notwithstanding any Event of Default by the Company under this Service 1 Contract, the District shall have no right to terminate this Service Contract unless prior to such termination(a)the Event of Default shall be continuing,(b)the District shall have given the Trustee written notice of such Event of Default as required hereunder, and (c) the Trustee shall have failed to remedy such Event of Default or to take such other actions as set forth in and within the time specified by this Section. (C) Default Notice. During the Lease Term, should any Event of Default by the Company under this Service Contract occur, the District shall mail or deliver to the Trustee a duplicate copy of any and all notices in writing that the District may from time to time give to or serve upon the Company pursuant to the provisions of this Service Contract. Any such notice hereunder shall set forth the nature of the Event of Default and the actions required to cure such Event of Default. Each such notice shall be mailed or delivered to the Trustee at or as near as possible to the time such notices are given to or served upon the Company by the District if • required to be so served or at the earliest opportunity if such notice is not required to be given to the Company. No notice by the District to the Company shall be deemed to be given to the Company unless and until a copy thereof shall have been mailed or delivered to the Trustee. (D) No Trustee Right of Cure for an Event of Default Under Subsection 13.2(A). • If an Event of Default by the Company occurs under subsection 13.2(A), the Trustee shall have 136 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach Default, Remedies and Termination no right of cure thereafter, the parties agreeing that the 547 day Extension Period following the Scheduled Acceptance Date constitutes a reasonable and sufficient period of cure to remedy any failure to achieve Provisional Acceptance on or before the Scheduled Acceptance Date. Any rights of the Trustee with respect to the Company and its performance hereunder during the Construction Period shall be provided for in the Company Financing Support Agreements, the terms and conditions of which shall be consistent with Article V and shall not materially and adversely affect the District's rights hereunder. (E) Trustee Right of Cure for an Event of Default Under Subsection 13.2(B). If a default by the Company occurs hereunder which, with the giving of notice or the passage of f time, may lead to an Event of Default by the Company under subsection 13.2 (B) hereof, and the Company shall have failed to cure such default on or before the expiration of any applicable period of cure provided in subsection 13.2 (B), the Trustee shall have 120 days after the later of the expiration of the Company's cure period with respect to such default, or the date of the Trustee's receipt of written notice of the occurrence of an Event of Default from the District, and an additional 230 day period of time after the expiration of such 120 day period within which to remedy such default; provided that the Trustee shall (1) have fully cured any default in the payment of any monetary obligations of the Company under this Service Contract within such 4k 120 day period and shall continue to pay current such monetary obligations as and when they are due, (2) shall have commenced action to cure any nonmonetary default within such 120 day period, and (3) shall thereafter diligently prosecute such action or proceeding to completion by no later than 350 days after the Trustee's receipt of such notice from the District. All rights of the District during the Lease Term to terminate this Service Contract as a result of the occurrence of any Event of Default by the Company hereunder shall be subject to and conditioned upon the District having first given to the Trustee written notice of such default as specified herein and the Trustee having failed to act within the time specified in this subsection, or such longer time as extended by subsection 13.3(D). (F) Assignment. During any Trustee cure period described in subsection (E) of this Section, the Trustee shall have the right to assign (and the Company in such circumstances agrees to the assignment of) the Company's rights and obligations under this r Service Contract to any replacement operator recognized as competent in the water treatment industry and as being technically and financially capable of carrying out both the Company's obligations under this Service Contract and the Guarantor's obligations under the Service Contract Guaranty Agreement for the remaining Term hereof. Any such replacement operator shall be subject to the approval of the District, which approval shall be based on the standards 137 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination set forth in the preceding sentence and shall not unreasonably be withheld. No such assignment shall take place unless and until the replacement operator has executed and delivered to the District an agreement acknowledging and confirming its assumption of all of the Company's obligations hereunder, together with all authorizing documentation. All of the rights of the District with respect to the Project, the Company and the Trustee set forth in this Article shall be fully preserved with respect to the Project, any replacement operator and the Trustee on any such conveyance, assignment and assumption. (G) New Agreement Upon Rejection in BankruptcV. If this Service Contract shall have been rejected or disaffirmed by or on behalf of the Company in aproceeding under the • Bankruptcy Code or other insolvency law then,unless this Service Contract has theretofore been terminated in accordance with this Section 13.2, on written request of the Trustee made at any time within 60 days after the date on which notice of such rejection or disaffirmance shall have been given, the District shall enter into a new agreement with respect to the Project with a designee of the Trustee meeting the requirements of subsection (F) of this Section for a replacement operator. The new agreement shall be effective as of the effective date of such rejection or disaffirmance of this Service Contract,for the Term of this Service Contract remaining as of the effective date of such rejection or disaffirmance, upon the same executory terms, S covenants, conditions and agreements as are herein contained; provided, however, that the District shall not be so obligated unless (a) such designee shall execute and deliver such new agreement within 20 days after the later of the date on which the Trustee shall have given the District notice of its election to do so or the date on which the District shall tender such new agreement to such designee for execution, and (b) the Trustee or its designee shall pay to the District at the time of the execution and delivery of such new agreement all expenses,including reasonable attorney's fees, incurred by the District in connection with the termination of this Service Contract and the execution and delivery of such new agreement. The Trustee's cure right period provided under this Section shall continue in effect with respect to such new agreement and the expiration of such cure right period shall be determined by reference to the date on which such cure right period commenced with respect to this Service Contract. Notwithstanding the foregoing, the District shall have no obligation to deliver physical possession of the Project • to any such designee until and unless the District shall have obtained physical possession thereof. (H) Continuing Performance Obligations:Trustee Obligation to Pay Liquidated Damages. The rights of the Trustee under this Section to cure an Event of Default by the a Company and to appoint a replacement operator shall not relieve the Company or any such 138 368012.15 022806 AGMT r s Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination replacement operator from its continuing obligation to perform the Contract Services. The 1 Trustee's rights under this Section shall be subject to the timely payment and performance by the Trustee or another entity as arranged for by the Trustee, on behalf of the Company, of all non-performance damages and other obligations which are to be performed or paid by the Company to the District hereunder and which remain unperformed or unpaid as of the due date. (1) Bond Insurer Cure Rights. At all times during which a policy of municipal bond insurance is in effect as contempleted by Section 5.3, the Bond Insurer, and not the Trustee, shall have the rights and obligations given the Trustee under this Section 13.3. SECTION 13.4. EVENTS OF DEFAULT BY THE DISTRICT. (A) Events of Default Permitting Termination. Each of the following shall constitute an Event of Default by the District upon which the Company, by notice to the District, may terminate this Service Contract: (1) Representations and Warranties. Any representation or warranty of the District hereunder was false or inaccurate in any material respect when made, and the legality of this Service Contract or the ability of the District to carry out its obligations hereunder is thereby adversely affected; (2) Failure to Pay or Perform. The failure, refusal or other default by the District in its duty: (1) to pay the amount required to be paid to the Company under this Service Contract within 60 days following the due date for such payment;or(2)to perform any other material obligation under this Service Contract(unless such default is excused by an Uncontrollable Circumstance or Company Fault); or (3) Bankruptcy. The authorized filing by the District of a petition seeking relief under the Bankruptcy Code, as applicable to political subdivisions which are insolvent or unable to meet their obligations as they mature; provided that the appointment of a financial control or oversight board by the State for the District shall not in and of itself constitute an Event of Default hereunder. (B) Notice and Cure Opportunity. No such default described in subsection(A) of this Section (except paragraph (3) thereof) shall constitute an Event of Default giving the Company the right to terminate this Service Contract for cause under this subsection unless: (1) The Company has given prior written notice to the District stating that a specified default which gives the Company a right to terminate this Service Contract for cause under this Section has occurred, and describing the default in reasonable detail; and (2) The District has neither challenged in an appropriate forum the Company's conclusion that such failure or refusal to perform has occurred or constitutes a material 139 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination breach of this Service Contract nor corrected or diligently taken steps to correct such • default within a reasonable period of time but not more than 30 (thirty)days from the date of the notice given pursuant to the preceding paragraph (but if the District shall have diligently taken steps to correct such default within areasonable period of time,the same shall not constitute an Event of Default for as long (but in any event not more than 120 days from the initial default notice) as the District is diligently continuing to take such steps to correct such default). (C) Other Remedies Upon District Event of Default-Prior to Tenth Anniversary of Acceptance Date. The right of termination provided under this Section upon an Event of Default by the District is not exclusive. If this Service Contract is terminated by the Company for an Event of Default by the District prior to the tenth anniversary of the Acceptance Date, the Company shall have the right to pursue a cause of action for actual damages and to exercise all other remedies which are available to it under this Service Contract and under Applicable Law. r (D) Other Remedies Upon District Event of Default - After Tenth Anniversary of Acceptance Date. If this Service Contract is terminated by the Company for cause as a result of an Event of Default by the District after the tenth anniversary of the Acceptance Date, the District shall pay the Company, as liquidated damages upon any such termination, the same amount that would be payable upon a District buy-out under subsection 13.7(A), as set forth in the table therein, based on the date the Event of Default by the District occurs, which amount shall be interpolated appropriately if the Event of Default occurs between the two-year anniversary dates set forth in such table. SECTION 13.5. DISTRICT BUY-OUT RIGHT UPON PILOTTEST RESULTS DURING THE DEVELOPMENT PERIOD. (A) Buy-out Right. In the event that the results of the source water pilot test conducted pursuant to Section 4.7 indicate that unacceptable risk will be faced by the District by further pursuing the Project,the District shall have the right to terminate this Service Contract by delivering a termination notice and paying the Company the Development Period buy-out fee set forth below in subsection(B) of this Section. The District shall be deemed to be facing unacceptable risk in further pursuing the Project if, following completion of such source water pilot test, and review of the results thereof, the District determines that the data • indicates that there is a realistic possibility that the parameters of the Raw Water to be provided to the Project will be outside the Design Raw Water Quality Parameters to such an extent that resulting Uncontrollable Circumstance will make construction, completion and operation of the Project unduly burdensome to the District after taking into account the relief due the Company under Section 14.2. The District shall make such determination, and exercise its right of 140 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination termination, if at all, within 7 days of receipt of the Company's assessment of the source water • pilot test pursuant to subsection 4.7(B). Promptly following receipt of the District's termination notice, the Company shall prepare and deliver to the District an invoice for the buy-out fee payable under this Section,including all required Cost Substantiation. The District shall pay the invoice within 30 days following receipt thereof. (B) Development Period Buy-Out Fee. The Development Period buy-out fee shall be an amount equal to the sum of(1) the amount of the first installment of the Transaction Cost Reimbursement Payment made by the Company to the District pursuant to Section 3.1; plus (2) subject to Cost Substantiation, an amount equal to 100% of the reasonable costs incurred directly by the Company and any expenses paid or incurred to third parties from the Contract Date to the Termination Date which are directly related to the performance of the Design/Build Work, not to exceed the Design/Build Price. (C) Cost Records and Reporting. During the Development Period,the Company shall prepare and maintain proper, accurate and complete books and records of the cost and description of the Design/Build Work which the Company has performed since the Contract Date which is directly related to the Company's obligations during the Development Period under this Service Contract,the cost of which would be the responsibility of the District if the District were to elect to terminate this Service Contract pursuant to subsection(A) of this Section. All financial records of the Company and its Subcontractors shall be maintained in accordance with generally accepted accounting principles and auditing standards. (D) Buy-Out Fee Payment Contingent Upon Surrender of Possession. The • District shall have no obligation to pay the buy-out fee provided for under this Section except concurrently with the surrender of possession and control by the Company of the Project to the District. (E) Adequacy of Buy-Out Fee. The Company agrees that the buy-out fee provided in this Section shall fully and adequately compensate the Company and all Subcontractors for all foregone potential profits, Loss-and-Expense, and charges of any kind whatsoever(whether foreseen or unforeseen),including initial transition and mobilization costs and demobilization, and other similar wind-down costs, attributable to the termination of the • Company's right to perform this Service Contract under this Section. SECTION 13.6. DISTRICT RIGHT OF TERMINATION UPON UNSUCCESSFUL BOND ISSUANCE. In the event the underwriter of the Bonds is unable to effectuate a Bond Closing on or before April 1, 2003, on terms and conditions which do not impose any greater • obligation, risk or liability on the District than contemplated under Section 5.3 and do not result 141 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach Default Remedies and Termination in a net interest cost greater than 141 basis points over the revenue bond yield for the week • preceding the week in which the date of sale of the Bonds would otherwise occur, as set forth in the "25-Bond Revenue" column in the "Bond Buyer Indexes (Average Municipal Bond Yields - Compiled weekly) table in The Bond Buyer, the District shall have the right to terminate this Service Contract upon written notice to the Company. In the event of any such termination,each party shall bear their respective costs incurred prior to the termination date, and neither party shall have any liability to the other as a result of such termination. SECTION 13.7. DISTRICT BUY-OUT RIGHT FOR SIGNIFICANT UNCONTROLLABLE CIRCUMSTANCES DURING THE DEVELOPMENT PERIOD. (A) Buy-out • Rigl t. In the event an Uncontrollable Circumstance causes a total development loss of the Project, or in the event an Uncontrollable Circumstance causes an extraordinary increase in District costs relating to the Project, in either case due to events occurring during the Development Period, the District shall have the right to terminate this Service Contract upon payment to the Company of the Development Period buy-out fee set forth below in subsection(B) of this Section. A "total development loss" for this purpose shall be deemed to have occurred if construction cannot reasonably be expected to commence within six months following the occurrence of the Uncontrollable Circumstance. "An extraordinary increase" in District costs shall be deemed to have occurred for this purpose if the increase in the Effective Rate for Finished Water in the first full Contract Year which would reasonably be expected to result from an Uncontrollable Circumstance occurring during the Development Period would cause an increase of more than 20% in the Effective Rate for Finished Water which would reasonably be expected to be payable in such first full Contract Year had no such Uncontrollable Circumstance occurred. Promptly following receipt of the District's termination notice, the Company shall prepare and deliver to the District an invoice for the buy-out-fee payable under this Section, including all required Cost Substantiation. The District shall pay the invoice within 30 days following receipt thereof. (B) Development Period Buy-Out Fee. The Development Period buy-out fee payable by the District to the Company shall be the sum of(1) subject to Cost Substantiation, an amount equal to 100% of the reasonable costs incurred directly by the Company and any • expenses paid or incurred to third parties from the Contract Date to the Termination Date which are directly related to the performance of the Design/Build Work,not to exceed the Design/Build Price; plus (2), an amount equal to the amount of the first installment of the Transaction Cost Reimbursement Payment made by the Company pursuant to Section 3.1. r 142 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination (C) Buy-Out Fee Payment Contingent Upon Surrender of Possession. The District shall have no obligation to pay the buy-out fee provided for under this Section except concurrently with the surrender of possession and control by the Company of the Project to the District. (D) Adequacy of Buy-Out Fee. The Company agrees that the buy-out fee • provided in this Section shall fully and adequately compensate the Company and all Subcontractors for all foregone potential profits, Loss-and-Expense, and charges of any kind whatsoever(whether foreseen or unforeseen), including initial transition and mobilization costs and demobilization, and other similar wind-down costs, attributable to the termination of the Company's right to perform this Service Contract under this Section. SECTION 13.8. DISTRICT BUY-OUT RIGHT FOR SIGNIFICANT UNCONTROLLABLE CIRCUMSTANCES DURING THE CONSTRUCTION PERIOD. (A) Buy-out Right. In the event an Uncontrollable Circumstance causes a total constructive loss of the • Project, or in the event an Uncontrollable Circumstance causes an extraordinary increase in District costs relating to the Project, in either case due to events occurring during the Construction Period, the District shall have the right to terminate this Service Contract upon payment to the Company of the Construction Period buy-out fee set forth below in subsection(B) • of this Section. A "total constructive loss" for this purpose shall be deemed to have occurred: (1) if so determined by the property insurance carrier; or(2) if re-construction cannot reasonably be expected to commence within six months following the occurrence of the Uncontrollable Circumstance. "An extraordinary increase" in District costs shall be deemed to have occurred • for this purpose if the increase in the Effective Rate for Finished Water in the first full Contract Year which would reasonably be expected to result from an Uncontrollable Circumstance occurring during the Construction Period would cause an increase of more than 20% in the Effective Rate for Finished Water which would reasonably expected to be payable in such first full Contract Year had no such Uncontrollable Circumstance occurred. Promptly following receipt of the District's termination notice, the Company shall prepare and deliver to the District an invoice for the buy-out-fee payable under this Section,including all required Cost Substantiation. The District shall pay the invoice within 30 days following receipt thereof. • (B) Construction Period Buy-Out Fee. The Construction Period buy-out fee shall be an amount equal to the sum of(1) subject to Cost Substantiation, an amount equal to 100% of the reasonable costs incurred directly by the Company and any expenses paid or incurred to third parties from the Contract Date to the Termination Date (including reasonable • demobilization costs for work required under Section 13.10) which are directly related to the 143 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination performance of the Design/Build Work,not to exceed the Design/Build Price;plus(2),an amount A equal to 10% of the amount described in item (1) of this subsection (but not less than$250,000 nor more than $2,000,000). (C) Cost Records and Reporting. During the Construction Period,the Company shall prepare and maintain proper, accurate and complete books and records of the cost and • description ofthe Design/Build Work which the Company has performed since the Contract Date which is directly related to the Company's obligations during the Construction Period under this Service Contract, the cost of which would be the responsibility of the District if the District were to elect to terminate this Service Contract pursuant to subsection(A)of this Section. All financial • records of the Company and its Subcontractors shall be maintained in accordance with generally accepted accounting principles and auditing standards. (D) Buy-Out Fee Payment Contingent Upon Surrender of Possession. The District shall have no obligation to pay the buy-out fee provided for under this Section except concurrently with the surrender of possession and control by the Company of the Project to the District. (E) Adequacy of Buy-Out Fee. The Company agrees that the buy-out fee provided in this Section shall fully and adequately compensate the Company and all Subcontractors for all foregone potential profits, Loss-and-Expense, and charges of any kind whatsoever(whether foreseen or unforeseen),including initial transition and mobilization costs and demobilization, and other similar wind-down costs, attributable to the termination of the Company's right to perform this Service Contract under this Section. • SECTION 13.9. DISTRICT BUY-OUT RIGHTS DURING THE OPERATION PERIOD. (A) General Buy-Out Right and Fee. The District shall have the right, on the tenth, twelfth, fourteenth,sixteenth and eighteenth anniversaries of the Acceptance Date,exercisable in its sole discretion and without cause, to terminate this Service Contract upon 60 days prior written �r notice to the Company. If the District exercises its right to terminate this Service Contract pursuant to this Section,the District shall pay the Company a buy-out fee in the amount stated in the table below, which amounts shall not be escalated. Promptly following receipt of the District's termination notice,the Company shall prepare and deliver to the District an invoice for the buy-out-fee payable under this Section, including all required Cost Substantiation. The District shall pay the invoice within 30 days following receipt thereof. • 144 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination Buy-Out-Date Buy-Out Fee Tenth Anniversary $1,000,000 Twelfth Anniversary 800,000 Fourteenth Anniversary 600,000 Sixteenth Anniversary 400,000 Eighteenth Anniversary 200,000 • If the Company has provided fmancing for any Capital Modifications pursuant to subsection 11.7(B), the unamortized value thereof based on the financing methodology approved by the District at the time the financing was effectuated shall also be included in the buy-out fee. (B) Significant Uncontrollable Circumstances Buy-Out Right and Fee, In the ' event an Uncontrollable Circumstance causes a total constructive loss of the Project, or in the event an Uncontrollable Circumstance causes an extraordinary increase in District costs,relating to the Project, in either case due to events occurring during the Operation Period, the District shall have the right to terminate this Service Contract upon payment to the Company of the buy- out fee set forth below in subsection (C) of this Section. A "total constructive loss" for this purpose shall be deemed to have occurred: (1)if so determined by the casualty insurance carrier; or (2) if the Project is substantially inoperable for a period of at least six months following the occurrence of the Uncontrollable Circumstance. "An extraordinary increase" in District costs shall be deemed to have occurred for this purpose if the increase in the Effective Rate for Finished Water in the full Contract Year following the Contract Year in which the Uncontrollable Circumstance occurred which would reasonably be expected to result from such occurrence would cause an increase of more than 20%in the Effective Rate for Finished Water which would reasonably be expected to be payable in such following Contract Year had no Uncontrollable Circumstance occurred. Promptly following receipt of the District's termination notice, the Company shall prepare and deliver to the District an invoice for the buy-out-fee payable under this Section,including all required Cost Substantiation. The District shall pay the invoice within • 30 days following receipt thereof. (C) Operation Period Uncontrollable Circumstances Buy-Out Fee. The buy-out fee payable by the District to the Company upon the occurrence of the Uncontrollable Circumstances described in subsection (B) of this Section shall be an amount equal to (1) if . termination occurs on or before the tenth anniversary of the Provisional Acceptance Date, $2,000,000 or(2) if termination occurs after the tenth anniversary of the Provisional Acceptance 145 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination Date,$1,000,000,reduced by l/120 of such amount for each month which has elapsed following the tenth anniversary of the Provisional Acceptance Date to and including the month in which the Termination Date occurs. (D) Payment of Amounts Owing Through the Termination Date. Upon any termination pursuant to this Section, the Company shall also be paid all amounts due for the • Contract Services to be paid as part of the Service Fee but not yet paid as of the date of termination. (E) Termination Fee Payment Contingent Upon Surrender of Possession. The District shall have no obligation to pay the applicable termination fee provided for under this Section except concurrently with the surrender of possession and control by the Company of the Project to the District. (F) Adequacy of Buy-Out Fee. The Company agrees that the applicable buy- out fee provided in this Section shall fully and adequately compensate the Company and all r Subcontractors for all foregone potential profits, Loss-and-Expense, and charges of any kind whatsoever (whether foreseen or unforeseen),including initial transition and mobilization costs and demobilization, employee transition and other similar wind-down costs, attributable to the termination of the Company's right to perform this Service Contract. (G) Consideration for Buy-Out Fee. The right of the District to terminate this Service Contract in accordance with this Section constitutes an essential part of the overall consideration for this Service Contract, and the Company hereby waives any right it may have under Applicable Law to assert that the District owes the Company a duty of good faith dealing • in the exercise of such right. SECTION13.10. GENERAL RELEASE OF THE COMPANY UPON BUY-OUT. Except as otherwise provided in Section 13.12 with respect to survival of certain provisions upon termination hereof, upon and at all times after any termination of this Service Contract resulting from the District's exercise of its buy-out rights under Sections 13.5, 13.7, 13.8 or 13.9, the Company shall be fully and forever released and discharged of and from all liability and obligations to the District,the Issuer,the Trustee and the bondholders arising from or related to the Project, this Service Contract, the Bonds and any and all other Transaction Documents. • SECTION 13.11. OBLIGATIONS OF THE COMPANY UPON TERMINATION OR EXPIRATION. (A) Company Obligations. Upon a termination of the Company's right to perform this Service Contract under Section 13.2, 13.5, 13.6, 13.7, 13.8 or 13.9, or upon the expiration of this Service Contract under Section 3.1, the Company shall, as applicable: • 146 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination (1) leave and surrender the Sites as provided in Section 10 of the Property Lease; (2) stop the Contract Services on the date and to the extent specified by the District; (3) promptly take all action as necessary to protect and preserve all materials, • equipment, tools, facilities and other property; (4) promptly remove from the Project all equipment, implements, machinery, tools,temporary facilities of any kind and other property owned or leased by the Company (including, but not limited to sheds, trailers, workshops and toilets), and repair any • damage caused by such removal; (5) clean the Project and the Sites and leave them in a neat and orderly condition; (6) subject to subsection(B) of this Section,promptly remove all employees of the Company and any Subcontractors and vacate the Project; (7) promptly deliver to the District a list of all supplies, materials, machinery, equipment, property and special order items previously delivered or fabricated by the Company or any Subcontractor but not yet incorporated in the Project; • (8) deliver to the District the Operation and Maintenance Manual and all computer data files used at the Project in the performance of the Contract Services, including all revisions and updates thereto; (9) deliver to the District a copy of all non-financial records in its possession • relating to the performance of the Contract Services; (10) provide the District with a list of all files relevant to the Project, and access and security codes with instructions and demonstrations which show how to open and change such codes; r (11) advise the District promptly of any special circumstances which might limit or prohibit cancellation of any Subcontract; (12) promptly deliver to the District copies of all Subcontracts relevant to the Project, together with a statement of: • (a) the items ordered and not yet delivered pursuant to each agreement; (b) the expected delivery date of all such items; (c) the total cost of each agreement and the terms of payment; and • (d) the estimated cost of canceling each agreement; 147 368012.15 022806 AGMT it • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination (13) assign to the District any Subcontract that by its terms is assignable and that the District elects in writing, at its sole election and without obligation, to have assigned to it. The District shall assume, and the Company shall be relieved of its obligations under, any Subcontract so assigned; (14) unless the District directs otherwise,terminate all Subcontracts and make no additional agreements with Subcontractors; (15) as directed by the District, transfer to the District by appropriate instruments of title, and deliver to the Project (or such other place as the District may specify), all special order items pursuant to this Service Contract for which the District • has made or is obligated to make payments; (16) promptly transfer to the District all warranties given by any manufacturer or Subcontractor with respect to particular components of the Design/Build Work or the Operation Services; (17) notify the District promptly in writing of any Legal Proceedings against the Company by any Subcontractor or other third parties relating to the termination of the Design/Build Work or the Operation Services (or any Subcontracts); (18) give written notice of termination,effective as of date of termination of this • Service Contract, promptly under each policy of Required Insurance (with a copy of each such notice to the District), but permit the District to continue such policies thereafter at its own expense, if possible; (19) use reasonable efforts to arrange its dealings with employees such that no • "successor clause" or accrued benefit liability will bind the District in the event the District determines to offer employment to the Company's employees at the Project following the Termination Date; and (20) take such other actions, and execute such other documents as may be reasonably necessary to effectuate and confirm the foregoing matters. For the purposes of this Section,all work required to be performed"promptly"shall be performed in any event within 30 days of termination. (B) Certain Obligations of the Company Relating to the Sites Prior to the • Acceptance Date. In the event the District terminates this Service Contract and the Property Lease (1) pursuant to subsection 13.2(A) for the Company's failure to achieve Acceptance by the last day of the Extension Period, or (2) as a result of the Company's abandonment of the Sites prior to achieving Acceptance, the District, at its sole election, may require the Company to • remove some or all of the Project Improvements from the Sites. In the event the District requires 148 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIII - Breach, Default, Remedies and Termination the Company to remove any Project Improvements from the Sites, the District shall grant the 0 Company all necessary access to the Sites to perform such removal and the Company shall, as applicable: (1) repair any damage to the Sites or other real or personal property resulting from such removal; (2) complete such removal not later than 180 days after the Termination Date; (3) comply with all Applicable Law; (4) continue to maintain the Required Construction Period Insurance; and (5) continue to indemnify,defend and hold harmless the District Indemnitees in accordance with Section 14.3. (C) Hiring of Company Personnel. Upon the termination or expiration of this Service Contract under any provision hereof, the District or any successor operator of the Project designated by the District shall have the right to offer employment on any terms it may choose to any Company employee employed full time at the Project. The District or its designated successor operator shall extend any such job offer within 30 days of the expiration or termination of this Service Contract. (D) Continuity of Service and Technical Support. Upon the termination of the Company's right to perform this Service Contract under Section 13.2, 13.8 or 13.9, or upon the expiration of this Service Contract under Section 3.1,the Company, at the request and direction of the District, shall provide reasonably for the continuity of service and the smooth and orderly transition of management to the District or any replacement operator designated by the District. 0 Such service shall be for a period of up to 60 days and shall include providing technological and design advice and support and delivering any plans, drawings,renderings,blueprints,operating manuals, computer programs, spare parts or other information relating to the design, construction and operation of the Project which belong to the District under this Service 0 Contract. In addition,the Company shall provide the District and any replacement operator with a one-time training program relating to the operation of the Project, including any Capital Modifications thereto. (E) Company Payment of Certain Costs. If termination is pursuant to • Section 13.2, or upon the expiration of this Service Contract under Section 3.1, the Company shall be obligated to pay the costs and expenses of undertaking its obligations under subsection (A) of this Section. If the Service Contract is terminated as described in subsection (B) of this Section,the Company shall be obligated to pay the costs and expenses of undertaking • its obligations thereunder. If the Company fails to comply with any obligation under this Section, 149 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Protect Article XIII - Breach, Default, Remedies and Termination the District may perform such obligation and the Company shall pay on demand all reasonable • costs thereof subject to Cost Substantiation. (F) District Payment of Certain Costs. If termination is for the convenience of the District under Section 13.5, 13.6, 13.7 or 13.8 or due to a District Event of Default pursuant to Section 13.4, the District shall pay to the Company within 45 days of the date of the • Company's invoice supported by Cost Substantiation all reasonable costs and expenses incurred by the Company in satisfying its obligations under subsection (A) of this Section. (G) Exit Test. Not later than 180 days prior to the Termination Date resulting from the expiration of this Service Contract or concurrently with the termination resulting from • an early termination of this Service Contract, the Company shall prepare and submit to the District for its approval a plan for exit testing of the Project, which shall conform to the requirements of Appendix 18 in all respects. The District shall submit its comments on the exit testing plan to the Company within 30 days of receipt thereof, and the Company thereafter shall • prepare afinal exit testing plan,incorporating the District's reasonable comments,for submission to the District within 30 days. The Company, at the request of the District and after reasonable notice to the Company, shall perform the exit test of the Project for compliance with the Exit Test Procedures and Standards in the first 90 days of the 180-day period preceding the end of the • Term hereof. If such test shows that the Project is operating out of compliance with the Exit Test Procedures and Standards, then within 30 days of such test results, the Company shall submit to the District a plan for remediation and retesting. The District shall have 30 days to approve such plan, which approval shall not be unreasonably withheld. The Company shall make all • repairs, replacements, renewals and operating changes and take all other actions which may be necessary to enable the Project to meet the Exit Test Procedures and Standards. The Project shall then be re-tested to demonstrate that the necessary corrective action has been taken and the Project is in compliance with the Exit Test Procedures and Standards. No such testing or • retesting shall relieve the Company of its obligations under this Service Contract during the performance of the test or retest. SECTION 13.12. SURVIVAL OF CERTAIN PROVISIONS UPON TERMINATION. All representations and warranties of the parties hereto contained in Article 11 and the rights and • obligations of the parties hereto pursuant to Sections 1.2(1), 4.8(E), 4.10(A), 4.11, 5.3(C), 5.3(G), 5.4(F),6.2(B),6.3(A),6.13(D),6.14,7.17,8.10(D),8.13(D),9.2(F),9.3(F),9.6,9.9(C),9.10(F), 10.2, 10.6(B), 10.6(C), 10.6(D), 13.1, 13.4, 13.5, 13.6, 13.7, 13.8, 13.9, 13.10, 13.11, 13.12, 13.13, 13.14, 13.15, 13.16, 13.17, 14.2, 14.3, 14.4, 16.3, 16.7(C) and 16.7(F) shall survive the • termination of this Service Contract. No termination of this Service Contract shall (1) limit or 150 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X1II - Breach, Default, Remedies and Termination otherwise affect the respective rights and obligations of the parties hereto accrued prior to the 0 date of such termination; or (2) preclude either party from implementing the other party in any Legal Proceeding originated by a third-party as to any matter occurring during the Term of this Service Contract. SECTION 13.13. NO WAIVERS. No action of the District or Company pursuant to 0 this Service Contract(including,but not limited to,any investigation or payment),and no failure to act, shall constitute a waiver by either party of the other party's compliance with any term or provision of this Service Contract. No course of dealing or delay by the District or Company in exercising any right, power or remedy under this Service Contract shall operate as a waiver 0 thereof or otherwise prejudice such party's rights, powers and remedies. No single or partial exercise of(or failure to exercise) any right,power or remedy of the District or the Company under this Service Contract shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 0 SECTION 13.14. NO CONSEQUENTIAL OR PUNITIVE DAMAGES. Innoevent shall either party hereto be liable to the other or obligated in any manner to pay to the other, except with respect to indemnification of Loss-and-Expense imposed as a result of a Legal Proceeding brought by a third party for which the Company is obligated to indemnify the District pursuant to the provisions of this Service Contract, any special, incidental, consequential, punitive or similar damages based upon claims arising out of or in connection with the performance or non- performance of its obligations or otherwise under this Service Contract,or the material falseness or inaccuracy of any representation made in this Service Contract,whether such claims are based 0 upon contract, tort, negligence, warranty or other legal theory. SECTION 13.15. FORUM FOR DISPUTE RESOLUTION. It is the express intention of the parties that all Legal Proceedings related to this Service Contract or to the Project or to any rights or any relationship between the parties arising therefrom shall be solely and exclusively 0 initiated and maintained in courts of the State located in Orange County. The Company and the District each irrevocably consents to the jurisdiction of such courts in any such Legal Proceeding, waives any objection it may have to the laying of the jurisdiction of any such Legal Proceeding, and waives its right to a trial by jury. 0 SECTION 13.16. NON-BINDING MEDIATION. (A) Rights to Request and Decline. Either party may request Non-Binding Mediation of any dispute arising under this Service Contract, whether technical or otherwise. The non-requesting party may decline the request in its sole discretion. If there is concurrence that any particular matter shall be mediated, the 0 151 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article X111 - Breach Default, Remedies and Termination provisions of this Section shall apply. The costs of such Non-Binding Mediation shall be divided • equally between the District and the Company. (B) Procedure. The Mediator shall be aprofessional engineer,attorney or other professional mutually acceptable to the parties who has no current or past on-going relationship to either party. The Mediator shall have full discretion as to the conduct of the mediation. Each • party shall participate in the Mediator's program to resolve the dispute until and unless the parties reach agreement with respect to the disputed matter or one party determines in its sole discretion that its interests are not being served by the mediation. (C) Non-Binding Effect. Mediation is intended to assist the parties in resolving • disputes over the correct interpretation of this Service Contract. No Mediator shall be empowered to render a binding decision. (D) Relation to Judicial Legal Proceedings. Nothing in this Section shall operate to limit, interfere with or delay the right of either party under this Article to commence • judicial Legal Proceedings upon a breach of this Service Contract by the other party, whether in lieu of, concurrently with, or at the conclusion of any Non-Binding Mediation. SECTION 13.17. ARBITRATION. (A) General. To the extent that the Non-Binding Mediation fails to resolve any dispute between the parties, and upon mutual agreement of the • parties, the District and the Company may agree to binding arbitration of any dispute which arises under this Service Contract. Such arbitration shall be governed and conducted pursuant to the provisions of Section 1281 et seq. of the California Code of Civil Procedure. (B) Relation to Judicial Legal Proceedings. Nothing in this Section shall • operate to limit, interfere with or delay the right of either party under this Article to commence judicial Legal Proceedings upon a breach of this Service Contract by the other party. • • • 152 368012.15 022806 AGMT • • ARTICLE XIV INSURANCE, UNCONTROLLABLE CIRCUMSTANCES AND INDEMNIFICATION • SECTION 14.1. INSURANCE. (A) Company Insurance. At all times during the Term of this Service Contract, the Company shall obtain and maintain the Required Insurance in accordance with Appendix 11 and shall pay all premiums with respect thereto as the same become due and payable. • (B) Insurers, Deductibles and District Rights. All insurance required by this Section shall be obtained and maintained from financially sound and generally recognized responsible insurance companies meeting the qualifications set forth in Appendix 11. The insurers shall be selected by the Company and authorized to write such insurance in the State. The insurance coverage may be written with deductible amounts within the limits allowed in Appendix 11, and the Company shall be responsible for any deductible amounts. The Company shall also be responsible for all self-insured retentions contained in its insurance coverages, as well as any excluded losses if such losses are within the liability of the Company hereunder. All • policies evidencing such insurance shall provide for: (1)payment of the losses to the District,and to the Company as their respective interests may appear; and (2) at least 30 days prior written notice of the cancellation thereof to the Company and the District. All policies of insurance required by this Section shall be primary insurance without any right of contribution from other • insurance carried by the District. (C) Certificates, Policies and Notice. The delivery by the Company to the District of certificates of insurance is required by this Service Contract as a condition to the occurrence of the Construction Date(Required Construction Period Insurance)and as acondition • to the occurrence of the Acceptance Date (Required Operation Period Insurance). The Company shall also supply the District, upon request, with certified copies of such policies promptly following the filing of any claim against the District under any of the policies. Not later than 60 days prior to the beginning of each Contract Year throughout the Term, the Company shall • furnish certificates of insurance to the District to confirm the continued effectiveness of the Required Insurance.Whenever a Subcontractor is utilized,the Company shall either obtain and maintain or require the Subcontractor to obtain and maintain insurance in accordance with the applicable requirements of Appendix 11, appropriate to the Subcontractor's participation in the • Service Contract or the Project. (D) Maintenance of Insurance Coverage. If the Company fails to pay any premium for Required Insurance,or if any insurer cancels any Required Insurance policy and the Company fails to obtain replacement coverage so that the Required Insurance is maintained on • a continuous basis, then, at the District's election (but without any obligation to do so), the 153 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIV - Insurance, Uncontrollable Circumstance and Indemnification • District, following 7 days notice to the Company, may pay such premium or procure similar insurance coverage from another company or companies and upon such payment by the District the amount thereof shall be immediately reimbursable to the District by the Company. The Company shall not perform Design/Build Work during any period when any policy of Required • Construction Period Insurance is not in effect. The Company shall comply with all applicable Required Insurance and take all steps necessary to assure the Project remains continuously insured in accordance with the requirements of this Service Contract during the Term hereof. The failure of the Company to obtain and maintain any Required Insurance shall not relieve the • Company of its liability for any losses intended to be insured thereby. Should any failure to provide continuous insurance coverage occur, the Company shall indemnify and hold harmless the District in the manner provided in Section 14.3, from and against any Loss-and-Expense arising out of such failure. The purchase of insurance to satisfy the Company's obligations under • this Section shall not be a satisfaction of any Company liability under this Service Contract or in any way limit, modify or satisfy the Company's indemnity obligations hereunder. SECTION 14.2. UNCONTROLLABLE CIRCUMSTANCES. (A) Relief from Obligations. Except as expressly provided under this Section, neither party to this Service • Contract shall be liable to the other for any loss, damage, delay, default or failure to perform any obligation to the extent it results from an Uncontrollable Circumstance. The parties agree that the relief for an Uncontrollable Circumstance described in this Section shall apply to all obligations in this Service Contract, except to the extent specifically provided otherwise, • notwithstanding that such relief is specifically mentioned with respect to certain obligations in this Service Contract but not other obligations. The occurrence of an Uncontrollable Circumstance shall not excuse or delay the performance of a party's obligation to pay monies previously accrued and owing under this Service Contract, or to perform any obligation hereunder not affected by the occurrence of the Uncontrollable Circumstances. The District shall pay the Service Fee during the continuance of any Uncontrollable Circumstance, adjusted to account for any cost reductions achieved through Company mitigation measures required by subsection(B) of this Section, as well as for any cost increases to which the Company is entitled • under subsection(C)of this Section. A Contract Administration Memorandum shall be prepared to confirm and evidence the terms and conditions of the relief given to the Company on account of any Uncontrollable Circumstances. (B) Notice and Mitigation. The party that asserts the occurrence of an • Uncontrollable Circumstance shall notify the other party by telephone or facsimile, on or promptly after the date the party experiencing such Uncontrollable Circumstance first knew of 154 368012.15 022806 AGMT L • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIV - Insurance, Uncontrollable Circumstance and Indemnification • the occurrence thereof,followed within 15 days by awritten description of: (1)the Uncontrollable Circumstance and the cause thereof(to the extent known); and (2) the date the Uncontrollable Circumstance began, its estimated duration, the estimated time during which the performance of such party's obligations hereunder shall be delayed, or otherwise affected. As soon as • practicable after the occurrence of an Uncontrollable Circumstance,the affected party shall also provide the other party with a description of. (1) the amount, if any, by which the Design/Build Price or the Service Fee is proposed to be adjusted as a result of such Uncontrollable Circumstance; (2) any areas where costs might be reduced and the approximate amount of such • cost reductions; and (3) its estimated impact on the other obligations of such party under this Service Contract. The affected party shall also provide prompt written notice of the cessation of such Uncontrollable Circumstance. Whenever such act,event or condition shall occur,the party claiming to be adversely affected thereby shall, as promptly as practicable, use all reasonable • efforts to eliminate the cause therefor, reduce costs and resume performance under this Service Contract. While the Uncontrollable Circumstance continues,the affected party shall give notice to the other party, before the first day of each succeeding month, updating the information previously submitted. The party claiming to be adversely affected by an Uncontrollable • Circumstance shall bear the burden of proof, and shall furnish promptly any additional documents or other information relating to the Uncontrollable Circumstance reasonably requested by the other party. (C) Conditions to Performance, Design/Build Price, Service Fee and Schedule Relief. If and to the extent that Uncontrollable Circumstances interfere with, delay or increase the cost of the Company's performance of the Contract Services in accordance herewith, the Company shall be entitled to an increase in the Design/Build Price and the Service Fee, and an extension of the Scheduled Acceptance Date, all as applicable, which properly reflects the • interference with performance, the amount of the increased cost, or the time lost as a result thereof, and the Company shall perform all other Contract Services. The Scheduled Acceptance Date shall be extended only to the extent that the Uncontrollable Circumstance affects the critical path of the Design/Build Work. The proceeds of any Required Insurance available to meet any • such increased cost shall be applied to such purpose prior to any determination of cost increase payable by the District under this Section. In particular, the Company shall apply the proceeds of Required Insurance maintained by the Company for builder's risk to the reconstruction of the Project should an insured event under such builder's risk insurance cause property damage prior • to Acceptance. To the extent there is any cost reduction achieved through the mitigating measures undertaken by the Company pursuant to subsection (B) of this Section upon the 155 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIV - Insurance, Uncontrollable Circumstance and Indemnification • occurrence of an Uncontrollable Circumstance, the parties shall agree to the amount of the cost reduction and such cost reduction shall be reflected in a reduction of the amount by which the Design/Build Price or the Service Fee would have otherwise been increased or shall serve to reduce the Design/Build Price or the Service Fee to reflect such mitigation measures, as • applicable. In the event that the Company believes it is entitled to any Design/Build Price, Service Fee or schedule relief on account of any Uncontrollable Circumstance,it shall furnish the District written notice of the specific relief requested and detailing the event giving rise to the claim within 30 days after the giving of notice delivered pursuant to subsection (B) of this • Section, or if the specific relief cannot reasonably be ascertained and such event detailed, with such 30-day period,then within such longer period with which it is reasonably possible to detail the event and ascertain such relief. Within 30 days after receipt of such a timely submission from the Company the District shall issue a written determination as to the extent, if any, it concurs • with the Company claim for performance, price or schedule relief, and the reasons therefor. The Company acknowledges that its failure to give timely notice pertaining to an Uncontrollable Circumstance as required under this Section may adversely affect the District. (D) Capital Modifications. Before proposing any adjustment to the Service Fee • in its notice of requested relief under this Section,the Company may at its discretion, determine whether any increased costs of operation and maintenance of the Project resulting from an Uncontrollable Circumstance can reasonably and prudently be reduced by the undertaking of a Capital Modification. In the event that the Company makes such a determination,the Company • shall so advise the District in accordance with Sections 11.3 and 11.5. The District and the Company shall thereupon mutually determine whether such a Capital Modification shall be undertaken. In no event shall the Company undertake such Capital Modification except at the express written direction of the District. • (E) Share of Costs of Uncontrollable Circumstances. The Company shall bear the costs which result from the occurrence of an uninsured Uncontrollable Circumstance(except any Change in Law made by the District) to the extent of the first 5% of the costs necessitated by Uncontrollable Circumstances up to an aggregate of$12,500 per Contract Year, as adjusted • annually by the Adjustment Factor, and an aggregate of$250,000 over the Initial Term of this Service Contract, as adjusted annually by the Adjustment Factor. Any costs occurring over future Contract Years as the result of an Uncontrollable Circumstance occurring in a prior Contract Year shall be treated as Uncontrollable Circumstance costs occurring in such future • Contract Year. The Company's share of such net costs shall be paid as a lump sum within 60 days of the end of each Contract Year, unless otherwise agreed by the parties. The Company's 156 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIV - Insurance, Uncontrollable Circumstance and Indemnification • obligation under subsection 14.1(B)to bear the expense of any deductibles applicable on claims made with respect to any Required Insurance provided by the Company hereunder is an independent obligation, but the amount of any such expense shall be credited against the Company's obligations under this subsection if the event to which the Required Insurance • responded was an Uncontrollable Circumstance. (F) Acceptance of Relief Constitutes Release. Either party's acceptance of any performance, price or schedule relief under this Section shall be construed as a release of the other party for that portion of the Loss-and-Expense resulting from, or otherwise attributable to, • the event giving rise to the relief claimed. SECTION 14.3. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify, defend and hold harmless the District, and its elected officials, appointed officers, employees, representatives, agents and contractors (each, a "District Indemnitee") and the • Trustee and its officers, employees, representatives, agents and contractors ('Trustee Indemnitee"), from and against (and pay the full amount of) any and all Loss-and-Expense incurred by a District Indemnitee or a Trustee Indemnitee to third parties arising from or in connection with(or alleged to arise from on in connection with): (1) any failure by the Company • to perform its obligations under this Service Contract; or(2) the negligence or willful misconduct of the Company or any of its officers, directors, employees, agents, representatives or Subcontractors in connection this Service Contract. The Company shall also indemnify the District as and to the extent provided elsewhere in this Service Contract. The Company's • indemnity obligations hereunder shall not be limited by any coverage exclusions or other provisions in any insurance policy maintained by the Company which is intended to respond to such events. The Company shall not, however, be required to reimburse or indemnify any District Indemnitee or Trustee Indemnitee for any Loss-and-Expense to the extent caused by the • negligence or willful misconduct of any District Indemnitee or Trustee Indemnitee to the extent attributable to any Uncontrollable Circumstance. A District Indemnitee or Trustee Indemnitee shall promptly notify the Company of the assertion of any claim against it for which it is entitled to be indemnified hereunder,and the Company shall have the right to assume the defense of the • claim in any Legal Proceeding and to approve any settlement of the claim. These indemnification provisions are for the protection of the District Indemnitee and the Trustee Indemnitee only and shall not establish, of themselves, any liability to third parties. The provisions of this Section shall survive termination of this Service Contract. • SECTION 14.4. INDEMNIFICATION BY THE DISTRICT. The District shall indemnify, defend and hold harmless the Company, and its elected officials, appointed officers, 157 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XIV - Insurance, Uncontrollable Circumstance and Indemnification employees, representatives, agents and contractors (each, a "Company Indemnitee"), from and against (and pay the full amount of) any and all Loss-and-Expense incurred by a Company Indemnitee to third parties arising from or in connection with (or alleged to arise from on in connection with): (1) any failure by the District to perform its obligations under this Service Contract;or(2)the negligence or willful misconduct of the District or any of its officers,directors, employees, agents, representatives or subcontractors in connection this Service Contract. The District shall also indemnify the Company as and to the extent provided elsewhere in this Service Contract. The District's indemnity obligations hereunder shall not be limited by any coverage exclusions or other provisions in any insurance policy maintained by the District which is intended to respond to such events. The District shall not, however, be required to reimburse or indemnify any Company Indemnitee for any Loss-and-Expense to the extent caused by the negligence or willful misconduct of any Company Indemnitee or to the extent attributable to any Uncontrollable Circumstance. A Company Indemnitee shall promptly notify the District of the assertion of any claim against it for which it is entitled to be indemnified hereunder, and the District shall have the right to assume the defense of the claim in any Legal Proceeding and to approve any settlement of the claim. These indemnification provisions are for the protection of the Company Indemnitee only and shall not establish,of themselves,any liability to third parties. The provisions of this Section shall survive termination of this Service Contract. 158 368012.15 022806 AGMT ARTICLE XV SECURITY FOR PERFORMANCE SECTION 15.1. GUARANTOR (A) Service Contract Guaranty Agreement. The Company shall cause the Service Contract Guaranty Agreement to be provided and maintained by the Guarantor during the Term hereof in the form attached hereto as a Transaction Form. (B) Annual Reports. The Company shall furnish the District,within 120 days after the end of the Guarantor's fiscal year, the financial statements for the Guarantor filed with the Securities and Exchange Commission, including the audit opinion of the Guarantor's independent public accountant. The Company shall also furnish the District with copies of the quarterly financial statements of the Guarantor filed with the Securities and Exchange ID Commission within 60 days after the end of each quarter. SECTION 15.2. BONDS. (A) Construction Performance and Payment Bonds. On or before the Construction Date, and on or before the date of any Capital Modification(in excess of $100,000) undertaken by the Company, the Company shall provide the Construction Performance Bond and the Payment Bond, each in an amount equal to the portion of the Fixed Design/Build Price relating to the construction work(plus areasonable amount to be determined by the parties for any estimated Fixed Design/Build Price Adjustments), as financial security for the faithful performance and payment of its Construction Period obligations and Capital Modification obligations hereunder. The Construction Performance Bond and the Payment Bond shall be substantially in the form set forth in the Transaction Forms and shall be issued by a surety company: (1) approved by the District having a rating of"A" in the latest revision of the A.M. Best Company's Insurance Report; (2) be listed in the United States Treasury Department's Circular 570, "Companies Holding Certificates of Authority as Acceptable Sureties on Federal Bonds and as Acceptable Reinsurance Companies"; and (3) holding a certificate of authority to transact surety business in the State issued by the Director of the Department of Insurance. The Construction Performance Bond and the Payment Bond shall remain open until Acceptance of the Project. (B) Monitoring of Sureties. The Company shall be responsible throughout the Term of this Service Contract for monitoring the financial condition of any surety company issuing bonds under this Service Contract and for making inquiries no less often than annually to confirm that each such surety company maintains at least the minimum rating level specified in this Section. In the event the rating of any issuing surety company falls below such minimum level, the Company shall promptly notify the District of such event and shall promptly furnish or arrange for the furnishing of a substitute or an additional bond of a surety company whose rating and other qualifications satisfy all above requirements,unless the District agrees to accept the surety company or agrees to an alternative method of assurance. Upon such notice by the 159 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XV - Security for Performance Company of such an event, the District shall not unreasonably withhold its approval of such • assurance. SECTION 15.3. SERVICE CONTRACT LETTER OF CREDIT. (A) Terms and Purpose. On or before the Bond Issuance Date, the Company shall provide further security to the District for the performance of its obligations hereunder to achieve Acceptance through an irrevocable direct pay letter of credit issued by a United States bank whose long-term debt is rated"A"or better by either Rating Service and which maintains a banking office in the State(the "Service Contract Letter of Credit"). The Service Contract Letter of Credit shall be in a stated amount equal to daily accrued debt service on the Bonds for a period of 547 days, shall be for a • term of one year, shall be continuously renewed,extended or replaced so that it remains in effect until 30 days after the date that the District states in writing that the District and the Independent Engineer concur with the Company's certification that Acceptance has occurred as set forth in Section 7.11,and shall be issued substantially in the form set forth in the Transaction • Forms. The stated amount of the Service Contract Letter of Credit shall in no way limit the amount of damages to which the District may be entitled for any Company failure to achieve Acceptance. The Company shall have the right to reduce and replace the stated amount of the Service Contract Letter of Credit on the 6- month and 12-month anniversary dates of the Scheduled Acceptance Date by an amount equal to the sum of all daily delay liquidated damage payments,if any,which the Company has previously paid to the District pursuant to Section 7.9. The Service Contract Letter of Credit shall be surrendered by the City for cancellation by the Company on the date that the District states in writing that the District and the Independent Engineer concur with the Company's certification that Acceptance has occurred as set forth in Section 7.11. (B) Drawings for Non-Renewal or Bankruptcy. The Service Contract Letter of Credit shall authorize the District to draw the full stated amount thereof. (1) in the event that any • required renewal, extension or replacement thereof is not made earlier than the date which is 30 days prior to its expiration date,or(2) upon certain events of bankruptcy or insolvency of the Company or the Guarantor described in the drawing certificate attached thereto. The proceeds of any such drawings shall be held by the District as cash collateral to secure the performance • of the Contract Services and,in the event of a material breach of this Service Contract following any such drawing, may be retained by the District as payment of damages resulting therefrom. (C) Drawings to Pay Delay Liquidated Damages. The Service Contract Letter of Credit shall also authorize the District to draw an amount representing delay liquidated • damages due the District under Section 7.9. 160 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XV - Securily for Performance (D) Effect of Final Determination of Damages. In the event that subsequent to any drawing on the Service Contract Letter of Credit it is determined by any court of competent jurisdiction in a final non-appealable decision that such drawing to any extent was not permitted hereunder, the District shall pay the amount wrongfully drawn to the Company together with interest thereon of the Overdue Rate calculated from the date of drawing to the date of payment to the Company. SECTION 15.4. COSTS OF PROVIDING SECURITY FOR PERFORMANCE. The cost and expense of obtaining and maintaining the Security Instruments required under this Article as security for the performance of the Company's obligations hereunder shall be borne by the Company without reimbursement from the District. r 161 368012.15 022806 AGMT ARTICLE XVI MISCELLANEOUS PROVISIONS • SECTION 16.1. RELATIONSHIP OF THE PARTIES. The Company is an independent contractor of the District and the relationship between the parties shall be limited to performance of this Service Contract in accordance with its terms. Neither party shall have any responsibility with respect to the services to be provided or contractual benefits assumed by • the other party. Nothing in this Service Contract shall be deemed to constitute either party a partner, agent or legal representative of the other party. No liability or benefits, such as workers compensation, pension rights or liabilities, or other provisions or liabilities arising out of or related to a contract for hire or employer/employee relationship shall arise or accrue to any • party's agent or employee as a result of this Service Contract or the performance thereof. SECTION 16.2. CONTRACT ADMINISTRATION. (A) Administrative Communications. The parties recognize that a variety of contract administrative matters will routinely arise throughout the Term of this Service Contract. These matters will by their nature • involve requests,notices,questions,assertions,responses,objections,reports,claims,and other communications made personally,in meetings by phone,by mail and by electronic and computer communications. The purpose of this Section is to set forth a process by which the resolution of the matters at issue in such communications, once resolution is reached, can be formally ' reflected in the common records of the parties so as to permit the orderly and effective administration of this Service Contract. (S) Contract Administration Memoranda. The principal formal tool for the administration of matters arising under this Service Contract between the parties shall be a • "Contract Administration Memorandum." A Contract Administration Memorandum shall be prepared, once all preliminary communications have been concluded,to evidence the resolution reached by the District and the Company as to matters of interpretation and application arising during the course of the performance of their obligations hereunder. Such matters may include, • for example: (1) claims for an increase or decrease of the Service Fee or other demands for compensation or performance based on any provision of this Service Contract;(2)issues as to the meaning,interpretation,application or calculation to be made under any provision hereof;(3)the specific details and terms of any Change Order, Capital Modification or relief given on account of an Uncontrollable Circumstance; (4) notices, waivers, releases, satisfactions, confirmations, further assurances and approvals given hereunder;and(5)other similar contract administration matters. (C) Procedures. Either party may request the execution of a Contract • Administration Memorandum. When resolution of the matter is reached, a Contract Administration Memorandum shall be prepared by or at the direction of the District reflecting the 162 368012.15 022906 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions resolution. The Contract Administration Memorandum shall be numbered, dated, signed by the Contract Representative of each party,and co-signed by a Senior Supervisor for the Company and by the Water Services Director for the District.The District and the Company each shall maintain a parallel, identical file of all Contract Administration Memoranda, separate and distinct from all other documents relating to the administration and performance of this Service Contract. • (D) Effect. Executed Contract Administration Memoranda shall serve to guide the ongoing interpretation and performance of this Service Contract. Any material change, alteration, revision or modification of this Service Contract, however, shall be effectuated only through a formal Service Contract amendment authorized, approved or ratified by resolution of • the governing body of the District and properly authorized by the Company. SECTION 16.3. PROPERTY RIGHTS. (A) Protection from Infringement. During the Term of this Service Contract, the Company shall (1) pay all royalties and license fees in connection with the Design/Build Work and the Operation Services, and(2) protect,indemnify, • defend and hold harmless the District, and any of the District Indemnities, in the manner provided in Section 14.3, from and against all Loss-and-Expense arising out of or related to the infringement or unauthorized use of any patent, trademark, copyright or trade secret relating to, or for the Design/Build Work and the Operation Services,or at its option,shall acquire the rights • of use under infringed patents, or modify or replace infringing equipment with equipment equivalent in quality, performance, useful life and technical characteristics and development so that such equipment does not so infringe. The Company shall not, however, be required to reimburse or indemnify the District, any person or entity for any Loss-and-Expense to the extent • due to or caused by the negligence or willful conduct of the District, such person or entity. (B) Intellectual Property Developed by the Company. All intellectual property developed by the Company at or through the use of the Project or otherwise in connection with the performance of the Contract Services shall be owned by the Company subject to the terms • and conditions of this Section, and is hereby licensed to the District on a non-exclusive cost free, perpetual basis for use by the District and any successor operator of the Project(but,with respect to any successor operator,only in connection with the operation of the Project,and excluding any third-party licensed technology which is non-transferable without payment of a fee). Such • intellectual property shall include technology, inventions, innovations, processes, know-how, formulas and software, whether protected as proprietary information, trade secrets, or patents. The Company may license,transfer or otherwise make available such intellectual property to any third-party for remuneration without the consent of or payment to the District. The Company • shall not, however, have any obligation to make available to the District or any successor 163 368012.15 022606 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions operator, after the termination or expiration of this Service Contract, any proprietary operating practice or method used at the Project which was developed by the Company or any Affiliate at a location other than the Project. SECTION 16.4. INTEREST ON OVERDUE OBLIGATIONS. Except as otherwise provided herein, all amounts due hereunder, whether as damages, credits, revenue, charges or reimbursements, that are not paid when due shall bear interest at the rate of interest which is the Overdue Rate, on the amount outstanding from time to time, on the basis of a 365-day year, counting the actual number of days elapsed, and such interest accrued at any time shall, to the extent permitted by Applicable Law, be deemed added to the amount due as accrued. SECTION 16.5. NEGOTIATED FIXED PRICE WORK. (A) Fixed Component of the Service Fee and Fixed Design/Build Price. The Fixed Component of the Service Fee and the Fixed Design/Build Price have been fixed and agreed to by the parties based on the Company's proposal submitted in response to the RFP, and are not subject to Cost Substantiation. (B) Negotiated Lump Sum Pricing of Work for Which the District is Financially Responsible. This Service Contract obligates the District to pay for certain costs resulting from Uncontrollable Circumstances,District Fault and otherwise as more specifically provided herein. It is the expectation of the parties, in general, that the District will pay for such costs on a negotiated, lump sum basis, and that the lump sum price will be negotiated in advance of the Company's performance of the work. For example,if a Change in Law occurs,as required under Section 14.2 the parties will assess the impact of the Change in Law, take all appropriate mitigation steps, determine any necessary Capital Modifications and operating changes, and agree upon lump sum pricing therefor.To facilitate such negotiations,the Company shall furnish the District with all information reasonably required by the District regarding the Company's expected costs of performing the work and its mark-up. Once the parties agree upon the lump sum price,the Company's actual costs of performance shall not be subject to Cost Substantiation unless after-the-fact Cost Substantiation with respect to all or a portion of the Company's actual costs was agreed to by the parties in establishing the lump sum price. SECTION 16.6. COST SUBSTANTIATION OF WORK ALREADY PERFORMED. (A) Cost Substantiation Generally. The Company shall provide Cost Substantiation for the costs for which the District is financially responsible hereunder, other than the Fixed Component of the Service Fee, the Fixed Design/Build Price, and costs for which the parties have negotiated a lump sum price, all as provided in Section 16.5. In incurring costs which are or may be subject to Cost Substantiation, the Company shall utilize competitive practices to the maximum reasonable extent(including,where practicable and except with respect to costs of the Company 164 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions to which the Service Fee and the Fixed Design/Build Price apply, obtaining three competing quotes or estimates for costs expected to be in excess of $50,000), and shall enter into subcontracts on commercially reasonable terms and prices in light of the work to be performed and the District's potential obligation to pay for it. (B) Costs Requiring Cost Substantiation. Cost Substantiation shall be provided • as soon a reasonably practicable after the costs which require substantiation have been incurred by the Company. Examples of costs which require substantiation include (1) work done on an emergency basis to respond to an Uncontrollable Circumstance, where it is not reasonably practicable for the parties in advance to negotiate a lump sum price for the work; (2) work done by the Company in designing and building the Project, the costs of which would be the responsibility of the District if it were to exercise its buy-out rights under Section 13.5, 13.7 or 13.8; and (3) work done by the Company under subsection (A) of Section 13.10 upon the expiration or termination of this Service Contract, which costs are the responsibility of the District under subsection(F) of Section 13.10. Cost Substantiation shall also be required where the parties agree that the Company shall perform work on a cost-plus basis. (C) Cost Substantiation Certificate. Any certificate delivered hereunder to substantiate cost shall state the amount of such cost and the provisions of this Service Contract • under which such cost is chargeable to the District, shall describe the competitive or other process utilized by the Company to obtain the commercially reasonable price,and shall state that such services and materials are reasonably required pursuant to this Service Contract. The Cost Substantiation certificate shall be accompanied by copies of such documentation as shall be • necessary to reasonably demonstrate that the cost as to which Cost Substantiation is required has been paid or incurred. Such documentation shall be in a format reasonably acceptable to the District and shall include reasonably detailed information concerning all Subcontracts and, with respect to self-performed work, (1) the amount and character of materials, equipment and services furnished or utilized, the persons from whom purchased,the amounts payable therefor and related delivery and transportation costs and any sales or personal property Taxes; (2) a statement of the equipment used and any rental payable therefor; (3) Company employee hours, duties,wages, salaries,benefits and assessments; and(4)Company profit, administration costs, • bonds, insurance, taxes, premiums overhead, and other expenses. The Company's entitlement to reimbursement of Cost Substantiated costs of the Company shall be subject to the limitations set forth in this Section. (D) Technical Services. Company personnel and personnel of Subcontractors • providing technical services shall be billed at their then currently applicable rates for similar 165 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions services on projects of similar size and scope to the Design/Build Work or Operation Services. The Company shall use commercially reasonable efforts to use available Company personnel for additional work hereunder before using Subcontractors. (E) Mark-Un. On all costs incurred by the Company for work performed directly by the Company or any of its Affiliates which are subject to Cost Substantiation, the Company shall be entitled to a 5% allocation for overhead plus a mark-up of 10% for risk and profit; provided, however, that for work done in response to an emergency costing up to $50,000 per event, the Company shall be entitled to no mark-up. On all costs incurred by the Company for work performed by Subcontractors,the Company shall be entitled to amark-up of 5%for risk, • profit and administration, and no mark-up for allocable overhead. The price payable to all Subcontractors, including Subcontractor overhead and mark-ups for risk and profit, shall be commercially reasonable. (F) Evidence of Costs Incurred. To the extent reasonably necessary to confirm direct costs required to be Cost Substantiated, copies of timesheets, invoices, canceled checks, expense reports, receipts and other documents, as appropriate, shall be delivered to the District with the request for reimbursement of such costs. SECTION 16.7. SUBCONTRACTORS. (A) Use Restricted. The Company shall • operate the Project primarily with its own employees in accordance with Article VIII. Subcontractors may be used to perform the Design/Build Work and for the Operation Services subject, in the case of subcontracted operations services valued in excess of $50,000 per Contract Year, to the District's approval, which shall not unreasonably be withheld or delayed. Operations services Subcontractors and substitute Subcontractors providing subcontracted services valued at less than $50,000 per Contract Year shall not require the District's approval. The approval or withholding thereof by the District of any proposed Subcontractor shall not create any liability of the District to the Company,to third parties or otherwise. In no event shall any Subcontract be awarded to any person debarred, suspended or disqualified from State or District contracting for any services similar in scope to the Operation Services or Design/Build Work. (B) Subcontract Terms and Subcontractor Actions. The Company shall retain full responsibility to the District under this Service Contract for all matters related to the Contract Services notwithstanding the execution or terms and conditions of any Subcontract. No failure of any Subcontractor used by the Company in connection with the provision of the Contract Services shall relieve the Company from its obligations hereunder to perform the Contract Services. With the exception of Subcontractors'claims,losses or damages arising from 166 368012.15 022806 AGMT i Capistrano Valley Rater District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions District Fault or Uncontrollable Circumstances for which the Company or its Subcontractors may be entitled to relief hereunder, the Company shall be responsible for settling and resolving with all Subcontractors all claims arising out of delay,disruption,interference,hindrance,or schedule extension caused by the Company or inflicted on the Company or a Subcontractor by the actions of another Subcontractor. (C) Indemnity for Subcontractor Claims. The Company shall pay or cause to be paid to all direct Subcontractors all amounts due in accordance with their respective Subcontracts. No Subcontractor shall have any right against the District for labor, services, materials or equipment furnished for the Contract Services. With the exception of f Subcontractors' claims, losses or damages arising from District Fault or Uncontrollable Circumstances for which the Company or its Subcontractors may be entitled to relief hereunder, the Company acknowledges that its indemnity obligations under Section 14.3 shall extend to all claims for payment or damages by any Subcontractor who furnishes or claims to have furnished 0 any labor, services, materials or equipment in connection with the Contract Services. (D) Design. Construction and Membrane System Subcontractors. The Company shall utilize Boyle Engineering, J.C. Cushman, Inc. and Osmonics Corporation as Subcontractors supplying,respectively,the primary design,construction and membrane system 01 services and equipment for the Project. (E) Notice to District of Amendments. Breaches and Defaults. The Company shall notify the District promptly of any material breach or event of default occurring under any of the Subcontracts for design,construction and membrane system services and equipment,and 0 the probable effect on the Design/Build Work or the Operation Services.The Company shall keep the District apprised of the course of the dispute and shall advise the District of its ultimate resolution. For good cause shown,the Company shall be permitted to substitute Subcontractors in accordance with the provisions of this Section. (F) Assignability. The Company shall use its best efforts to ensure that all Subcontracts entered into by the Company with respect to the Project shall be assignable to the District at the District's election upon the expiration or termination of this Service Contract, and no such Subcontract shall contain commercially unreasonable terms or conditions should any assignment to the District occur. SECTION 16.8. ACTIONS OFTHE DISTRICT IN ITS GOVERNMENTAL CAPACITY. (A) Rights as Government Not Limited. Nothing in this Service Contract shall be interpreted as limiting the rights and obligations of the District under Applicable Law in its governmental or regulatory capacity (including police power actions to protect health, safety and welfare or to 167 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions protect the environment), or as limiting the right of the Company to bring any action against the District, independent of this Service Contract, arising out of any act or omission of the District in its governmental or regulatory capacity. (B) No District Obligation to Issue Governmental Approvals, The District retains all issuance and approval rights it has under Applicable Law with respect to any Governmental Approval required with respect to the Project, the Design/Build Work or the Operation Services, and none of such rights shall be deemed to be waived, modified or amended as a consequence of the execution of this Service Contract. The District shall not be deemed to be in breach of or default hereunder as a result of any action or inaction in its regulatory capacity in the issuance or approval of any such Governmental Approval. However, to the extent the District unreasonably delays the issuance of such a Governmental Approval, and such delay is not the result of Company Fault or Uncontrollable Circumstances, the District shall be responsible for the impact and costs of such delay. SECTION 16.9. ASSIGNMENT. (A) By the Company. The Company shall not assign, transfer, convey, lease, encumber or otherwise dispose of this Service Contract, its right to execute the same, or its right, title or interest in all or any part of this Service Contract or any monies due hereunder whatsoever prior to their payment to the Company, whether legally or • equitably, by power of attorney or otherwise,without the prior written consent of the District and the Trustee. Any such approval given in one instance shall not relieve the Company of its obligation to obtain the prior written approval of the District to any further assignment. (B) By the District. The District may not assign, transfer, convey, encumber or otherwise dispose of this Service Contract or its rights or obligations under this Service Contract without the prior written consent of the Company and the Trustee. The District may however,assign its rights and obligations under this Service Contract,without the consent of the Company or the Trustee,to another Governmental Body if such assignee assumes, and is legally • and financially capable of discharging the duties and obligations of the District hereunder. (C) Assignment to City. The Company acknowledges that a proposed governmental reorganization is currently pending under which,upon approval by the County of Orange Local Agency Formation Commission,the Capistrano Valley Water Districtwould"merge" • with the City of San Juan Capistrano and the City would thereupon assume all of the rights and obligations of the District. The Company agrees that any such merger shall operate to effectuate an assignment of this Service Contract to the City, and that any such merger and assignment shall not require the approval of the Company. Upon any such merger and assignment,the City 168 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions would assume all of the rights and obligations of the District hereunder, subject to the provisions of subsection (D) of this Section. (D) Limited Recourse to City. In the event this Service Contract is assigned by the District to the City pursuant to this Section, no recourse shall be had to the general fund or general credit of the City for the payment of any amount due the Company hereunder, whether on account of the Service Fee, any indemnity payment, or for any Loss-and-Expense or payment or claim of any nature arising from the performance or non-performance of the District's obligations hereunder. The sole recourse of the Company for all such amounts shall be to the funds held in the District's water utility enterprise fund, and such amounts shall constitute an operating expense of such fund under the terms of any agreement pledging the District's water system revenues to the holders of its long term lease or installment purchase obligations. All amounts held in the water utility enterprise fund shall be held for the uses permitted and required thereby, and no such amounts shall constitute property of the Company. SECTION 16.10. CERTAIN TRANSACTION DOCUMENTS. Appendix 20 lists certain Transaction Documents setting forth certain obligations of the City, the District or the San Juan Basin Authority as of the Contract Date. Commencing on the Contract Date, the Company shall administer and perform the obligations of the City, the District or the San Juan 41 Basin Authority, as applicable,under such Transaction Documents as indicated in Appendix 20. The District or the City, at the direction of the Company, shall enforce performance of the obligations of the counterparties to all such Transaction Documents,and the City or the District, at the direction of the Company, shall use reasonable best efforts to cause the San Juan Basin Authority to enforce performance of the obligations of the counterparties under all such Transaction Documents. SECTION 16.11. COMPLIANCE WITH MATERIAL AGREEMENTS. The Company shall comply with its obligations under agreements of the Company which are material to the w performance of its obligations under this Service Contract. The District shall comply with its obligations under agreements of the District which are material to the performance of its obligations under this Service Contract. SECTION 16.12. BINDING EFFECT. This Service Contract shall inure to the benefit of and shall be binding upon the District and the Company and any assignee acquiring an interest hereunder consistent with Section 16.9. SECTION 16.13. AMENDMENT AND WAIVER. This Service Contract may not be amended except by a written agreement signed by the parties. Any of the terms, covenants, and conditions of this Service Contract may be waived at any time by the party entitled to the benefit 169 368012.15 022806 AGMT Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions of such term, covenant or condition if such waiver is in writing and executed by the party against whom such waiver is asserted. SECTION 16.14. NON-DISCRIMINATION REQUIREMENTS. The Company, its Subcontractor and its suppliers in performing under this Service Contract shall not discriminate against any worker, employee or applicant, or any member of the public, because of race, color, religion, gender, national origin, age or disability nor otherwise commit an unfair employment practice. SECTION 16.15. NOTICES. (A) Procedure. All notices, consents, approvals or written communications given pursuant to the terms of this Service Contract shall be: (1) in writing and delivered in person; (2) transmitted by certified mail, return, receipt requested, postage prepaid or by overnight courier utilizing the services of a nationally-recognized overnight courier service with signed verification of delivery; or (3) given by facsimile transmission, if a signed original is deposited in the United States Mail within two days after transmission. Notices shall be deemed given only when actually received at the address first given below with respect to each party. Either party may, by like notice, designate further or different addresses to which subsequent notices shall be sent. (B) Company Notice Address. Notices required to be given to the Company shall be addressed as follows: ECO Resources, Inc. 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Facilities Manager with a copy to: ECO Resources, Inc. 5820 Stoneridge Mall Road A Suite 204 Pleasanton, CA 94588 Attn: Western Regional Vice-President and: Southwest Water Company 225 North Barranca Ave. Suite 220 West Covina, CA 91791-1605 Attn: Vice President, Finance 170 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions (C) District Notice Address. Notices required to be given to the District shall . be addressed as follows: Capistrano Valley Water District 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: City Clerk, with a copy to the City Manager at the same address (D) District Engineer, Independent Engineer, Issuer and Trustee Notice Addresses. By Contract Administration Memorandum,the parties shall designate the addresses to which notices required hereunder shall be sent to the District Engineer, the Independent • Engineer, the Issuer and the Trustee. SECTION 16.16. NOTICE OF LITIGATION. In the event the Company or District receives notice of or undertakes the defense or the prosecution of any Legal Proceedings, claims, or investigations in connection with the Project, the party receiving such notice or undertaking • such prosecution shall give the other party timely notice of such proceedings and shall inform the other party in advance of all hearings regarding such proceedings. SECTION 16.17. FURTHER ASSURANCES. The District and Company each agree to execute and deliver such further instruments and to perform any acts that may be necessary or reasonably requested in order to give full effect to this Service Contract. The District and the Company,in order to carry out this Service Contract,each shall use all commercially reasonable efforts to provide such information, execute such further instruments and documents and take such actions as may be reasonably requested by the other and not inconsistent with the • provisions of this Service Contract and not involving the assumption of obligations or liabilities different from or in excess of or in addition to those expressly provided for herein. [SIGNATURE PAGE FOLLOWS] • • • 171 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract San Juan Basin Desalter Project Article XVI - Miscellaneous Provisions IN WITNESS WHEREOF, the parties have caused this Service Contract to be • executed by their duly authorized representatives as of the day and year first above written. CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA • Signature: INN /I Printed Naam&I�e�: �J ��y��A'L' Title: '06 y I/ ` • ECO RESOURCES, INC. —:i�Signature • r y� ,1 Printed Name: 51raVF./t1 Title:VIr-E 1NKI CP..NT IJE5MN RrAhoAj • �('O// �C�.Svo Cis �Z . ,/ • �/C; / eSl-CPK • ATTEST: Marga et honahan, Clerk of the Board • 172 368012.15 022806 AGMT • • • • TRANSACTION FORMS • RELATING TO THE SERVICE CONTRACT FOR THE DESIGN, CONSTRUCTION , FINANCING AND OPERATION OF THE SAN JUAN BASIN DESALTER PROJECT « between • CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA and • ECO RESOURCES, INC. Dated • September_, 2002 • • 368012 15 022806 AGMT • • • • SERVICE CONTRACT GUARANTY AGREEMENT • from • SOUTHWEST WATER COMPANY to CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA Dated • September_, 2002 • • • 368012.15 022806 AGMT • • TABLE OF CONTENTS Page • ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2 SECTION 1.2. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2 • ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR • SECTION 2.1. REPRESENTATION AND WARRANTIES OF THE GUARANTOR . . . . . . . . . . . A-4 ARTICLE III GUARANTY COVENANTS • SECTION 3.1. GUARANTY TO THE DISTRICTA-6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 3.2. RIGHT OF DISTRICT TO PROCEED AGAINST GUARANTOR . . . . . . . . . . . . . A-6 SECTION 3.3. GUARANTY ABSOLUTE AND UNCONDITIONAL . . . . . . . . . . . . . . . . . . . . . . A-7 SECTION 3.4. DEFENSES, SET-OFFS AND COUNTERCLAIMS . . . . . . . . . . . . . . . . . . . . . . A-9 SECTION 3.5. WAIVERS BY THE GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9 • SECTION 3.6. PAYMENT OF COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10 SECTION 3.7. SUBORDINATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10 SECTION 3.8. SEPARATE OBLIGATIONS; REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . A-10 SECTION 3.9. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11 • ARTICLE IV GENERAL COVENANTS SECTION 4.1. MAINTENANCE OF CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . A-12 SECTION 4.2. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12 • SECTION 4.3. QUALIFICATION IN CALIFORNIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12 SECTION 4.4. CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12 SECTION 4.5. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13 SECTION 4.6. AMENDMENTS, CHANGES AND MODIFICATIONS . . . . . . . . . . . . . . . . . . . A-13 SECTION 4.7. LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13 SECTION 4.8. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13 • • i 368012.15 022806 AGMs • • SERVICE CONTRACT GUARANTY AGREEMENT • THIS SERVICE CONTRACT GUARANTY AGREEMENT is made and dated as of September ,2002,between Southwest Water Company,a corporation organized and existing under the laws of the State of Delaware (together with any permitted successors and assigns hereunder, the "Guarantor"), and the Capistrano Valley Water District, Orange County, a water • district organized and existing under and by virtue of the laws of the State of California (the 'District"). RECITALS The District and ECO Resources, Inc., a corporation organized and existing under • the laws of the State of Texas (the "Company'), have entered into a Service Contract for the Design, Construction, Financing and Operation of the San Juan Basin Desalter Project, dated September , 2002, as amended from time to time (the "Service Contract") whereby the Company has agreed to obtain permits for, design, construct, finance, start up, acceptance test, • operate, maintain, repair,replace and manage a water treatment project, all as more particularly described therein. The Company is a direct or indirect subsidiary of the Guarantor. The District will enter into the Service Contract only if the Guarantor guarantees • the performance by the Company of all of the Company's responsibilities and obligations under the Service Contract as set forth in this Service Contract Guaranty Agreement (the "Service Contract Guaranty"). In order to induce the execution and delivery of the Service Contract by the District • and in consideration thereof, the Guarantor agrees as follows: • • • A-1 368012.15 022806 AGMT • • ARTICLE I DEFINITIONS AND INTERPRETATION • SECTION 1.1. DEFINITIONS. For the purposes of this Service Contract Guaranty, the following words and terms shall have the respective meanings set forth as follows. Any other capitalized word or term used but not defined herein is used as defined in the Service Contract. "Obligations"means the amounts payable by, and the covenants and agreements • of, the Company pursuant to the terms of the Service Contract. "Transaction Agreement" means any agreement entered into by the Company or the District in connection with the transactions contemplated by the Service Contract, including the Service Contract, and any supplements thereto. • SECTION 1.2. INTERPRETATION. In this Service Contract Guaranty, unless the context otherwise requires: (A) References Hereto. The terms"hereby", "hereof', "herein", "hereunder'and any similar terms refer to this Service Contract Guaranty, and the term "hereafter"means after, and • the term "heretofore" means before, the date of execution and delivery of this Service Contract Guaranty. (B) Gender and Plurality. Words of the masculine gender mean and include correlative words of the feminine and neuter genders and words importing the singular number • mean and include the plural number and vice versa. (C) Persons. Words importing persons include firms, companies, associations, general partnerships,limited partnerships,trusts,business trusts, corporations and other legal entities, including public bodies, as well as individuals. • (D) Headings. The table of contents and any headings preceding the text of the Articles, Sections and subsections of this Service Contract Guaranty shall be solely for convenience of reference and shall not constitute a part of this Service Contract Guaranty, nor shall they affect its meaning, construction or effect. • (E) Entire Agreement:Authority. This Service Contract Guaranty constitutes the entire agreement between the parties hereto with respect to the transactions contemplated by this Service Contract Guaranty. Nothing in this Service Contract Guaranty is intended to confer on any person other than the Guarantor,the District and their permitted successors and assigns • hereunder any rights or remedies under or by reason of this Service Contract Guaranty. (F)Counterparts. This Service Contract Guaranty may be executed in any number of original counterparts. All such counterparts shall constitute but one and the same Service Contract Guaranty. • (G) Applicable Law. This Service Contract Guaranty shall be governed by and construed in accordance with the applicable laws of the State of California. A-2 368012.15 022806 AGMT • Capistrano Valley water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article I - Definitions and Interpretation (H) Severability. If any clause, provision, subsection, Section or Article of this Service Contract Guaranty shall be ruled invalid by any court of competent jurisdiction, the invalidity of any such clause,provisions, subsection, Section or Article shall not affect any of the remaining provisions hereof,and this Service Contract Guaranty shall be construed and enforced as if such invalid portion did not exist provided that such construction and enforcement shall not • increase the Guarantor's liability beyond that expressly set forth herein. (1) Approvals. All approvals, consents and acceptances required to be given or made by any party hereto shall be at the sole discretion of the party whose approval, consent or acceptance is required. (J) Payments. All payments required to be made by the Guarantor hereunder shall be made in lawful money of the United States of America. A-3 368012.15 022806 AGMT ARTICLE It REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR SECTION2.1. REPRESENTATIONS AND WARRANTIES OFTHE GUARANTOR. The Guarantor hereby represents and warrants that: (1) Existence and Powers. The Guarantor is a corporation duly organized, validly • existing and in good standing under the laws of the State of Delaware, with the full legal right, power and authority to enter into and perform its obligations under this Service Contract Guaranty. (2) Due Authorization and Binding Obligation. This Service Contract Guaranty • has been duly authorized, executed and delivered by all necessary corporate action of the Guarantor and constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except to the extent that its enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights from time to time in effect and equitable principals of general application. (3) No Conflict. To the best of its knowledge, neither the execution nor delivery by the Guarantor of this Service Contract Guaranty nor the performance by the Guarantor of its obligations in connection with the transaction contemplated hereby or the fulfillment by the Guarantor of the terms and conditions hereof: (a) conflicts with, violates or results in a breach of any law or governmental regulation applicable to the Guarantor; (b) conflicts with,violates or results in a breach of any term or condition of the Guarantor's corporate charter or by-laws or any order,judgment or decree, or any contract, agreement or instrument to which the Guarantor is • a party or by which the Guarantor or any of its properties or assets are bound, or constitutes a default under any of the foregoing; or (c) will result in the creation or imposition of any material encumbrance of any nature whatsoever upon any of the properties or assets of the Guarantor except as permitted hereby. (4) No Approvals Required. No approval, authorization, order or consent of, or declaration,registration or filing with,any Governmental Body is required for the valid execution and delivery of this Service Contract Guaranty by the Guarantor or the performance of its payment or other obligations hereunder, except as such shall have been duly obtained or made other than those Governmental Approvals to be obtained by the Company after the Contract Date pursuant to the Service Contract. (5) No Litigation. Except as disclosed in the Guarantor's filings with the Securities and Exchange Commission pursuant to the requirements of the Securities Exchange Act of 1934, • as amended, there is no Legal Proceeding, at law or in equity, before or by any Governmental Body pending or, to the best of the Guarantor's knowledge, overtly threatened or publicly announced against the Guarantor, in which an unfavorable decision, ruling or fording could A-4 368012.15 022806 AGMT • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article II - Representations and Warranties of the Guarantor reasonably be expected to have a material and adverse effect on the validity, legality or • enforceability of this Service Contract Guaranty against the Guarantor, or on the ability of the Guarantor to perform its obligations hereunder or under any such other agreement or instrument. • (6) No Legal Prohibition. The Guarantor has no knowledge of any Applicable Law in effect on the date as of which this representation is being made which would prohibit the performance by the Guarantor of this Service Contract Guaranty and the transactions contemplated by this Service Contract Guaranty. (7) Consent to Agreements. The Guarantor is fully aware of the terms and conditions of the Service Contract. (8) Consideration. This Service Contract Guaranty is made in furtherance of the purposes for which the Guarantor has been organized, and the assumption by the Guarantor of its obligations hereunder will result in a material benefit to the Guarantor. • • • • • • A-5 368012.15 022806 AGMT • • ARTICLE III GUARANTY COVENANTS • SECTION 3.1. GUARANTY TO THE DISTRICT. The Guarantor hereby absolutely, presently,irrevocably and unconditionally guarantees to the District for the benefit of the District the full and prompt performance and observance of each and all of the Obligations including, but • not limited to,the full and prompt payment when due of each and all of the payments required to be credited or made by the Company under the Service Contract (including all amendments and supplements thereto)to, or for the account of,the District,when the same shall become due and payable pursuant to this Service Contract Guaranty. Notwithstanding the unconditional nature of the Guarantor's obligations as set forth herein, the Guarantor shall have the right to assert the defenses provided in Section 3.4 hereof against claims made under this Service Contract Guaranty. SECTION 3.2. RIGHT OF DISTRICT TO PROCEED AGAINST GUARANTOR. This Service Contract Guaranty shall constitute a guaranty of payment and of performance and not • of collection, and the Guarantor specifically agrees that in the event of a failure by the Company to pay or perform any Obligation guaranteed hereunder, the District shall have the right to proceed first and directly against the Guarantor under this Service Contract Guaranty and without proceeding against the Company or exhausting any other remedies against the Company • which the District may have. Without limiting the foregoing, the Guarantor agrees that it shall not be necessary, and that the Guarantor shall not be entitled to require, as a condition of enforcing the liability of the Guarantor hereunder, that the District: (1) file suit or proceed to obtain a personal judgment against the Company or any other person that may be liable for the • Obligations or any part of the Obligations; (2) make any other effort to obtain payment or performance of the Obligations from the Company other than providing the Company with any notice of such payment or performance as may be required by the terms of the Service Contract or required to be given to the Company under Applicable Law; (3) foreclose against or seek to • realize upon any security for the Obligations; or(4) exercise any other right or remedy to which the District is or may be entitled in connection with the Obligations or any security therefor or any other guarantee thereof, except to the extent that any such exercise of such other right or remedy may be a condition to the Obligations of the Company or to the enforcement of remedies • under the Service Contract. Notwithstanding the foregoing, the District and the Guarantor hereby acknowledge that no security for the Obligations has been granted to the District as of the Contract Date other than this Service Contract Guaranty. Upon any unexcused failure by the Company in the payment or performance of any Obligation and the giving of such notice or • demand, if any, to the Company and the Guarantor as may be required in connection with such Obligation and this Service Contract Guaranty,the liability of the Guarantor shall be effective and A-6 3680(2.(5 022806 AGMT • • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants . shall immediately be paid or performed. Notwithstanding the District's right to proceed directly against the Guarantor, the District(or any successor) shall not be entitled to more than a single full performance of the obligations in regard to any breach or non-performance thereof. SECTION 3.3. GUARANTY ABSOLUTE AND UNCONDITIONAL. The obligations of ' the Guarantor hereunder are absolute, present, irrevocable and unconditional and shall remain in full force and effect until the Company shall have fully discharged the Obligations in accordance with their respective terms and conditions, and except as provided in Section 3.4 hereof, shall not be subject to any counterclaim,set-off,deduction or defense(other than full and • strict compliance with, or release, discharge or satisfaction of, such Obligations) based on any claim that the Guarantor may have against the Company, the District or any other person. Without limiting the foregoing,the obligations of the Guarantor hereunder shall not be released, discharged or in any way modified by reason of any of the following (whether with or without • notice to, knowledge by or further consent of the Guarantor): (1) the extension or renewal of this Service Contract Guaranty or the Service Contract up to the specified Terms of each agreement; (2) any exercise or failure, omission or delay by the District in the exercise of any • right, power or remedy conferred on the District with respect to this Service Contract Guaranty or the Service Contract except to the extent such failure, omission or delay gives rise to an applicable statute of limitations defense with respect to a specific claim; (3) any permitted transfer or assignment of rights or obligations under the Service • Contract or under any other Transaction Agreement by any party thereto (other than a permitted assignment to a replacement constructor or operator in the event of a termination of the Company pursuant to Article XIII of the Service Contract), or any permitted assignment, conveyance or other transfer of any of their respective interests in • the Project or in, to or under any of the Transaction Agreements; (4) any permitted assignment for the purpose of creating a security interest or mortgage of all or any part of the respective interests of the District or any other person in any Transaction Agreement or in the Project; (5) any renewal, amendment, change or modification in respect of any of the Obligations or terms or conditions of any Transaction Agreement; (6) any failure of title with respect to all or any part of the respective interests of any person in the Sites or the Project; • (7) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, A-7 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants moratorium,arrangement,composition with creditors or readjustment of,or other similar • proceedings against the Company or the Guarantor, or any of the property of either of them, or any allegation or contest of the validity of this Service Contract Guaranty or any other Transaction Agreement in any such proceeding (it is specifically understood, consented and agreed to that, to the extent permitted by law, this Service Contract Guaranty shall remain and continue in full force and effect and shall be enforceable against the Guarantor to the same extent and with the same force and effect as if any such proceeding had not been instituted and as if no rejection, stay, termination, • assumption or modification has occurred as a result thereof, it being the intent and purpose of this Service Contract Guaranty that the Guarantor shall and does hereby waive all rights and benefits which might accrue to it by reason of any such proceeding); (8) except as permitted by Section 4.1 or 4.2 hereof, any sale or other transfer by the Guarantor or any Affiliate of any of the capital stock or other interest of the Guarantor • or any Affiliate in the Company now or hereafter owned, directly or indirectly, by the Guarantor or any Affiliate, or any change in composition of the interests in the Company; (9)any failure on the part of the Company for any reason to perform or comply with any agreement with the Guarantor; • (10) the failure on the part of the District to provide any notice to the Guarantor which is not required to be given to the Guarantor pursuant to this Service Contract Guaranty and to the Company as a condition to the enforcement of Obligations pursuant to the Service Contract; • (11) any failure of any party to the Transaction Agreements to mitigate damages resulting from any default by the Company or the Guarantor under any Transaction Agreement; (12) the merger or consolidation of any party to the Transaction Agreements into • or with any other person, or any sale, lease, transfer, abandonment or other disposition of any or all of the property of any of the foregoing to any person; (13) any legal disability or incapacity of any party to the Transaction Agreements; or • (14)the fact that entering into any Transaction Agreement by the Company or the Guarantor was invalid or in excess of the powers of such party. Should any money due or owing under this Service Contract Guaranty not be recoverable from • the Guarantor due to any of the matters specified in subparagraphs(1) through(14) above,then, in any such case, such money, together with all additional sums due hereunder, shall nevertheless be recoverable from the Guarantor as though the Guarantor were principal obligor A-8 368012.15 022806 AGMT 0 • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants in place of the Company pursuant to the terms of the Service Contract and not merely a • guarantor and shall be paid by the Guarantor forthwith subject to the terms of this Service Contract Guaranty. Notwithstanding anything to the contrary expressed in this Service Contract Guaranty, nothing in this Service Contract Guaranty shall be deemed to amend, modify, clarify, . expand or reduce the Company's rights, benefits, duties or obligations under the Service Contract. To the extent that any of the matters specified in subparagraphs (1) through (6) and (8)through(14)would provide a defense to,release,discharge or otherwise affect the Company's Obligations, the Guarantor's obligations under this Service Contract Guaranty shall be treated • the same. SECTION 3.4. DEFENSES, SET-OFFS AND COUNTERCLAIMS. Notwithstanding any provision contained herein to the contrary, the Guarantor shall be entitled to exercise or assert any and all legal or equitable rights or defenses which the Company may have under the Service Contract or under Applicable Law(other than bankruptcy or insolvency of the Company • and other than any defense which the Company has expressly waived in the Service Contract or the Guarantor has expressly waived in Section 3.5 hereof or elsewhere hereunder), and the obligations of the Guarantor hereunder are subject to such counterclaims,set-offs or deductions which the Company is permitted to assert pursuant to the Service Contract, if any. • SECTION 3.5. WAIVERS BY THE GUARANTOR. The Guarantor hereby unconditionally and irrevocably waives: (1) notice from the District of its acceptance of this Service Contract Guaranty; (2) notice of any of the events referred to in Section 3.3 hereof, except to the extent • that notice is required to be given as a condition to the enforcement of Obligations; (3) to the fullest extent lawfully possible, all notices which may be required by statute, rule of lain or otherwise to preserve intact any rights against the Guarantor, • except any notice to the Company required pursuant to the Service Contract or Applicable Law as a condition to the performance of any Obligation; (4) to the fullest extent lawfully possible, any statute of limitations defense based on a statute of limitations period which may be applicable to guarantors (or parties in similar relationships) which would be shorter than the applicable statute of limitations • period for the underlying claim; (5) any right to require a proceeding first against the Company; (6) any right to require a proceeding first against any person or the security • provided by or under any Transaction Agreement except to the extent such Transaction Agreement specifically requires a proceeding first against any person (except the Company) or security; A-9 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants • (7) any requirement that the Company be joined as a party to any proceeding for the enforcement of any term of any Transaction Agreement; (8) the requirement of, or the notice of, the filing of claims by the District in the event of the receivership or bankruptcy of the Company; and ' (9) all demands upon the Company or any other person and all other formalities the omission of any of which, or delay in performance of which, might, but for the provisions of this Section 3.5,by rule of law or otherwise,constitute grounds for relieving or discharging the Guarantor in whole or in part from its absolute, present, irrevocable, • unconditional and continuing obligations hereunder. SECTION3.6. PAYMENT OF COSTS AND EXPENSES. The Guarantor agrees to pay the District on demand all Fees and Costs,incurred by or on behalf of the District in successfully enforcing by Legal Proceeding observance of the covenants,agreements and obligations contained • in this Service Contract Guaranty against the Guarantor, other than the Fees and Costs that the District incurs in performing any of its obligations under the Service Contract,or other applicable Transaction Agreement where such obligations are a condition to performance by the Company of its Obligations. • SECTION 3.7. SUBORDINATION OF RIGHTS. The Guarantor agrees that any right of subrogation or contribution which it may have against the Company as a result of any payment or performance hereunder is hereby fully subordinated to the rights of the District hereunder and under the Transaction Agreements and that the Guarantor shall not recover or seek to recover • any payment made by it hereunder from the Company until the Company and the Guarantor shall have fully and satisfactorily paid or performed and discharged the Obligations giving rise to a claim under this Service Contract Guaranty. SECTION3.8. SEPARATE OBLIGATIONS:REINSTATEMENT. The obligations of the • Guarantor to make any payment or to perform and discharge any other duties, agreements, covenants,undertakings or obligations hereunder shall:(1)to the extent permitted by Applicable Law,constitute separate and independent obligations of the Guarantor from its other obligations under this Service Contract Guaranty; (2) give rise to separate and independent causes of action • against the Guarantor; and(3) apply irrespective of any indulgence granted from time to time by the District. The Guarantor agrees that this Service Contract Guaranty shall be automatically reinstated if and to the extent that for any reason any payment or performance by or on behalf of the Company is rescinded or must be otherwise restored by the District, whether as a result • of any proceedings in bankruptcy, reorganization or similar proceeding, unless such rescission or restoration is pursuant to the terms of the Service Contract, or any applicable Transaction Agreement or the Company's enforcement of such terms under Applicable Law. A-10 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants SECTION 3.9. TERM. This Service Contract Guaranty shall remain in full force and • effect from the date of execution and delivery hereof until all of the Obligations of the Company have been fully paid and performed. This Service Contract Guaranty shall be effective irrespective as to when the Construction Date occurs. • • • • • • • A-11 368012.15 022806 AGMT • s ARTICLE IV GENERAL COVENANTS • SECTION 4.1. MAINTENANCE OF CORPORATE EXISTENCE. (A) Consolidation. Merf, Sale or Transfer. The Guarantor covenants that during the term of this Service Contract Guaranty it will maintain its corporate existence, will not dissolve or otherwise dispose of all or ' substantially all of its assets and will not consolidate with or merge into another entity or permit one or more other entities to consolidate with or merge into it unless the successor is the Guarantor; provided, however, that the Guarantor may consolidate with or merge into another entity, or permit one or more other entities to consolidate with or merge into it, or sell or . otherwise transfer to another entity all or substantially all of its assets as an entirety and thereafter dissolve if the successor entity (if other than the Guarantor) (a) assumes in writing all the obligations of the Guarantor hereunder and, if required by law, is duly qualified to do business in the State of California, and (b) delivers to the District an opinion of counsel to the • effect that its obligations under this Service Contract Guaranty are legal, valid, binding and enforceable subject to applicable bankruptcy and similar insolvency or moratorium laws. (B) Continuance of Obligations. If a consolidation, merger or sale or other transfer is made as permitted by this Section,the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. No such consolidation, merger or sale or other transfer shall have the effect of releasing the initial Guarantor from its liability hereunder unless a successor entity has assumed responsibility for this Service Contract Guaranty as provided in this Section. • SECTION4.2. ASSIGNMENT.Without the prior written consent of the District, this Service Contract Guaranty may not be assigned by the Guarantor, except pursuant to Section 4.1. SECTION 4.3 QUALIFICATION IN CALIFORNIA. The Guarantor agrees that, so long as this Service Contract Guaranty is in effect, if required by law, the Guarantor will be duly qualified to do business in the State of California. SECTION4.4. CONSENTTO JURISDICTION. The Guarantor irrevocably: (1) agrees that any Legal Proceeding related to this Service Contract Guaranty or to any rights or relationship between the parties arising therefrom shall be solely and exclusively initiated and maintained in the State or federal courts located in Orange County,California,having appropriate jurisdiction therefor;(2) consents to the jurisdiction of such courts in any such Legal Proceeding; . (3) waives any objection which it may have to the laying of the jurisdiction of any such Legal Proceeding in any such court; and (4) waives its right to a trial by jury in any Legal Proceeding in any such court. A-12 368012.15 022806 AGMT • • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article IV - General Covenants SECTION 4.5 BINDING EFFECT. This Service Contract Guaranty shall inure to • the benefit of the District and its permitted successors and assigns and shall be binding upon the Guarantor and its successors and assigns. SECTION 4.6. AMENDMENTS, CHANGES AND MODIFICATIONS. This Service Contract Guaranty may not be amended, changed or modified or terminated and none of its provisions may be waived, except with the prior written consent of the District and of the Guarantor. SECTION 4.7 LIABILITY. It is understood and agreed to by the District that nothing contained herein shall create any obligation of or right to look to any director, officer, employee or stockholder of the Guarantor (or any Affiliate thereof) for the satisfaction of any obligations hereunder,and no judgment,order or execution with respect to or in connection with this Service Contract Guaranty shall be taken against any such director, officer, employee or stockholder. SECTION 4.8. NOTICES. All notices, demands or written communications given pursuant to the terms of this Service Contract Guaranty shall be: (1) in writing and delivered in person; (2) transmitted by certified mail, return, receipt requested, postage prepaid or by overnight courier utilizing the services of a nationally-recognized overnight courier service with signed verification of delivery; or (3) given by facsimile transmission, if a signed original is deposited in the United States mail within two days after transmission. Notices shall be deemed given only when actually received at the address first given below with respect to each party. Either party may, by like notice, designate further or different addresses to which subsequent • notices shall be sent. A-13 368012.15 022806 AGMT Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article IV - General Covenants Notices required to be given to the District shall be addressed as follows: Capistrano Valley Water District 32400 Paseo Adelanto San Juan, Capistrano, CA 92675 Attention: City Clerk, with a copy to the City Manager at the same address Notices required to be given to the Guarantor shall be addressed as follows: Southwest Water Company 225 North Barranca Avenue Suite 200 West Covina, CA 91791 Attention: Vice President, Finance • with a copy to: ECO Resources, Inc. 32400 Paseo Adelanto San Juan Capistrano, CA 92675 • Attention: Facilities Manager [SIGNATURE PAGE FOLLOWS] • • • A-14 368012.15 022806 AGM7 • • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article IV - General Covenants • IN WITNESS WHEREOF,the Guarantor has caused this Service Contract Guaranty to be executed in its name and on its behalf by its duly authorized officer as of the date first above written. a SOUTHWEST WATER C MPANY, as Guarantor Signature: Printed Name: Lr1 lY C°l�/ Title: 0 4 1. fd 4 Accepted and Agreed to by: �����• ('�j�P� f /hQ?�/�P! C/7i�P� • CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA Signature:_ • Printed Name: ✓NMl(/ V /f�lrY�Y/V1V Title: GP UNI�II WW l ATTEST: • Marga et .—Monahan, Clerk of the Board • A-15 368012.15 022806 AGMT • TRANSACTION FORM B FORM OF CONSTRUCTION PERFORMANCE BOND • KNOW ALL MEN BY THESE PRESENTS,that ECO Resources,Inc.,as Principal,and with underwriting office at , to which all communications in regard to this bond should be addressed,acorporation organized and existing under the laws of and duly authorized to do business in the State of California, as ' Surety, are held and firmly bound unto the Capistrano Valley Water District, as Obligee, in the penal sum of Dollars, plus an amount for estimated Fixed Design/Build Price Adjustments($ ) (the"Bonded Sum"),for the payment which well and truly made, we hereby jointly and severally bind ourselves, our heirs, executors, administrators, successors and assigns, firmly by these presents. • WHEREAS,the Principal has by the Service Contract for the Design,Construction, Financing and Operation of the San Juan Basin Desalter Project, dated 2002, entered into a contract with the Obligee for the design, construction, financing, operation, maintenance, repair,replacement and management of the San Juan Basin Desalter Project(the "Project") all in accordance with the terms of such contract,which contract is by reference made a part hereof, and is hereinafter referred to as the Service Contract; • NOW,THEREFORE, the condition of this obligation is such that, if the Principal shall promptly and faithfully do and perform all of the Principal's obligations under the Service Contract through completion of construction and Acceptance of the Project or Capital Modifications,excluding liability for failure to pass the Acceptance Test,then this obligation shall be null and void, otherwise it shall remain in full force and effect, it being expressly understood ' that the liability of the Surety for any and all claims hereunder shall in no event exceed the Bonded Sum. 1. Whenever the Principal shall be,and shall be declared by the Obligee to be, in default under the Service Contract, the Obligee having performed the Obligee's material obligations thereunder, the Surety shall promptly remedy the default whatever it may be or shall • promptly: (a) Perform the Service Contract in accordance with all of its terms and conditions; or (b) Obtain bids for submission to the Obligee for performing the Service • Contract in accordance with its terms and conditions, and upon mutual determination by the Obligee and the Surety of the lowest responsible bidder, arrange for a contract between such bidder and the Obligee and make available as work progresses (even though there will be a default or a succession of defaults under the contract or contracts for performance arranged under this paragraph) sufficient funds to pay the costs of performance of the Service Contract,less the unpaid balance of the contract price;but not • exceeding, including other costs and damages for which the Surety may be liable to Obligee hereunder,the amount set forth in the fust paragraph hereof. Notwithstanding the Principal's obligations under any provisions of the Service Contract,it is understood that any payment made by the Surety in good faith under this bond shall reduce the penal sum by a like amount. The term "balance of the contract price" as used in this paragraph, shall mean the total amount due and payable by the Obligee to the Principal • under the Service Contract and any amendments thereto, less the amount paid by the Obligee to the Principal in accordance with the terms of the Service Contract. B-1 368012.15 022806 AGMT • Capistrano Valley Water District Form of Service Contract Guaranty Agreement San Juan Basin Desa(ter Project Transactions Forms Relating to the Service Contract 2. Any suit under this bond must be instituted before the expiration of two • years from the date on which final payment under the Service Contract falls due. 3. No alteration, modification or supplement to the terms of the Service Contract or any subcontracts or the nature of the work to be performed thereunder, including any extension of time for performance, shall in any way affect the obligations of the Surety under • this bond. The Surety waives notice of any alteration,modification, supplement or extension of time. Signed and sealed this_ day of , 2002 . • IN PRESENCE OF: [NAME OF PRINCIPAL] [Affix Corporate Seal of Principal] By: • Name: Title: ' IN PRESENCE OF: [NAME OF SURETY] [Affix Corporate Seal of Principal] By: Name: • Title: i • B-2 368012.15 022806 AGMT t • TRANSACTION FORM C FORM OF PAYMENT BOND KNOW ALL MEN BY THESE PRESENTS,that ECO Resources,Inc.,as Principal,and with underwriting office at ,to which all communications in regard to this bond should be addressed, a corporation organized and existing under the laws of the and duly authorized to do business in the State of California, as Surety, are held and firmly bound unto the Capistrano Valley Water District,as Obligee, for the use and benefit of claimants (as hereinafter defined), in the penal sum of Dollars, plus an amount for estimated Fixed Design/Build Price Adjustments ($ ) (the "Bonded Sum"),for the payment which well and truly made,we hereby jointly and severally bind ourselves,our heirs,executors,administrators,successors and assigns,firmlybythese presents. WHEREAS,the Principal has bythe Service Contract for the Design,Construction, Financing and Operation of the San Juan Basin Desalter Project, dated 2002, entered into a contract with the Obligee for the design, construction, financing, operation, maintenance, repair, replacement and management of the San Juan Basin Desalter Project(the "Project"), all in accordance with the terms of such contract,which contract is by reference made a part hereof, and is hereinafter referred to as the Service Contract; NOW, THEREFORE, the condition of this obligation is such that, with respect to • Obligee, if the Principal shall promptly make payment to all claimants hereinafter defined,for all labor and materials used or reasonably required for use in the performance of the Service Contract then this obligation shall be null and void, otherwise it shall remain in full force and effect, it being expressly understood that the liability of the Surety for any and all claims hereunder shall in no event exceed the Bonded Sum. However, this obligation shall be subject to the following conditions: 1. A claimant is defined for purposes hereof as one having a direct contract with the Principal, or with a Subcontractor of the Principal for labor, materials, or both, used or reasonably required for use in the performance of the Service Contract;labor and materials being construed also to include that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental of equipment directly applicable to the Service Contract. 2. The Principal and Surety hereby jointly and severally agree with the Obligee that every claimant as herein defined, who has not been paid in full before the expiration of a period of 90 days after the date on which the last of such claimant's work or labor was done or performed, or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant, and have execution thereon. The Obligee shall not be liable for the payment of any costs or expense of any such suit. 3. No suit or action shall be commenced hereunder by a claimant: . (a) Unless claimant,other than one having adirect contract with the Principal, shall have given written notice to any two of the Principal, the Obligee, or the Surety, within 120 days after such claimant did or performed the last of the work or labor, or furnished the last of the materials for which the claim is made, stating with substantial accuracy the amount claimed and the name of the party to whom the materials were furnished, or for whom the work or labor was done or performed. Such notice shall be served by mailing the notice by registered mail or certified mail, postage prepaid, in an envelope addressed to the Principal, the Obligee or the Surety, at any place where an office is regularly maintained for the transaction of business, or served in any manner in C-1 368012.15 022806 AGMT s which legal process may be served in the state in which the aforesaid project is located, save that such service need not be made by a public officer; (b) After the expiration of one year following the date on which Principal ceased work on said Service Contract or after the expiration of one year following the date of completion of construction and Acceptance of the Project, whichever is later, it being understood,however,that if any limitation embodied in this bond is prohibited by any law controlling the construction hereof such limitation shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law; and (c) Other than in a court of competent jurisdiction in the State of California or in the United States District Court for the Central District of California (Southern Division), and not elsewhere. 4. No alteration, modification or supplement to the terms of the Service Contract or any subcontracts or the nature of the work to be performed thereunder, including 40 any extension of time for performance, shall in any way affect the obligations of the Surety under this bond. The Surety waives notice of any alteration, modification, supplement or extension of time. 5. Upon request by any person or entity appearing to be apotential beneficiary of this bond, the Principal shall promptly furnish a copy of this bond or shall permit a copy to be made. 6. The amount of this bond shall be reduced by and to the extent of any payment or payments made in good faith hereunder, inclusive of the payment by Surety of mechanics' liens which may be filed of record against the Project, whether or not claim for the amount of such lien be presented under and against this bond. f • 1 C-2 368012.15 022806 AGMT Signed and sealed this day of , 2002. • IN PRESENCE OF: [NAME OF PRINCIPAL] [Affix Corporate Seal of Principal] By: Name: Title: • IN PRESENCE OF: [NAME OF SURETY] [Affix Corporate Seal of Principal] By: Name: Title: qb C-3 368012.15 022806 AGMT • TRANSACTION FORM D FORM OF SERVICE CONTRACT LETTER OF CREDIT [Date] Capistrano Valley Water District 32400 Paseo Adelanto San Juan Capistrano, California 92675 Ladies and Gentlemen: 1 1. At the request and for the account of ECO Resources, Inc., a Texas corporation (the "Company"), [Name of Bank] (the "Bank") hereby establishes in your favor our direct-pay irrevocable Letter of Credit No. (the "Letter of Credit"), in the amount of $ (the "Stated Amount"), effective immediately. Capitalized terms used but not defined herein are used as defined in the Service Contract referred to below. 2. We hereby irrevocably authorize you to draw drafts on us at sight in accordance with the terms and conditions hereinafter set forth. The aggregate amount drawn hereunder shall not exceed the Stated Amount. 3. This Letter of Credit is effective immediately and will expire on (the "Stated Termination Date"). 4. Subject to the foregoing and the further provisions of this Letter of Credit, a demand for payment may be made by you by presentation to us of your sight draft, accompanied by your written and completed certificate, signed by you, in substantially the form • ofAnnex A hereto (such certificate being your"Drawing Certificate"),in an amount not exceeding the Stated Amount, representing amounts payable to you by the Company under and pursuant to the Service Contract for Design,Construction, Financing and Operation of the San Juan Basin Desalter Project,dated 2002,between the Company and the Capistrano Valley Water District, Orange County, California (the "Service Contract"). 5. Each sight draft drawn under this Letter of Credit must bear on its face the clause "Drawn under Irrevocable Letter of Credit No. 6. Demand for payment may be made by you under this Letter of Credit prior to the expiration hereof at any time during the Bank's business hours at its address at [Bank's Address] Attention: on a Business Day (as hereinafter defined). As used herein the term "Business Day"means a day on which the Bank at our aforesaid office is opened for the purpose of conducting commercial banking business. We hereby agree that all sight drafts drawn under and in strict conformity with the terms of this Letter of Credit will be duly honored by us upon delivery of the sight drafts and certificates. If we receive any of your sight drafts and certificates, all in strict conformity to the terms of this Letter of Credit, at our aforesaid office not later than 11:00 A.M. (local time) on a Business Day on or before the Stated Termination Date hereof, we . will honor the same by 3:00 P.M. (local time) on the same day in accordance with your payment instructions. If we receive any of your sight drafts and certificates, all in strict conformity to the terms of this Letter of Credit at such office after 11:00 A.M. (local time) on a Business Day, on or before the Stated Termination Date hereof,we will honor the same not later than 1:00 P.M. (local D-1 368012.15 022806 AGMT 40 • time) on the next succeeding Business Day in accordance with your payment instructions. If requested by you, payment under this Letter of Credit may be made by Federal Reserve Wire Transfer of funds to your account in a bank on the Federal Reserve Wire Facility or by deposit of same day funds into a designated account that you maintain with us. 7. The Stated Amount shall be reduced automatically by the amount of each drawing hereunder. 8. This Letter of Credit is transferable in its entirety (but not in part) to your successor which you certify to us has succeeded you as beneficiary and may be successively so transferred. Transfer of this Letter of Credit to such transferee shall be effected upon the presentation to us of this Letter of Credit accompanied by a certificate in the form of Annex B attached hereto. 9. Only you (or a transferee as provided in paragraph 8 hereof) may make a drawing under this Letter of Credit. Upon the payment to you or your account of the amount specified in a sight draft drawn hereunder, we shall be fully discharged of our obligation under this Letter of Credit with regard to that payment, and we shall not thereafter be obligated to make further payments under this Letter of Credit with regard to that payment to you. 10. This Letter of Credit, except as otherwise stated herein, is subject to International Standby Practices 1998,International Chamber of Commerce Publication 590 1998 (the"ISP98") and shall be governed and construed in accordance with the laws of the State of New York and applicable U.S. federal law. 11. Communications with respect to this Letter of Credit shall be in writing and shall be addressed to us at our address at [Bank Address] Attention: , specifically referring to the number of this Letter of Credit. 12. This Letter of Credit sets forth in full our undertaking and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document,instrument or agreement referred to herein(including,without limitation,the Service Contract), except only the certificates, sight drafts, and Letter referred to herein and ISP98; and any such reference shall not be deemed to incorporate herein by reference any document, i instrument or agreement, except for ISP98, such certificate, sight drafts and Letter. Very truly yours, [Name of Bank] By: Authorized Officer • D-2 368012.15 022806 AGMT ANNEX A TO SERVICE CONTRACT LETTER OF CREDIT CERTIFICATE FOR DRAWING S IN CONNECTION WITH PAYMENT OF AMOUNTS UNDER THE SERVICE CONTRACT Irrevocable Letter of Credit No. The undersigned, a duly authorized representative of the Capistrano Valley Water District, Orange County, California (the "Beneficiary"), hereby certifies to [Name of Bank] (the "Bank"),with reference to Irrevocable Letter of Credit No._(the "Letter of Credit";terms defined therein and not otherwise defined herein being used herein as therein defined) issued by the Bank in favor of the Beneficiary, as follows: 1. The Beneficiary is a party to the Service Contract for the Design, Construction, Financing and Operation of the San Juan Basin Desalter Project, dated 2002 (the "Service Contract") by and between the Beneficiary and (the "Company") regarding the design, construction, financing, start-up, acceptance testing, operation, maintenance, repair, replacement and management of the • Beneficiary's water treatment plant in the City of San Juan Capistrano. 2. The Beneficiary is making a demand for payment under the Letter of Credit in the amount of$ and such amount does not exceed the Stated Amount. 3. The Beneficiary hereby certifies as follows (insert those which are . applicable): (a) Delay liquidated damages, not in the aggregate to exceed the Stated Amount, are due and payable by the Company under the terms and conditions of Section 7.9 of the Service Contract. (b) The Beneficiary has terminated the Service Contract pursuant to Section 13.2 of the Service Contract in accordance with the procedures and requirements of such Section, Section 15.3 and the other applicable provisions of the Service Contract, and the Beneficiary has determined that the amount set forth above represents the estimated damages suffered by the Beneficiary, not to exceed the Stated Amount. (c) The Letter of Credit will expire within 30 days, and the Letter of Credit has not been extended, renewed or replaced in accordance with Section 15.3 of the Service Contract. The amount set forth above represents the full Stated Amount. (d) The Company or the Guarantor has filed a petition of voluntary bankruptcy under the Bankruptcy Code,the Company or the Guarantor has consented to the filing of any bankruptcy or reorganization petition against the Company or any Guarantor,or the Company or the Guarantor has filed a petition to reorganize the Company or the Guarantor pursuant to the Bankruptcy Code. The amount set forth above represents the full Stated Amount. (e) A court of competentjurisdiction has issued an order appointing areceiver, liquidator, custodian or trustee of the Company or the Guarantor or of a major part of the Company's or the Guarantor's property, respectively, or a petition to reorganize the Company of the Guarantor pursuant to the Bankruptcy Code has D-3 368012.15 022806 AGMT 41 • been filed against the Company or the Guarantor, and such order has not been discharged or such filing has not been dismissed within 90 days after such issuance or filing. The amount set forth above represents the full Stated Amount. 4. Payment of the amount described hereby shall be made by wire transfer to the following account: [wire transfer instructions]. IN WITNESS WHEREOF,the Beneficiary has caused this certificate to be executed and delivered by its duly authorized representative as of this_day of , 2002. THE CAPISTRANO VALLEY WATER DISTRICT By: • Title: w 1 r D-4 368012.15 022806 AGMT • ANNEX B TO SERVICE CONTRACT LETTER OF CREDIT TRANSFER CERTIFICATE • [Bank's Address] Attention: RE: Irrevocable Service Contract Letter of Credit No. Ladies and Gentlemen: For value received, the undersigned Beneficiary hereby irrevocably transfers to: • [Name of Transferee] [Address of Transferee] all rights ofthe undersigned Beneficiary to drawunder the above Service Contract Letter of Credit in its entirety. • By this transfer,all rights of the undersigned Beneficiary in such Service Contract Letter of Credit are transferred to the transferee and the transferee shall have the sole right as the Beneficiary thereof,including sole rights to any amendments whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised directly to the transferee without necessity of any consent of or notice to the undersigned beneficiary. Such transferee is a permitted transferee under such Service Contract Letter of Credit. The Service Contract Letter of Credit is returned herewith, and we ask you to endorse the transfer on the reverse thereof, and forward it directly to the transferee with your customary notice of transfer. SIGNATURE AUTHENTICATED THE CAPISTRANO VALLEY WATER DISTRICT By: (Bank) Title: (Authorized Officer) D-5 368012.15 022806 AGMT • • APPENDICES • to the SERVICE CONTRACT FOR THE DESIGN, CONSTRUCTION, FINANCING AND OPERATION • OFTHE SAN JUAN BASIN DESALTER PROJECT between • CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA • and ECO RESOURCES, INC. • Dated September , 2002 • • • 388444.10 022806 DOC • • INDEX • 1. Project Description 2. Enhanced Standards 3. Design Raw Water Quality Parameters 4. Source Water Pilot Test 5. Design Requirements • 6. Design/Build Work Review Procedures 7. Liquidated Damages 8. Acceptance Test Procedures and Standards 9. Governmental Approvals 10. Guaranteed Maximum Electricity Utilization 11. Insurance Requirements • 12. Operation and Maintenance Standards 13. Operation and Maintenance Manual 14. Safety and Security Plan 15. Community Outreach Plan 16. Project Evaluations 17. Acknowledged Subcontractors • 18. Exit Test and Transition Plan 19. Example Service Fee Calculation 20. Certain Transaction Documents 21. Milestone Payment Schedule • • • • 388444.10 022806 DOC • • APPENDIX 1 PROJECT DESCRIPTION 1.1 PROJECT DESCRIPTION The Project generally consists of the Sites and the Project Improvements. The physical components of the Project Improvements include the Plant, the Wells, the Raw Water Transmission Line,the Booster Pumping Station,the Finished Water Transmission Line and the • Concentrate Disposal Line, all as described in this Appendix 1, and any Capital Modifications made thereto from time to time. After Acceptance, the Booster Pumping Station shall become part of the Water System, and shall not be considered part of the Project Improvements. The Sites include the Plant Site, the Wellfield, the Booster Pumping Station Site, the Raw Water Transmission Line Site, the Finished Water Transmission Line Site and the Concentrate Disposal Line Site, all as described in this Appendix 1. 1.2 PROJECT IMPROVEMENT DESCRIPTION 1.2.1 Plant The Plant will be used to produce Finished Water from Raw Water.The Plant will consist . primarily of two reverse osmosis treatment trains within an enclosed building; three iron/manganese filters,two desanders,and two cartridge filters;bulk chemical storage tanks within a semi-enclosed building;an approximately 85,000-gallon bolted steel tank for iron/manganese filter backwash water supply; an approximately 225,000-gallon bolted steel tank for spent backwash water recovery. The Plant will also include all associated equipment, including pumps, motors, sumps, blowers and tanks to operate • the treatment trains, filters, and desanders. 1.2.2 Project Structures The Project Structures are as defined in Article I of the Service Contract. Attachment I to this Appendix provides a list of anticipated Project Structures as identified by the • Company. Upon Acceptance, the Company shall provide a complete list of Project Structures in the Baseline Project Record in accordance with Article X of the Service Contract. 1.2.3 Project Equipment • The Project Equipment is as defined in Article I of the Service Contract. Attachment 2 to this Appendix provides a list of anticipated Project Equipment as identified by the Company. Upon Acceptance, the Company shall provide a complete list of Project Equipment in the Baseline Project Record in accordance with Article X of the Service Contract. • 1.2.4 Additional Assets The Project Structures list and Project Equipment list contained in Attachments 1 and 2 to this Appendix are not necessarily complete or final. The Company is expected to install at least the items contained in such lists. If more,or different,Project Structures or Project Equipment than those listed in the Attachments to this Appendix need to be • installed to meet the Design Requirements,pass the Acceptance Test,or otherwise meet Al-1 388644.10 022806 DOC • • the Performance Guarantees, the Company will modify its design and install such Project Structures or Project Equipment at its own cost and expense (subject to reimbursement by the District, if permitted under the Service Contract, for additional costs incurred). • 1.2.5 Wells The eight Wells to be constructed by the Company are as follows: • Tirador • • Dance Hall • SJBA#2 • CVWD #1 • SJBA#4 • Kinoshita • South Alipaz • • Mariner Each Well will include a pump, a fixed-speed motor and associated piping to transport Raw Water from the Well to the Raw Water Transmission Line. The pump, motor and associated piping will be contained in a masonry enclosed unit with a tile or a tile-like roof with approximate dimensions of 13'width by 12' length by 12' height. • 1.2.6 Raw Water Transmission Line The Raw Water Transmission Line is depicted in the diagram on Plates 1 and 2 (of Attachment 3 to this Appendix). • 1.2.7 Booster Pumping Station The Booster Pumping Station is located near the intersection of Rancho Viejo Road and Ganado Road. It will consist of two 40-horsepower pumps contained within a buried vault or an above-ground pump station, masonry construction, tile roof, stucco finish, with approximate dimensions of 13'width by 12' length by 13' height. The Strawberry • Hill Booster Pumping Station will serve to pump Finished Water from the District's 350 Hydraulic Grade Line (HGL) pressure system to the 425 HGL pressure system. The Booster Pumping Station shall have a programmable logic control (Modicon, with Wonderware, or equal open architecture system) and a radio transmitter unit with an antenna for communication with the District's Supervisory and Control and Data • Acquisition ("SCADA") system. After acceptance, the Strawberry Hill Booster Pumping Station shall be turned over to the District for operation and maintenance. 1.2.8 Finished Water Transmission Line The Finished Water Transmission Line is depicted in the diagram on Plate 3 (of Attachment 3 to this Appendix). 1.2.9 Concentrate Disposal Line The Concentrate Disposal Line is depicted in the diagram on Plate 4 (of Attachment 3 to this Appendix). • AI-2 388444.10 022806 DOC • • 1.2.10 Abandonment of Existing Wells • Existing wells on the following sites shall be abandoned by the Company in accordance with Applicable Law and Section 23 of Attachment 1 to Appendix 5: • Tirador • SJBA#2 • CVWD #1 • • SJBA #4 • Kinoshita(2 wells) 1.3 SITES DESCRIPTION 1.3.1 Plant Site • The Plant Site is a portion of assessor's parcel number 668-101-03 and is owned in fee simple by the San Juan Capistrano Sanitation District,a subsidiary district of the City. The Plant Site is depicted in Part 1 of Attachment 5 to this Appendix. 1.3.2 Wellfield • The Wellfield consists of eight separate Well Sites as depicted in the diagram on Plates 1 and 2 (of Attachment 3 to this Appendix). 1.3.2.1 Tirador Well Site • The Tirador Well Site is a portion of assessor's parcel number 666-131-08 and is owned in fee simple by the District. The Tirador Well Site is depicted in Part 2 of Attachment 5 to this Appendix. 1.3.2.2 Dance Hall Well Site • The Dance Hall Well Site is a portion of assessor's parcel number 668-101-03 and is owned in fee simple by the San Juan Capistrano Sanitation District, a subsidiary district of the City. The Dance Hall Well Site is depicted in Part 3 of Attachment 5 to this Appendix. 1.3.2.3 CVWD #1 Well Site • The CVWD #1 Well Site is a portion of Lot B of Tract 15858 and is owned in fee simple by the District. The CVWD #1 Well Site is depicted in Part 4 of Attachment 5 to this Appendix. 1.3.2.4 SJBA #2 Well Site • The SJBA #2 Well Site is a portion of Lot B of Tract 15998 and is owned in fee simple by the District. The SJBA#2 Well Site is depicted in Part 5 of Attachment 5 to this Appendix. • Al-3 388444.10 022806 DOC • 1.3.2.5 SJBA #4 Well Site The SJBA #4 Well Site is a portion of Lot E of Tract 15998 and is owned in fee simple by the District. The SJBA#4 Well Site is depicted in Part 6 of Attachment 5 to this Appendix. 1.3.2.6 Kinoshita Well Site The Kinoshita Well Site is a portion of assessor's parcel number 121-190-57 and is owned in fee simple by the City. The Kinoshita Well Site is depicted in Part 7 of Attachment 5 to this Appendix. 1.3.2.7 South Alipaz Well Site The South Alipaz Well Site is located in a portion of the Alipaz Street right of way dedicated to the City. The South Alipaz Well Site is depicted in Part 8 of Attachment 5 to this Appendix. 1.3.2.8 Mariner Well Site The Mariner Well Site is a portion of assessor's parcel number 668-230-02 and is owned in fee simple by the City. The Mariner Well Site is depicted in Part 9 of Attachment 5 to this Appendix. 1.3.3 Booster Pumping Station Site The Booster Pumping Station Site is a portion of Parcel 12 as described on Instrument Number 20000127609 recorded March 10, 2000 in the Official Records of County Recorder for Orange County, California, and is owned in fee simple by Romarco Realty Corporation. The Booster Pumping Station is depicted in Part 10 of Attachment 5 to this Appendix. 1.3.4 Raw Water Transmission Line Site The Raw Water Transmission Line Site is expected to be located on Segments A, B, C, D, E, F, G, H, 1, J, K, L, M, N, O, P and R, as described in Paragraph 2(E) of Attachment 1 to this Appendix, and as depicted in the diagram on Plates 1 and 2 (of Attachment 3 to this Appendix). 1.3.5 Finished Water Transmission Line Site The Finished Water Transmission Line Site is expected to be located on Segments J, K, L, M, N, O, P and Q, as described in Paragraph 2(E) of Attachment 1 to this Appendix, and as depicted in the diagram on Plate 3 (of Attachment 3 to this Appendix). 1.3.6 Concentrate Disposal Line Site The Concentrate Disposal Line Site is expected to be located on Segments J, K, L and S, as described in Paragraph 2(E) of Attachment 1 to this Appendix, and as depicted in the diagram on Plate 4 (of Attachment 3 to this Appendix). • A14 388444.10 022906 DOC • 1.3.7 Temporary Storage Easement During Construction Period. The Company may seek easement rights from the County of Orange during the • Construction Period for a temporary storage site, as depicted in the diagram on Plate 5 (of Attachment 3 to this Appendix). 1.4 REFERENCE DOCUMENTS The documents listed below were made available to the Company prior to or after the • submission of its proposal: • 1998 San Juan Basin Desalter Project,Agreement Between the Metropolitan Water District of Southern California,Municipal WaterDistrict of Orange County, and the San Juan Basin Authority California Government Code Section 5956 - 5956.10 • Operating Plan, 17th Street Desalter, City of Tustin Water Service, Tustin, California, Robert Bein, William Frost, and Associates, July 1999 • Capistrano Desalter Facility Geotechnical Report, Final Draft, Geotechnical Consultants, January 18, 2001 • Phase I Environmental Site Assessment, City of San Juan Capistrano, 32400 Paseo Adelanto, San Juan Capistrano, California, Malcolm Pirnie, Inc., December 2000 • CD entitled "City of San Juan Capistrano, Desalter RFP Data,"January 18, 2001 • Additional water quality information • CD entitled "City of San Juan Capistrano, Desalter Update Data," March 21, 2001 • Map with all existing and proposed well locations • Assessors parcel maps • Drinking Water Source Assessment and Protection for City of San Juan Capistrano • Domestic Well Field and Proposed Brackish Well Field • Availability of Unappropriated Water San Juan Creek Basin, Stetson/Boyle, November 1998 • Paleontological Resources Assessment Report for the San Juan Capistrano Domestic, Non-domestic and Brackish Water Wells Project, RMW Paleo Associates, Inc., January 2001 • Final Expanded Initial Study and Mitigated Negative Declaration, San Juan Basin Groundwater Management and Facility Pian, Culbertson, Adams and Associates, July 1995 • Northwest Multi-Use Site, Iron and Manganese Water Quality Study, Wildermuth Environmental, Inc., October 1999 • Geotechnical Investigation for the Proposed San Juan Hot Springs Dance Hall Relocation, • Geotechnical Consultants, June 1989 • San Juan Basin Groundwater Management and Facility Plan, San Juan Basin Authority Board of Directors Hearing, August 1, 1995 • Order No. 96-41, NPDES Permit No. CAG919002, General Waste Discharge requirements for Groundwater Extraction and Similar Waste Discharges from Construction and Remediation Projects to Surface Waters within the San Diego Region Except for San Diego • Bay, California Regional Water Quality Control Board, San Diego Region • Letter to Storm Water Discharger from State Water Resources Control Board, Subject: Checklist for Submitting a Notice of Intent • Storm Water Pollution Prevention Plan and Monitoring Plan for the SC-04 South Connector Pipeline for Discharges of Storm Water Runoff Associated With Construction Activity, Capistrano Valley Water District • Supplement to the 1995 Expanded Mitigated Negative Declaration for the San Juan Basin Groundwater Management and Facility Plan, Capistrano Valley Water District Desalter AI-5 388444.10 022806 DOC • • (RO/DBOF)Project, David Evans and Associates, Inc. • Well Construction Permit for Proposed Brackish Water Wells, Capistrano Valley Water District, Groundwater Desalter Project • Draft Agreement between Capistrano Valley Water District and Santa Margarita Water District • San Juan Basin Water Diuersion and Use Permit Attachment 1 Project Structures • Preliminary List The following is a list of the major Project Structures that are to be built by the Company. As required by Section 10.2 of the Service Contract, the Company shall provide a detailed list of actually built assets constituting the Project which shall be known as the "Baseline Project Record". • 1. WELLS Static Water Estimated Level (feet Production Fixed Well Approximate below) Capability Speed • number Well Name Depth feetground surface m Motor H 1 Tirador 130 20-30 500 to 700 50 2 Dance Hall 160 20-30 600 to 800 50 3 CVWD #1 160 10-20 600 to 800 50 • 4 SJBA #2 160 10-20 600 to 1000 50 5 SJBA#4 160 10-20 600 to 1000 50 6 Kinoshita 150 10-20 500 to 800 50 7 South Ali az 150 10-20 500 to 800 50 8 1 Mariner 1 140 1 10-20 1 500 to 800 60 • 2. PIPELINES The pipeline maps are shown in Plates 1 through 4 of Attachment 3 to this Appendix. The Pipeline Route Definition Map Key and Pipeline Route Definition Line Segments are shown in Attachment 6 to this Appendix. • A. Rights of Way and Utility Easements To facilitate pipeline construction,the Company shall use the City's street right of way or utility easement thererto that surrounds the line segments defined by the coordinates described in segments A, C, D, E, F, G, H, M and S below. The Company's • use of such right of way is subject to other uses or potential uses,of such property,for which other entities may have an interest therein. B. Property Owned by the City or District To facilitate pipeline construction, the Company shall use City or District owned • property that surrounds the line segments defined by the coordinates described in segment J and a portion of segment R (assessor's parcel number 666-131-08) below. AI-6 388444.10 022806 DOC • • The Company's use of City or District owned property is subject to other uses or potential uses,of such property,for which other entities may have an interest therein. • C. Property Owned by Government Agencies To facilitate pipeline construction,the Company shall obtain an easement,right of way, license or encroachment permit from all government agencies owning property surrounding the line segments defined by the coordinates described in segments B, I, K and O below. Such rights shall be obtained in the name of the District. Company use • of property owned by government agencies is subject to other uses, or potential uses, of such property,for which other entities may have an interest therein. The Company's use of government agency owned property shall be subject to all terms and conditions imposed by such government agencies. D. Property Owned by Private Parties • To facilitate pipeline construction,the Company shall obtain an easement,right of way, license or encroachment permit from all private parties owning property surrounding the pipeline segments defined by the coordinates described in segments L, N, P, Q and a portion of R (assessor's parcel number 666-131-09) below. Such rights shall be obtained in the name of the District. Company use of property owned by private parties • is subject to other uses or potential uses,of such property,for which other entities may have an interest therein. The Company's use of property owned by private parties shall be subject to all terms and conditions imposed by such private parties. Notwithstanding the foregoing, in the event that the Company is not able to obtain an easement, right of way, license or encroachment permit from the owners of any one or more of segments L, N, P, Q or R below,the Company may,at its own cost and expense, • obtain easements, rights of way, licenses or encroachment permits from other parties and re-route the applicable pipeline route to make use of such alternate rights. E. Segments The coordinate points on the map sheets found in Attachment 6 to this Appendix set • forth the location of each pipe segment. These coordinate points describe points in the California State Coordinate System, Zone 6, NAD 1983. Segment A: Segment A is described as the Alipaz street right of way running from Calle Jardin to Mariner Street, as shown on tract numbers 5657 and 7616. This right of way includes a section of real property described in assessor's parcel number 668-230-02 • which is owned by the City. Segment B: Segment B is described as the Alipaz street right of way running from a point north of Mariner Drive to a point south of Via Lorado. This segment crosses over a section of real property known as assessor's parcel number 668-031-11 which is owned by the County of Orange Flood Control District. • Segment C: Segment Cis described as the Ahpaz street easement running from apoint south of Via Lorado to Paseo Toscana. This easement is shown on tract numbers 6141, 6038, 11086, RS-2-38 and 15858. Segment D: Segment D is described as the Paseo Toscana street easement running • from Alipaz Street to Del Zura. This easement is shown on tract number 15858. AI-7 388444.10 022806 DOC • • Segment E: Segment E is described as the Del Zura street easement running 1,999 feet from Paseo Toscana to a point along Del Zura. This easement is owned by the City and is shown on tract number 15858. • Segment F: Segment F is described as the Paseo Toscana easement running from Del Zura to Vivente De Marlita. This easement is shown on tract number 15998. Segment G: Segment G is described as the Vivente De Marlita easement running from Paseo Toscana 480 feet south to a point on Vivente De Marlita. This easement is shown • on tract number 15998. Segment G includes lot D as shown on tract number 15998. Segment H: Segment H is described as the Vivente De Marlita easement running from Paseo Toscana 550 feet north to a point on Vivente De Marlita. This easement is shown on tract number 15998. Segment H includes lot C as shown on tract number 15998. • Segment I: Segment I is described as the Creek Crossing right of way from the north end of Vivente De Marlita to the south end of Descanso Park. This segment crosses over a section of real property known as assessor's parcel number 121-171-15, and a parcel of real property known only as a portion of lot 60 of tract number 103, owned by the County of Orange Flood Control District. • Segment J: Segment J is described as the City of San Juan Capistrano office and maintenance complex. This parcel of real property is owned in fee simple by the City and is described as assessor's parcel number 668-101-03. Segment K: Segment K is described as the Rail Road right of way beginning at the northern boundary of segment J and ending at the western boundary of segment L. • Segment K is owned by the Southern California Regional Rail Authority. Segment L: Segment L is described as the Vons Shopping Plaza. This segment crosses over a section of real property known as assessor's parcel numbers 668-091-10 (owned by Donahue Schriber Realty Group, LLC) and 668-091-09 (owned by Sagehen Investments, LLC). Segment M: Segment M is described as the City of San Juan Capistrano Street right of way Camino Capistrano and Avenida Padre. This right of way continues east on Avenida Padre, then north on Avenida Los Amigos. This right of way is owned by the City and is shown on tract numbers 103, 1269, and 1388. • Segment N: Segment N is described as the Marshall's Shopping Plaza right of way and runs over real property that is privately owned by PRCC Capistrano LLC and described in assessor's parcel numbers 668-451-01 and 668-241-23. These parcels of real property are also known as a portion of lot 23 of tract number 1388 and a portion of lots 23, 31, 32 and 33 of tract number 103. • Segment O: Segment O is described as the Cal Trans right of way for Interstate 5(1-5'1. This right of way begins at the eastern boundary of segment N and ends at the southern boundary of segment P. This right of way is owned by Cal Trans. Segment P: Segment P is described as the easterly border of I-5 running from the intersection of I-5 and the San Juan Creek,to the intersection of I-5 and the projection • of Calle Arroyo. The fee interest in the real property underlying segment P is privately owned and the City has a 10 foot easement through segment P. It is not certain Al-8 398444.10 022W6 DOC • • whether the City's easement is sufficient for the Project. The City's easement crosses properties described in assessor's parcel number 666-131-09 (also described as a portion of lot 31 of tract number 103) and assessor's parcel number 666-131-15(owned • by Ortega Properties, Inc.). Segment O: Segment Q runs from the easterly border of I-5 where I-5 intersects with the Calle Arroyo extension, east to the westerly end of Calle Arroyo. The fee interest in the real property underlying segment Q is privately owned, and this segment crosses real property described in assessor's parcel number 666-131-15 (owned by Ortega • Properties, Inc.). Segment R: Segment R runs from the easterly border of I-5 and the extension of Paseo Tirador, east to the westerly end of Paseo Tirador. A portion of segment R is owned in fee simple by the District, and a portion of segment R is privately owned. This segment crosses properties described in assessor's parcel numbers 666-131-09(privately owned • by Ortega Properties, Inc.) and 666-131-08 (District owned). Segment S: Segment S is described as the Camino Capistrano right of way running from Avenida Padre to San Juan Creek Road. This right of way is owned by the City and is shown on tract number 103 and RS2-36. • 3. PLANT (5.14 MGD Finished Water Capacity) There will be four structures at the Plant: 1. An enclosed building housing the reverse osmosis equipment, control room,restroom,and electrical room.This building will be approximately • 40' wide by 60' long by 23' high at the eave height; 2. A semi-enclosed (roof with partial walls) building to house the bulk chemical storage tanks approximately 30' wide by 60' long by 23' eave height; 3. An approximately 30' diameter by 16' tall shell height (85,000 gallons) bolted steel tank to contain the iron/manganese filter backwash water; • and 4. An approximately 40'diameter by 24'tall shell height(225,000 gallons) bolted steel tank for recovering the iron/manganese treatment process backwash water. 4. BOOSTER PUMPING STATION • The Strawberry Hill Booster Pumping Station shall be as described in Section 1.2.7 of Appendix 1. The Booster Pumping Station Site is property owned by the District and commonly known as a portion of Parcel 12 as described on that certain Certificate of Compliance recorded in the Official Records of the County Recorder of Orange County, California, on March 10, 2000 as Instrument Number 20000127689. • 5. ARCHITECTURAL STANDARDS All construction of buildings will be consistent with the conceptual Design Drawings (attached to this Appendix as Attachment 4) and any changes must conform to the District's architectural standards, and conform to the architectural characteristics of • the surrounding neighborhood. Al-9 388444.10 022806 DOC • • Attachment 2 Project Equipment Preliminary List • The following is a list of the Project Equipment to be built or installed by the Company. As required by Section 10.2 of the Service Contract, the Company shall provide a detailed list of actually built assets constituting the Project which shall be known as the "Baseline Project Record". All pump horsepower descriptions,tank volumes and other sizings are approximations, and may be adjusted by the Company as necessary to meet its obligations under the Service • Contract and to perform the Contract Services. 1. COMMUNICATIONS EQUIPMENT The Company shall provide communications throughout the Project. The following is a list of required communications equipment: • 1. 2 - computers 2. 1 - laser report printer 3. 1 - color graphics printer 4. 1 - communications server 5. 2 - SCADA servers 6. 1 - integration with existing radio system or additional fiber optic system. • 7. 1 - direct phone line to the Plant 8. 1 - separate phone line dedicated to electronic communication (internet/fax) 2. WELLS 1. 8 Wells 2. 8 Well pumps with fixed speed motors • 3. PLANT (5.14 MGD Finished Water Capacity) 1. 2 - "cyclone" type desanders 2. 3 - 12' by 47' diameter iron/manganese filters 3. 3 - 25 Hp fixed speed iron/manganese filter backwash water supply pumps 4. 3 - 5 Hp fixed speed iron/manganese spent backwash water recycle pumps • 5. 1 - approximately 40' diameter by 24' tall iron/manganese filter spent backwash water recycle tank 6. 1 - approximately 30' diameter by 16' tall iron/manganese filter backwash water supply tank 7. 2 - cartridge filters 8. 2 - 2 stage RO trains (68 pressure vessels each with 7 membranes per vessel) • 9. 2 - 200 Hp VFD equipped RO feedwater pumps 10. 1 -RO membrane clean-in-place system(tank with heaters,pump,cartridge filter) 11. 2 - 125 Hp VFD equipped product water pumps 12. 1 - 125 Hp fixed speed product water pump 13. 2 - 60 Hp VFD equipped product water pumps 14. 1 - -60-Hp fixed speed product water pump • • Al-10 388444.10 012806 DOC • • 4. CHEMICAL FEED SYSTEMS 1. Sodium bisulfite (4000 gallon bulk storage tank, 3 feed pumps) 2. Scale inhibitor (1000 gallon bulk storage tank, 2 feed pumps) • 3. Sodium hypochlorite (4000 gallon tank, 4 feed pumps) 4. Caustic soda(4000 gallon tank, 3 feed pumps) 5. Ammonia(2000 gallon tank, 2 feed pumps) 6. Potassium permanganate (mixing tank with mixer, two feed pumps) • • • • • • • • Al-11 388444.10 022806 DOC • Ilk i_-_ � � ) ♦•i x"41 � S +[� �... v1fty r—I if r a C i r ) �.. SJBA •'w1j.tr. .7 s�. r JaI'JJ RWJ NO d-'�{.•.--:A+ ��ri �, r,e,' 'i 'fi .2! ' ry��•e-.i.s a 4 y��w��p�(�♦ <+ • .f r 1 ,. - t ' tt '• KJNOS 1YY!'3 •1 ����y,�/w ^1 ♦�y,/� -. y T + y48�� •S�rtr s.'H-,-.�1~ -% i 1 y1' r �Lwf9lfLtYVV I'J� ,9V.IVN� � ., " ' F� �� I .r. b•.-1 �.i` 1 � �.l r. /- �� -y P } �� il`�7 // Ce. �„ J. �Ji" •m'�� `l"'1.b�.+� 14 `� �tr♦•`'- �r�. a7,a yam .,a ! 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TREATED WATER AND REVISED "' SCHDEM�PATICALIGNMENT- 07/25/02 .A A IA,EI Nul PAvto � N/TMpY1Lv r UOIRIB[D r A n m. mAe r I ! 9 .e p - z4a wrm Kna Iofwc i FRIM hN W ATE 09 M61 T' - O4W11/JI NA1QM1 1'•�'f L, P1/M flYPF 11 PI/N f111f-AH PY/M (YNS-�YIAR.Ems) [� 3 9EY:(TYPE-4.1i91L ®O lPJ AMA eu990 �A 9>d IIFI A ,- ?-=-" 1.66111110MS — — �'lbfi�l"E" v1a [ NIR:[Nf 9UN YIIN S OXl •N• 6 EUX a X4166 AT EACA N. A a ♦ gp, a mltl Il eu[AOI M. YEIR�D N I[F 20N[ IprRptm!VCY®[N AUEL ryE ��m6 O'SM 1-116®eX NMAIL SW(1310r WtN 4➢Qi. Pam y YW O41W[G7 2RS 11®eFim9 6.•6d I II 1101 FMPC WlfelPLlm W TYPICAL TRENCH n 14m �aN 1ex�nN� SECTION �, 9 0 NO NO ,ION19 »j "N t! k 41 L WI 10 nu IPIIm�1LLMY w euai rAB.[WOM n Ol>. [ L,eX MATERIALS TYPAILS THRUST BLOCK, N STAvin.[ s AN—MT Gtr N T ¢DEN © [TLVAW[t9 Slta V611[O POV: NO fCALT AT TIO'AIAFTI c STAN R,f © f-A1R A Vr uue M-r VALVe A MEL N N I9 N I eXAa nA:¢Na+as N p 2 5 A I• BALL VALVE TOP ALM, Ili 19Re1t 1 r NY 111(N I Soul R6NSOf (� [ I'CEPP[R TVeOL TwE T FuQO Ilm r�9 n 1 li f4 LVET r6K9 0A ANN=[LL m Q �reyY I I ` 1 I. 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HILL AND COSTCD 07/25/02 _ PUMP STATION HOUSES .. A n „ ,�. III fill I �[--yyA ®�A®00p®g-0-aaa.2s2»o{o°O➢ � � ���Jc�� n ANS' S' � 1� i 8p9raa asaR$a;'s9a8Be2e22Cbi Flag Fe ff P F pu11 -fir-ne.:e.wO.w'r'n- M� :9f a • B��gee: ieeeesoBBoY�A�A�A � � � ��udu �pnpxsiA�$tt7� � g EF o sa-acfisaass6�e-sxsssaasnsnsA � :� F 7 • eaea5�esase����saea'seeAege� d �gglll A 0 � dE MIN a � � z b is8 9 9 a isIt day 4 E2 ��7�SAic F.gaa853b ag Jul g"T 6g6 gra Fxo rasouxs, rc, BLOCKS FLOW OWGR�AM�t REVISED • 07/25/02 .tea -- ■ | ; . FF2� |' ||| | - ` � . § e UI • � � � ' - � \ � � ., . :. • ! � t .' J1 § | . .. • REVISED Raw e ! g m«m FLOW SCHEMATIC 07/25/02 = R a � SSG 9� 3 y RAY g Ao 0 a a CA • �7 A � g 4 k gCg 3 C tl gtl C • d• d to ;d so rasounces, J, LPOSEATM T TRENT REVISEDPROCESS 20 07/25/02 w n n Am n MM MIEIM\®91_noH]WC —� ,1fN®A OOKY I®MFII WBILr_a1PL1 XlR a v w y•_, �L � y r-r 1 .we PROCESS M SCALE MNIBITOR FM SYSTEM PROCESS 50 CAUSTIC FEED SYSTEM r 4 XAX C MIM aEXL 1m nLola\eFa wlllu XEu rlwoi.ow\rm Md a A v M. finel 5 � 0 5f }II��LantLL7s2ml,�u1.�F.1� � nm.�ma.>na.•tea. Iwcwnmu�Yv-n nrx� I 0� �1\wm a Mp1riu PROCESS 40 POTASSIUM PERMANGANATE FEED SYSTEM PROCESS 55 AMMONIA FEED SYSTEM ---rw MeM pMul EE MXAa\em eeme MEaI NnM MoeCL no IAo a\em lenlc eTL 0 0 w� \RW W A YtlMI l0 MlY A4MLl �$�1EA®n�.�LT•.�4� A'~� � IVf NJ MY114} I ��m gyp_ Q'O a r r-\ 1 V..n I ILIE R77, ® - w�l O n r-a ••-O F— m� nrw � I L - - - - - -i w�:: E - - - - B --i PROCESS 45 SODNM HYPOQLLORITE FEED SYSTEM PROCESS 60 SODIUM 9SJLFITE n �� v e noel wr Im fnawAaawwrtana – Iwelaolx lm lmra\oa 11e1n11 MMw – E3 ZN f6 �•°� i QQ m ew.a ID>C �' 1 MaMrm tWVf aMfK 1UL°.WMnE IeM md.RM.Yn IOi Klm. 01e1yxPyf�WwY _ MOIe1El1q E9.11LAlE K11 L11R�M YtEEAbM"lwt LMO ft w wRnX aL Mbl(MmYEY NW. 14' Ei Ysal NII.6YIRNIMK,br ,MOI W W A.l�,%d, llOY�MN.Y.1M,W kV3 1F/,Y.F.W PAW M I I I I Y Y R Y JP Y JP � Y F R F I ) 1- 1 ,yplpKq MI Na 1 1 1 45 Ya � I C"ll I 11TSI1 m M 'm MI l6 PNfl fY6 PIIl1 I J Li Li I O O O O O O RI I�1 I HI I `nRiu WN 7�M J �a lu IN M fda lu M 1d aA� N W\ c,uww nsm PNL PbemlCf�aNO NHY (1Yl PPmLI Y>Kiol lulu � �O SINGLE UNE DIAGRAM 'NSB' AND 'DSI' s 4 4 O O O Y a Ua001W0 ON C4111Ba01 � Or1 YrOR1Ya ZO tr IOC J Q Y Wv O J tJ MpWI N MAIN SWITCHBOARD 'MSB' DISTRIBUTION SWITCHBOARD 'DSI' 15 ------------------ 0 0 0 0 0 0 0 0 0 0 0 I WN I /]� �- tBb 1� aGl aI' mr Iv Na Ilw '11g /� -W Itv M9 'm 67- I I t 1 a 1 t ] a ] ] ] t t S � /I ®ra Imva rat Ir-r Baa mal naa-a mat ,.ver-., met-a +am-1 �t Moo-M mMa®MBtlbN Boom mWf--J Ilpr�yooIWFZ KN Md111p1 1ptlB Oat to rwy N�a 9^r'N+ea IAB rlBalafl r wr+s(ne srm) srAlaw wa SINGLE LINE DIAGRAM 'MCCir swmi rBree r.a fn• req 41M.A]r N D 0 t_7� IWl ) )� ) I]a ) 1m 1,u>_ �m ) 1m 1yr. 1vs_ )� ��, a x T x s n s ar x a v fx I I S o © ® o 0 o 2,,, b AlA 6 IA 1R , Va R I tR (Efi IME•1 I(yC-t ` M-1 N-1! 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IAC, Ma • POTASSIUM PERMANGANATE REVISED g INSTRUMENTATION AND 07/25/0 DIAGRAd 2 AUG 06 2000 9: 20RM HP LASERJET 3200 p. 2 • EXHIBIT "A" • LEGAL DESCRIPTION THE LAND SITUATED IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA DESCRIBED AS FOLLOWS: • EASEMENT"A": BEGININNG AT THE SOti I'H WEST CORNER OF THE LAND DESCRIBED I:3 BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY: THENCE ALONG THE SOUTHERLY LINE OF SAID LAND SOUTH 87`55'30" EAST 92.80 FEET TO THE TRUE POINT OF BEGINNING: • THENCE CONTINUING ALONG SAID SOUTHERLY LINE SOUTH 87055'30" EAST 169.49 FEET; THENCE NORTH 2°26'44" EAST 111.24 FEET; THENCE NORTH 87033'16" WEST 108.59 FEET; THENCE NORTH 2°30'44" EAST 127.34 FEET; THENCE NORTH 87129'16" WEST 60.77 FEET: THENCE SOUTH 2°30'44" WEST 239.75 FEET TO THE TRUE POINT OF BEGINNING. • EASEMENT "B": BEGININNG AT THE SOUTH WEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY: THENCE ALONG THE WESTERLY LINE OF SAID LAND • NORTH 204'30" EAST 174.43 FEET; THENCE SOUTH 87°55'30" EAST 40.01 FEET TO THE TRUE POINT OF BEGINNING: THENCE CONTINUING SOUTH 87055'30" EAST 30.00 FEET; THENCE NORTH 2°04'30" EAST 30.00 FEET; THENCE NORTH 87055'30" WEST 30.00 FEET; THENCE SOUTH 2'04'30" WEST 30.00 FEET TO THE TRUE POINT OF BEGINNING. • ALL AS SHOWN ON EXHIBIT "B", THE SKETCH TO ACCOMPANY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: EXP. 12-31-03 Il-MARK WARE,PLS 5031 LICENSE EXP.DATE: 12/31/05 NO. Saw • J C'Mwg\CV%MV-V D DANCEHAILGoo Paye 1 oft AUG CG 2000 9: 20RM HP LASERJET 3200 P. 3 - • N EXHIBIT "B" SKETCH TO ACCOMPANY LEGAL DESCRIPTION x E J _ • I SCALE: 1'e50' i7 � I m N N � • 1? N8729'1 5"W nj 60.77' o W .0N87'0'55'30'W n 30 • w 00 0. n NO h0 o tR N 40.01 Z n 'cor n NBT55'3C)-Wj 70.01' z v 0 n • F3 N Z EASEMENT 'A' r W < N87*33'1619 108.59' W M • m O N W Nrq N POB z 92.80' N87-55'30°W 370.47' _ • TPOB EASEMENT `A" • PREPARED BY.• 1J`A8K WARE ENTERP/SES, INC. o o 2109 NA CANCAN . SAN CLEAfEN7& CA 92673 EXP. 12-31-05 J PHONE. 949-661-9156 FAX* 949-366-9611 � ��// 44 �1 6 g pZ ` • EMAIL: PLS5D31VFAC8ELLNET Pyl�/rtA^�' N0. 5031 PAC 2 of 2 0Ct]f3E f97 RA11dt f _pS DAfE • EXIMIT"A" LEGAL DESCRIPTION • THAT PORTION OF LOT 31 OF TRACT NO. 103 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA AS PER MAP FILED IN BOOK 11, PAGES 29-33 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: • BEGININNG AT THE MOST EASTERLY CORNER OF SAID LOT 31; THENCE ALONG THE NORTHERLY LINE OF SAID LOT NORTH 89002'56" WEST 127.69 FEET TO A POINT THAT IS 40.00 FEET SOUTHEASTERLY MEASURED AT RIGHT ANGLES FROM THE CENTERLINE OF PASEO TIRADOR AS SHOWN ON THE AMENDED DIAGRAM OF ASSESSMENT DISTRICT NO. 78-3 FILED IN • BOOK 19, PAGE 14-22 OF ASSESSMENT MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE PARALLEL WITH SAID CENTERLINE SOUTH 47054'43"WEST 43.95 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING SOUTH 47°54'43" WEST 40.00 FEET; THENCE SOUTH 42005'17"EAST 40.00 FEET; THENCE NORTH 47°54'43" EAST 0 40.00 FEET; THENCE NORTH 42'05'17" WEST 40.00 FEET TO THE TRUE POINT OF BEGI2\NING. ALL AS SHOWN ON EXHIBIT `B", THE SKETCH TO ACCOMPANY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. • PREPARED BY: EW. 12-31-05 • D.MkRK WARE, PLS 5031 LICENSE EXP. DATE: 12/31/05 No. 5031 • • • CAdwg\CVVA)V- DTIRADORdoc Page l oft • • EXHIBIT �_ N/, SKETCH TO ACCOMPANY LEGAL DESCRIPTION w I E SCALE: 1'=30' o • / ZOFO p / MOST EASTERLY CORNER OF NORTHERLY LINE OF LOT 31, ` LOT 31, TRACT 103 TRACT N0. 103 0 Q N89'02'56'W 58.6 N89'02'56'W 127.69' 10.00' 05 • �O .� P.O.B. / o Q p'S k01• pp, �'� y .2 • �k� �k�� lb9,..1, 1�5 EASEMENT/ a • �` I b, �p p �K / / ^ �i NOTES:31 / DATA FOR PASEO TIRADOR IS PER AMENDED `,,����;,� ,, • i " DIAGRAM OF ASSESSMENT DISTRICT NO. 78-3, Frr FILED IN BOOK 19, PAGES 14-22 OF ASSESSMENT MAPS, IN THE OFFICE OF THE ORANGE COUNTY RECORDER, AND STREET IMPROVEMENT PLANS ON FILE AT THE CITY OF SAN JUAN CAPISTRANO. Qi FOUND SPIKE do WASHER PER 'MAP OF CENTERLINE MONUMENTS' FOR CITY OF SAN JUAN CAPISTRANO ASSESSMENT DISTRICT NO. AD 78-3, DATED 11/11/81 ON FILE AT THE CITY OF SAN JUAN CAPISTRANO. • PREPARED 'BY.• p wIT4p WARE ENTERPISES, INC. J o 2109 NA GA KLAN SAN CLEMENTE CA 92673 EXP. 12-31-05 PHONE: 949-661-9156 FAX 949-366-9611 \ EUAIL• PLS50JIOPACBELLNET NO. 5031 D. MAMC w4A& PLS s= 'DA TE A PAGE 2 OF 2 UCENSE ExPIRAIM 12-s1-Ds • • EXHIBIT "A" LEGAL DESCRIPTION • THE LAND SITUATED IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA DESCRIBED AS FOLLOWS: EASEMENT "A": • BEGININNG AT THE SOUTH WEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY: THENCE ALONG THE SOUTHERLY LINE OF SAID LAND SOUTH 87055'30" EAST 92.80 FEET TO THE TRUE POINT OF BEGINNING: THENCE CONTINUING ALONG SAID SOUTHERLY LINE SOUTH 87055'30" • EAST 169.49 FEET; THENCE NORTH 2026'44" EAST 111.24 FEET; THENCE NORTH 87033'16" WEST 108.59 FEET; THENCE NORTH 2°30'44" EAST 127.34 FEET; THENCE NORTH 87'29'16" WEST 60.77 FEET: THENCE SOUTH 2°30'44" WEST 239.75 FEET TO THE TRUE POINT OF BEGINNING. 1 EASEMENT "B": BEGINLtiNG AT THE SOUTH WEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY: THENCE ALONG THE WESTERLY LINE OF SAID LAND • NORTH 2004'30" EAST 174.43 FEET; THENCE SOUTH 87°55'30" EAST 40.01 FEET TO THE TRUE POINT OF BEGINNL\G: THENCE CONTINUING SOUTH 87055'30" EAST 30.00 FEET; THENCE NORTH 2°04'30" EAST 30.00 FEET; THENCE NORTH 87055'30" WEST 30.00 FEET; THENCE SOUTH 2°04'30" WEST- 30.00 FEET TO THE TRUE POINT OF BEGINNING. ALL AS SHOWN ON EXHIBIT "B", THE SKETCH TO ACCOMPANY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: • wAwc w� EW. 12-31-05 D. MARK WARE,PLS 5031 LICENSE EXP.DATE: 12/31/05 N0. 5031 • • C:\dwg\CVWD\CVWD DANCEHALL.doe Page 1 oft • • EXHIBIT "A" LEGAL DESCRIPTION • THE LAND SITUATED IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA DESCRIBED AS FOLLOWS: EASEMENT "A": • BEGININNG AT THE SOUTH WEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY: THENCE ALONG THE SOUTHERLY LINE OF SAID LAND SOUTH 87055'30" EAST 92.80 FEET TO THE TRUE POINT OF BEGININTING: .THENCE CONTINUING ALONG SAID SOUTHERLY LINE SOUTH 8705530" EAST 169.49 FEET; THENCE NORTH 2°26'44" EAST 111.24 FEET; THENCE NORTH 87033'16" WEST 108.59 FEET; THENCE NORTH 2°30'44" EAST 127.34 FEET; THENCE NORTH 87°29'16" WEST 60.77 FEET: THENCE SOUTH 2°30'44" WEST 239.75 FEET TO THE TRUE POINT OF BEGINNING. r EASEMENT `B": BEGINIINNG AT THE SOUTH WEST CORNER OF THE LAND DESCRIBED IN BOOK 531, PAGE 251 OF DEEDS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY: THENCE ALONG THE WESTERLY LINE OF SAID LAND • NORTH 2004'30" EAST 174.43 FEET; THENCE SOUTH 87°55'30" EAST 40.01 FEET TO THE TRUE POINT OF BEGINNLNG: THENCE CONTINUING SOUTH 87°55'30" EAST 30.00 FEET; THENCE NORTH 2°04'30" EAST 30.00 FEET; THENCE NTORTH 87055'30" WEST 30.00 FEET; THENCE SOUTH 2°04'30" WEST 30.00 FEET TO THE TRUE POINT OF BEGLNN'ING. • ALL AS SHOWN ON EXHIBIT "B", THE SKETCH TO ACCOMPAINTY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: • pt�M�w'�t. D.MARK WARE,PLS 5031 LICENSE EXP. DATE: 12/31/05 N0. 5031 • • C:\dwg\CVWD\CVWD DANCEHALLdoe Pagel oft • EXHIBIT "B" N SKETCH TO ACCOMPANY LEGAL DESCRIPTION woe s ISCALE: 1"-50' n u7 e N m h N F W I W � N8729'16"W n a W 60.77' N o lal civ J Z w 30N87'55'30"W � w i o0 0. n P' no 00 o � _40.01_zn Nn N N8755'30"W 70.01' Z w a 0 In n `m o z N Z EASEMENT "A" Ljj US w Q a N8733'16"W 108.59- Li 0 m o I^ 2 v N W (O N N POB z 92.80' N8755'30"W 370.47' �— TPOB EASEMENT "A" PREPARED BY., Mph W, WARE ENTERPISES, INC. o 2109 VIA CA KLAN ,;:•� SAN CLEMENT& CA 92673 EXP. 12-31-05 • PHONE: 949-661-9156 { FAX' 949-366-9611 EMAIL• PLS50310PACBELLNET (019/07- NO. 5031 D. MAW WARE A" 50.71 DAM ALS PAGE 2 OF 2 uCENSE ExvtA7xft 12—.N—as • • EXHIBIT CCA91 LEGAL DESCRIPTION THAT PORTION OF LOT B. OF TRACT NO. 15858 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA AS PER MAP FILED IN BOOK 802, PAGES 3436 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEING THE NORTHERLY 34.00 FEET OF SAID LOT B. ALL AS SHOWN ON EXHIBIT `B", THE SKETCH TO ACCOMPANY THIS. • DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: D. MARY,WARE, PLS 5031 LICENSE EXP. DATE: 12/31/05 No. 5031 M • • • • CADooum is and Settings%AdministratoN.ty Dooum tslCVWD SIBAI.doo Page I oft • • EXHIBIT "B" N SKETCH TO ACCOMPANY LEGAL DESCRIPTION we 5 SCALE: i'a50' • / o tli, 50' L4 R=q3 � OO• • p `! EASEMENT b m L2 s m. � o L� — • N 88'51'20' W 65.00' t <� G7 a w C, C� CTS vI C w • w " w -' - 0 0 N N Z �y1.1Y1. X N 89'39'10" W 0 85.00' o 0 t I L.v I v CR L5 �y • N 89'39'10' W 131.00' V v I l.V 1 f1 • CURVE RADIUS ARC LENGTH DELTA ANGLE UNE BEARING DISTANCE Cl 20.00' 31.69' 90'47'50' L1 N 00'2050" E 13.72 C2 20.00' 31.14 89'12'10' L2 N 88'5120' W 45.00' C3 20,00 31.42' 90'00 00" L3 N 00'20 50" E 14.28' C4 20.00' 31.42 90 00'00 L4 N 88'51 20" W 45.00' L5 N 89'3910" W 45.00 • PREPARED BY- WARE ENTERPISES, INC. o w o 2109 VA GAWLAN ;:, SAN CLEMEN7E CA 92673 EXP. 12-31-05 PHONE., 949-661-9156 FAX. 949-366-9611 tt EMAIL: PLS5OJ740PAC6ELL.NETG '� 1n NO. 5031 D. AfAW PLS SOJI DATE q1,1 PAGE 2 OF 2 tJCETJSE EXIVU IOMA T2-31-0,9 • • EXHIBIT "A" LEGAL DESCRIPTION • THOSE PORTIONS OF LOT B, OF TRACT NO. 15998 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA AS PER MAP FILED IN BOOK 820, PAGES 42-47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY AND THE LAND SHOWN AS "NOT A PART" WITHIN SAID LOT B ON SAID MAP, BEING A STRIP OF LAND, 20.00 FEET WIDE, THE EASTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTH EAST CORNER OF SAID LOT B; THENCE ALONG • THE EASTERLY LINE OF SAID LOT B SOUTH 00020'50" WEST 95.00 FEET TO THE SOUTH EAST CORNER OF SAID LOT B. THE WESTERLY LINE OF SAID STRIP SHALL BE PROLONGED OR SHORTENED SO AS TO COMMENCE AND TERMINATE IN THE NORTHERLY AND SOUTHERLY LINES OF SAID LOT B. ♦ ALL AS SHOWN ON EXHIBIT `B", THE SKETCH TO ACCOMPANY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: ] � Q EXP. 12-31-05 D.NLI RK WARE, PLS 5031 LICENSE EXP. DATE: 12/31/05 0. 5031 • • C:\dwgNCVWDICVWD SJBA2.dm Pagel oft ♦ EXHIBIT "B" " SKETCH TO ACCOMPANY LEGAL DESCRIPTION P.'-4*-E s SCALE: 1"=30' W J C] PASEO TOSCANA O� o Q ' ri N N89'39'10'W 52.84' r R=10 00' A=90'00'00" `V A n n `Y -r v -con" t o Lnt J t A r' A YY oW v t t � �• m W ry o r n `1 1 N b0 N ���• A �� v N Z / 0 t O Z Z t�1 • I J/ \ 18.77'7' N N89.39'10-W � 42.84' LINE BEARING DISTANCE L1 N0920'50"E 10.00' 12 N00'20'50'E 20.00' L3 N89'39'1 0'W 20.00' AN PREPARED BY. 11AK L WARE ENTERPISES, INC. o oP 2109 NA GA KLAN .;:,� SAN CLEMEN7E CA 92673 EXP. 12-31-05 PHONE: 949-661-9156 FAX 949-366-9611 EMAIL* PLS50310PACBELLNET l NO. 5031 O. 1lA10K Will' P1S 3031 DAZE � PAGE 2 OF 2 ucww ExesuAG1k 12_31-43 A • - cc 2DO& RBF Consulting 14725 Alton Parkway Irvine, California 92618 • June 13, 2002 EXHIBIT "A" JN 10-101276.01 Page 1 of 1 CAPISTRANO VALLEY WATER DISTRICT • PUMP STATION (HONEYMAN/ROMARCO ) That certain parcel of land situated in the City of San Juan Capistrano, County of Orange, State of California, being that portion of Parcel 12 as described in • Exhibit "A" and shown on Exhibit "B" of the Certificate of Compliance recorded March 10, 2000 as Instrument No. 20000127689 of Official Records in the Office of the County Recorder of said Orange County described as follows: COMMENCING at a spike and washer stamped L.S. 2988 at the centerline intersection • of Rancho Viejo Road and Avenida Los Cerritos; thence along said centerline of Rancho Viejo Road, said centerline being also parallel with and 5. 00 feet southwesterly of the southwesterly line of said Parcel 12, South 34037'11" East 653.25 feet; thence North 55022149" East 76.25 feet to the TRUE POINT OF BEGINNING; thence continuing North 55022149" East 75.56 feet; thence • South 23°09'45" East 51.02 feet; thence South 55°22'49" West 58.45 feet; thence North 42°33'=8" West 50.48 feet to the TRUE POINT OF BEGINNING. CONTAINING: 3350 Square Feet. • SUBJECT TO all Covenants, Rights, Rights-of-Way and Easements of Records. EXHIBIT "B" attached and by this reference made a part hereof. 4 y� v,ND SSR • � � �5��y1. PF��4F�. Joh W. Pfeife , L.S. 5329 o N0: 5329 Ev l2 31-ypo3 • sr �Q 9Tf OF114O�� • CERTIFICATE OF COMPLIANCE INST. NO. 10000127689, O.R. TRACT NO, I I 2705 \ V05 P.O.C. SCALE.• 1" = 100' SPTKE AAD KAS$R \ STAWFFD "L.S. 2988" 1 -- PARCEL 12 --'� \TP.OR 1 O tiQ�/ ' PARCEL 14 r\tea• \ I PARCEL 13 o a \ c A a� POP, DE.r :/ i p\ c T3 R7W, � � ✓3M • 9 \ "'o\ A2 uw STAAWPO "L.S. JJ47" \ DATA TA&C ------------------------------------ O S'aW/DaTA RADILS LEAGN \ 2 A5s *491E 76.25' '2Y' 49 E -- 75.56' xtGK�A/ • 3 S2J•09'45"E -- 51.02' �A 5W22(J'JJ''28'R -- 50.48' �/(� Og�� vBl SKETCH TO ACCOYPAHY A ' SHEET 1 OF' f SHEET LEGAL PaCRIPTrOH FOR A "I.. v eew+vvrnv� ~ CAPISTRANO VALLEY WATER DISTRICT PUMP STATION OtS ALT FI Ay (HONEYMAN / ROMARCO) ""E CONSULTING w,ot+7ns• rAx w.a7nn• vwllvmn CONTAINING: 3350 SO. FT rJ. zmz ✓.v. 10-101276 It V%W A 110IM9271001WPPIAG Etlr,./P. • EDIT "A" LEGAL DESCRIPTION • LOT E, OF TRACT NO. 15998 IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY.OF ORANGE, STATE OF CALIFORNIA AS PER MAP FILED IN BOOK 820, PAGES 42-47 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. • EXCEPTING THEREFROM, THE SOUTHESTERLY 15.00 FFET OF SAID LOT. ALL AS SHOWN ON EXHIBIT `B", THE SKETCH TO ACCOMPANY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: D03. 12-31-05 • D. MARK WARE, PLS 5031 LICENSE EXP. DATE: 12/31/05 N0. 5031 • • CAdwg\CV WDCV WD SJBMA. Page l of 2 EXHIBIT "B" N SKETCH TO ACCOMPANY LEGAL DESCRIPTION wE s SCALE. 1'=20• n J \ r� NBT57'24'YV • ti �S• O / EASEMENT J 8 o J o �, ry�0 w fV V Op• �\ rn \ �J I / PREPARED BY• K ip L WARE ENTERPISES, INC. J o o 2109 VIA GAYILANE, SAN CLEMEMCA 92673 EXP. 12-31-05 PHONE* 949-661-9155FAX 94.9-366-9 �. /I EMAIL• PLS50370PA51CBELLNET W— �i 7 D-t- NO. 5031 D. MW WAK P.LS 3051 DATE A PAGE 2 OF 2 tlCET1SE Ewf7 r"t 12-5T-03 • EXHIBIT "A" LEGAL DESCRIPTION THE LAND SITUATED IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA DESCRIBED AS FOLLOWS: BEGININNG AT THE NORTH EAST CORNER OF TRACT NO. 11086 AS PER MAP • FILED IN BOOK 479, PAGES 26-31 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE ALONG THE CENTERLINE OF CAMINO DEL AVION NORTH 88045'27" WEST 28.52 FEET; THENCE NORTH 00048'04" WEST TO A POINT WHICH IS 1.00 FEET NORTHERLY OF THE CENTERLINE OF CAMINO DEL AVION, MEASURED AT • RIGHT ANGLES AND 28.50 FEET WESTERLY OF THE EASTERLY CENTERLINE OF ALIPAZ STREET MEASURED AT RIGHT ANGLES, AS SHOWN ON SAID MAP, SAID POINT BEING THE TRUE POINT OF BEGINNING; THENCE PARALLEL WITH THE CENTERLINE OF SAID CAMINO DEL AVION NORTH 88045'27" WEST 40.00 FEET; THENCE NORTH 25'52"46" EAST 89.03 FEET TO A POINT WHICH IS 28.50 FEET.WESTERLY OF THE EASTERLY CENTERLINE OF • SAID ALIPAZ STREET, MEASURED AT RIGHT ANGLES; THENCE PARALLEL WITH SAID EASTERLY CENTERLLtiB SOUTH 00048'04" EAST 80.97 FEET TO THE TRUE POINT OF BEGINNING. ALL AS SHOWN ON' EXHIBIT `B", THE SKETCH TO ACCOMPANY THIS • DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: �Mmw • o I D(P. 12-31-05 D. MARK WARE, PLS 5031 LICENSE EXP. DATE: 12/31/05 N0. 5031 • • • CAdwg\CVWD\CVWD KLNOSHTfA.dx Pagel oft • • EXHIBIT "B" " SKETCH TO ACCOMPANY LEGAL DESCRIPTION WE 3 SCALE: 1"=20' • W W N Q a • 28.50' m 0 0 0. m co U v C 4r i O �- 0 b ! Z C • �� m G. =ryh a 4 O O � EASEMENT Z °' 28.50' I 'bo z z • CL CAMINO DEL AMON OB POB — B 4 40:D9 28.52' • NSB'45'27"W 117.12. 120' 1.00' N00'48'04'W 1.00 TRACT N BOUNDARY • 4 � , ,Jn5 ;gid•^ err • PREPARED BY- WARE ENTERPISES, INC. o °� 2109 NA GAWLAN .;:, SAN CLEMENTE, CA 92673 EXP. 12-31-05 PHONE: 949-661-9156 • FAX., 949-366-9611 ` EMAIL: PLS5031APACBELLNET (of, 007" N0. 5031 D.PAGE 2 OF 2 LIC0 EE16'WA 12-31-05 �� AL1 0 • • EXB BIT "A ' LEGAL DESCRIPTION • A 50.00 FOOT WIDE STRIP OF LAND SITUATED IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, THE CENTERLINE OF WHICH IS DESCRIBED AS FOLLOWS: • BEGININING AT THE SOUTHEASTERLY TER of US OF NORTHEASTERLY LINE OF LOT 1 OF TRACT NO. 6141 AS PER MAP FILED IN BOOK 272, PAGES 21-23 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, SHOWN AS "S 43°24'55" E 107.27" ON SAID MAP: THENCE SOUTH 36028'49" EAST 28.14 FEET. • THE SIDELINES OF SAID STRIP SHALL BE EXTENDED OR SHORTENED SO AS TO COMMENCE OR TERMINATE IN THE SOUTHEASTERLY LINE OF SAID LOT 1 AND THE SOUTHEASTERLY LINE OF LOT 33 OF TRACT NO. 6038 AS PER MAP FILED IN BOOK 221, PAGES 28-29 OF MISCELLANEOUS MAPS IN • THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. ALL AS SHOWN ON EXHIBIT `B", THE SKETCH TO ACCOMPANY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. PREPARED BY: EYP. 12-31-05 D. '.N,LkkK WARE, PLS 5031 • LICENSE EXP. DATE: 12/31/05 No. 5031 • • • C:Nwg\CVWDV,I.IPA-da Page I oft • • EXHIBIT "B" N SKETCH TO ACCOMPANY LEGAL DESCRIPTION wE SCALE: 1"=20' • CA � 5 0 i L \ \OD o R=2234.00' �/ N35-50-21-W (RAD) I t • ?p, ;2, A=00'39'46" I 1 ":c 110.1 `n O�'ro. 1 �>. > POB • "� �'` L=25.00' R=2227.00' �T t 0=00'38'36" ��•>�\ �hO ." i t N37-07'25"W (RAD) / EASEMENT • � " /// ysc� yO � , 4L 1 % I • S� �(��� TRACT LINE i • PREPARED BY. W `� WARE ENTERPISES, INC. J o o 2109 V1A CAV2AN .;.• SAN CLEMENTE, CA 92673 EXP. 12-31-05 • PHONE: 949-661-9156 FAX: 949-366-9611 EMAIL* PLS50510PACBELLNET , Y�/�A�„ �s 7 OL NO. 5031 A MARK wARE Pd.s San OA7E AL1 PAGE 2 OF 2 LWEVSE OPPAITO* 12-31-05 • EDIT "A" LEGAL DESCRIPTION • A 40.00 FOOT WIDE STRIP OF LAND SITUATED IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, THE WESTERLY LINE OF WHICH IS DESCRIBED AS FOLLOWS: • BEGININNG AT THE NORTH EAST CORNER OF LOT F OF TRACT NO. 7616 AS PER MAP FILED IN BOOP. 350 PAGES 1-5 OF MISCELLANEOUS MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY: THENCE ALONG THE EASTERLY LINE OF SAID LOT F SOUTH 6046'00" WEST 61.06 FEET TO THE TRUE POINT OF BEGINNING: THENCE CONTR\TUING ALONG SAID EASTERLY LINE SOUTH 6046'00" WEST 40.00 FEET. ALL AS SHOWN ON EXHIBIT "B", THE SKETCH TO ACCON- 2A_NY THIS DESCRIPTION, WHICH IS ATTACHED HERETO AND MADE A PART HEREOF. • PREPARED BY: Dom. 12-31-05 • D. MARK WARE, PLS 5031 LICENSE EXP. DATE: 12/31/05 No. 5031 • • • CAdw&NCV WDWIARINERdm Page 1 of 2 • EXHIBIT "B" N SKETCH TO ACCOMPANY LEGAL DESCRIPTION W � f SCALE: 1"=20' • ------------- POB 1 • 1 Io (tW I= • to l io IZ 1 TPOB • �.v I I N83'14'00-W vi ivi .;� v i I —;1 40.00' EASEMENT 0 0 � a o 0 W a O � W Q O 1D O • 2 a io O Z N83'14'00"W 40.00' 1 1 • f • N PREPARED BY- WARE ENTERPISES, INC. J o o 2109 NA GAWLAN .; SAN CLEMENTE, CA 92673 EXP. 12-31-05 PHONE., 949-661-915 • FAX., 949-366-9616 EMAIL: PLS50310PACBELL.NET NO. 5031 D. YAIEK 11 P.LS SOJf DA1E PAGE 2 OF 2 ALS L/CET/SE E7WRAfl0"G f2-31-OS • Pipeline Route Definiton Map Key �• ♦ �I,� �i� •I� iii , �1 � � 1 �,. .����.`�������. ��X11►►����,���� `� I C 1�rr o Ir 74 � �♦�, ��� ���..���\�,�' .►�. ,,tip , i� '�� , ,� no IVA ` ..�/ • c mine ^_= .. .. 1111111: 91- PP I urt::un:a::nnunu:�. pvinn:nnl►i �. nuukw Ij�tIII .� � • —q—w, i1r C, mm j i ��� l i i i i i i��• .r �� r • � , s � zMW. Will Z f i i i i i i i i i i i iii �►'. ..., . .. II '� Pipeline Route Definiton Line C X6128 5 124734 X6126228 X6126 X612605 2124270 X612601 2124021 • Y212 643 • 12 5 2 X 1 1 Y 2345 x Y 6127 Y21 • 61 Y2 1 B Y X61 Y 2999 x 6656 1226 0 GoordBlm6 Paras X 7 762 Pp pe a a ` ' ( x 266 Y2122005 PPrcm 6 0 200 400 F" / wYY�rr1.w Mr iwrr.tr wrFYr�wr�r rw s nYw.Frq'Y n rrrawrw wwgirwiw.riY.�Yrs.rti6W Yrh+a�r[w�iy.r�ii.ort�. WYwsnnCbYMar�f+r1Y�Y.ri.iyrrwewY.w�wrw n.�w FYIrrrlYMrrYYFrF/Yr�YMYY��YYYrr r�YrY. 0 Pipeline Route Definiton / Lines D, E, F, G • / • X6129 X6129867 X6128906 Y2124795 X6129864¢ - X6128011IY2124734 ' I X61298510 7 X6128229_ Y2124732 1 K+' x61298386 1 1 I X61282290 Y2124658 rJ X 129812 2124 G............ Z9 CY2124609 X6128271 Y2124616 � 2�'1� X6 2 3e 8rO� 124590 X61 792y21245 0 /7 �♦ t9 Y212447 ---` P X612970 124398 X612965 124302 Y21 4270 X612959 124223 61295 124155 X61262 124083 21 4021 O Coordinate Pohft PIPC Sagmerd w "*pipe SapmeM w t Parcels t o Me .00 drroo P. =MM M Ma.NllMbll . T.Mw�Yn�wr.[w.M.M w.Mgww warrw� yr.r lMMrtwawchMiw•rwuw�.+r.��nwr r..Mr r.r.rmMYw�NwY^rwTrv�/�rMMnyM�rw FrW4�^/C�V.tiMOMGwA�. rrMldY/.r•tilw�WwwMIM14�rMYYM/wli�M. • ,/ Pipeline Route Definiton Lines G, H, I, J • \\ X61 \ X 13 68 Y21 5931 517 21 5931 `\ X6130360 Y2125764 OF O._X6 8 Y2125762 613 W1 X6130267Y2125690 X6130 Y2125P 5' X61309 ' X6130265 Y212558 X6130877 Y: X6 X613082 125 X6130215 Y21252 i X61301 Y2125130 ( 1 ' X6129890 X6129867 rV 125021 X6129864 Y21 956 X6129651 Q Y2124822 • Y21 4795 ' X6129638 Y2124732 X6129238 Y2124609 X6129812 Y2124644 n'I 0'� 124590 o X612938 ♦♦ X 29782 / Y2124581 X612974 / 2124479 X6129708 212 98 O CoordlNle Potrd! PI Ss9meidt pipe Se9meid w • X6129651 124302 �,PPrc�gmeid M ! X6129593 K2124223 0 200 400 m0 FM X 129534 124155 X61294 2 Ilk Z. uryy��wLww.l...w�.n.M.n.rirMr r.r\�. w+v.rw lYY�.n.Crw MaiwCwrw r.'.�w�n.r.r.r r+ aM.e wxrw wewgM wnrr+�wTw war FpW rs�rw�Ow�W MiTb Or C+1M. rn+y�tlrY�Aw�►��Ib w��Yii�wwM nom. 0 • U Pipeline Route DPN, S Lines J, K, L, M f zi • U 420 Y212675 X6131801 V 126743 • / 131038 Y2126D16 6 6049 6011 130517 12 31 X6130 5 ,7212 4 -----r-� X6 30586 Y2125931 • 3103f Y2125922 1 %613096 Y21 5 % 30380 Y2p12�764 / 761 X61304 72125762 61 1 Y2 25758 X61302 i 72125690 'X6130214 Y2125 85 • ��" X6130912 Y2 5604 XX6130265 Y21 5 X6130877 Y212 6 W Ss CowdWft PoY X613D82 Y2125411 •P4*Sooftem fN Parcels 0 2110 46D 600 FM 3130215 Y21252 t.gp�bw,r Wr6w.wa.lr rrnswsrYrinY�wYw.ryblwpYwbbwlrw� OYrtYr.lr WrwulrlcNwY.rY.wY.w+n.—.w Ywry rAb�wrr b�wNilb/Mr1VrYNbrMrkbw�NCVr Yb Nrm.GMbCwlb.NlY 0YCM1Yb —yY1bw Yrbryb—/YY�YwbrbWn YbY1l�w NbM • � Pipeline Route Definiton U Lines N, O, P, Q, R X6132471 Y2128M + X6132758 G i • X6132418 Y2127766 X61329 Y2127750 X61323 Y2127368 • LI • ...... 6132119 2126736 X6131801 Y2126743 o Coordinate Points X61, 4211 Y2126751 �p1pess< r � ,Pipe Segment Pipe Segment w*e ( � Parcels 0 200 400 ` e00 Feet wp�rw.ai�I,wMr.Hnwrw wrr.M�wwwww wawnrww.r+w..r. twrww.rr tar�aw br+w••r.+ww.wr,r.wn...w.aw wrt�w�..wa�,rr wrriw�..,,waratrt�w'wr.tww c.ra.wnr Ort.A. �wrrar.Mrwwo/w www�rw.nr+rrrnr w�rww • APPENDIX 2 ENHANCED STANDARDS • 2.1 ENHANCED STANDARDS In addition to complying with Applicable Law, the Company will be responsible for meeting the Enhanced Standards for Finished Water set forth in Table 2-1 below for total dissolved • solids, flavor, aroma, color, iron, manganese and corrosivity. The Enhanced Standards for Finished Water are as follows: Table 2-1 - Enhanced Standards Acceptable Testing Frequency Element Unit Range • Corrosivity Langlier 0-0.36 once every three years Stability Index Iron u L < 100 once every 30 days Manganese u L < 25 once every 30 days • Turbidity NTU < 0.05 once every 90 days Total Dissolved Solids m L < 500 * once every 30 days Flavor MWD rank <= 1** once every 30 days*** Chlorine only) Aroma MWD rank <= 1** once every 30 days*** • Chlorine on y) * The Company shall use its best reasonable efforts to maintain TDS levels in the Finished Water in quantities between 450 and 500 mg/L at all rimes. **Flavor and aroma values are calculated using Metropolitan's "Flavor-Profile Analysis of Water," set forth in Attachment 2.1 of this Appendix 2. ***If the results of the test for chlorine detectable by Flavor or Aroma have a value within the • acceptable range, as set forth in Table 2-1 of this Appendix 2,for any six consecutive tests, the testing frequency for such element may be decreased to once every 180 days for so long as all subsequent tests result in a value within the acceptable range;provided, however, that upon any test resulting in a value outside of the acceptable range as set forth in Table 2-1 of this Appendix 2, the testing frequency shall revert to once every 30 days for such element. • • • A2-I 388444.10 032806 DOC • 2.2 ADDITIONAL STANDARDS • 2.2.1 Flavor and Aroma Table 2-2 below lists additional elements to be tested relating to flavor and aroma The Company shall use its best reasonable efforts to maintain the MWD Intensity Scale values Listed below in the Finished Water for each of the elements. Table 2-2 - Additional Elements of Flavor and Aroma other than chlorine Element MWD Intensity MWD Intensity Testing Frequency Scale Value for Scale Value for Aroma* Flavor* Cardboard once every 30 days Chalky 0 1/2 once every 30 days I)rying 1 1 once every 30 days Farthy 0 0 once every 30 days Grassy 0 0 once every 30 days Metallic once every 30 days Mus 0 0 once every 30 days Plastic 0 0 once every 30 da s Soapy once every 30 days Swampy 0 0 once every 30 days `Flavor and aroma values are calculated using Metropolitan's"Flavor-Profile Analysis of Water,"set forth in Attachment 2.1 of this Appendix 2. 2.2.2 Color The Company shall use its best reasonable efforts to produce Finished Water with a color ranking of less than or equal to one, evaluated in accordance with the "Standards for the Examination of Water and Wastewater," 20th Edition, published by APHA, AWWA and W PLF. At a minimum, the Company shall test Finished Water for color once every 90 days. A2-2 388444.10 022906 DOC • Attachment 2.1 Metropolitan Water District of Southern California • Flavor-profile Analysis of Water Sample Collection and Storage: 1. Collect samples in glass bottle with Teflon-lined cap. Store samples in ice chest in field and store in laboratory refrigerator(4° C) prior to analysis. • 2. Analyze samples within 24 hours. Sample Preparation: 1. Profile at room temperature (25° C). 2. Bring sample to temperature by placing in 25°C water bath for 15 minutes. 3. If an untreated water is known not to contain viruses, the sample can be filtered to • remove algae and bacteria for flavor testing; otherwise the raw water should be smelled only (no filtration required in this instance). a. To prepare the sample, first filter 50-100 mL of aroma-free water* through a 0.2 N filter in a vacuum-filtration apparatus and discard the liquid. This step not only rinses out the filtration apparatus,but gets rid of odorous,water-soluble materials • from the filter paper. Then filter approximately 50 mL of sample and discard. Filter the remaining sample and transfer to a clean bottle;do not put back into the original (and microbiologically contaminated) bottle. b. If the filter paper gets clogged from a highly turbid sample, transfer the filtered water to a clean bottle,put in a new piece of filter paper, and start over again with • the filter washing procedure prior to the filtration of further sample. 4. Pour 2 ounces of sample into each glass**, a separate aliquot for each panelist,and cover with a watch-glass. Preliminary Preparations of Panel Members: • 1. No smoking or eating 15-30 minutes prior to testing. 2. Wash hands with non-odorous soap and rinse mouth. It is also advised that panelists do not wear cologne. Analysis of Aroma: • 1. Gently swirl liquid for a few seconds in order to release aromatics into head space of the cup. 2. Remove watch-glass and,with hands at one's side, take a few quick sniffs of the sample. a. Do not lift glass to smell sample due to possible interference from aromas which may on one's hands or shirt. • b. Do no more than a few sniffs of the sample to prevent saturation and fatigue. Some chemicals, e.g. chlorine and geosmin will cause fatigue, so record first impressions of sample and take a moment to clear nasal passages before further smelling. 3. Record all identifiable aroma characteristics and nose feelings in order perceived. 4. Also record the intensity or strength of each character note. See Table 1 for intensity • scale. 5. If there is more than one sample to be analyzed, smell the samples in order of least to A2-3 388444.10 022606 DOC • • most odorous if this information is known. Smell a sample of aroma-free water between smelling samples. • * Sparklett'srm Crystal Free Water is used for Metropolitan panel. ** Use 6 or 8 oz. Glasses with straight sides. Use glass or plastic, whichever gives the least interference with samples under analysis. Glassware with a chalky aroma can interfere with earthy/musty aroma analysis. Do not use wax lined cups. Disposable plastic cups have been used successively at Metropolitan for the analysis of numerous off-aromas in water. • • • s • I • • A2-4 388444.10 022806 DOC • Analysis of Flavor-bv-mouth: 1. Taste the samples after they have all been smelled. • 2. For raw water, only smell the samples, unless the sample is microbiologically safe after filtration. 3. Do not taste samples that have a septic or hydrogen sulfide aroma; smell these samples only. 4. Analyze flavor by taking a small sip of sample, rolling it over the tongue and swallowing. The sample should cover the entire surface of the tongue (to evaluate basic tastes) and • the mouth(to evaluate feeling factors). Liquids should be slurped so that the aromatics can reach the olfactory area. Take one or two more sips as necessary. 5. Record all character notes(i.e.basic tastes, feeling factors and aromatics), intensities for each and order of appearance. See MWD Intensity Scale below. 6. Eat soda crackers with unsalted tops and drink flavor-free water between samples. • Compilation of Results: I. After each panel member has finished their independent study of the sample's aroma and flavor-by-mouth, the individual recites their findings, and an open discussion period is led by the panel leader. 2. The findings are compiled by the panel leader and composited into a Flavor Profile with • all members of the panel present. 3. The samples are reexamined as necessary until a composite Flavor Profile is agreed upon. Use a reference material*** to resolve conflicts. 4. For each character note, record a composite value or range of values (ideally a range should only span '/2 an intensity unit). a. Ignore an atypically extreme intensity for a character note (due to either a super- or under sensitivity of a panel member). b. Where only 50% of the panel just recognize a note, assign the composited intensity a threshold value. 5. Samples are rated as acceptable or unacceptable, according to the composite. Any character note above 1 (except for chlorine,drying or chalky)is considered unacceptable. • *** A reference material is a chemical or natural material that adequately represents the particular character note described by the panel members. MWD INTENSITY SCALE • 0 Not Present )( Threshold '/a Very Slight 1 Slight 1'/2 Slight to Moderate 2 Moderate 2'/2 Moderate to Strong • 3 Strong • A2-5 39U44.10 022W6 Doc • • COMPARISON OF STANDARD METHOD INTENSITY SCALE TO MWD INTENSITY SCALE • STANDARD MWD DESCRIPTOR METHOD SCALE SCALE 0 Not Present T )( Threshold 2 /z Very Weak/Slight 4 1 Weak/Slight • 6 1'/z Weak/Slight to Moderate 8 2 Moderate 10 2'/z Moderate to Strong 12 3 Strong • • • • • • • A2-6 399444.10 022506 DOC • • APPENDIX 3 DESIGN RAW WATER QUALITY PARAMETERS 3.1 DESIGN RAW WATER QUALITY PARAMETERS The Design Raw Water Quality Parameters are set forth in Table 3-1 below. Raw Water will be deemed to be within the Design Raw Water Quality Parameters if the number of units for each of the parameters listed in the left column of Table 3-1 is determined to be less than or equal to the corresponding number of units for the Design Raw Water Quality listed in the right column • of Table 3-1. For purposes of measuring Raw Water quality to determine whether the Raw Water meets the Design Raw Water Quality Parameters set forth in Table 3-1,the Raw Water quality will be measured at a sample point at the Plant (downstream of the sandscreens) prior to any chemical treatment of the Raw Water by the Company. Table 3-1 —Design Raw Water Quality Parameters DESIGN RAW PARAMETER UNITS WATER QUALITY Calcium mg/L 231 Magnesium mg/L 72 Sodium mg/L 227 • Potassium mg/L 5.1 Bicarbonate mg/L 363 Sulfate mg/L 525 Chloride mg/L 277 Nitrate (as NO3) mg/L 5.2 TDS * mg/L 1,705.3 • Aluminum ug/L 63 Antimony ug/L 5 Arsenic ug/L 9 Barium ug/L 107 Beryllium ug/L 4 Cadmium ug/L 0.5 • Chromium ug/L 2.7 Copper ug/L 17 Fluoride ug/L 765 Iron ** ug/L 2,310 Lead ug/L 3.6 Manganese *** ug/L 880 ' Mercury ug/L 0.5 Nickel ug/L 10 Selenium ug/L 5 Silica ug/L 27,813 Silver ug/L 1 Strontium ug/L 805 • Thallium ug/L 1 Zinc ug/L 148 Color units 92 Aroma units 2 Turbidity NTU 30 TOC mg/L 2.2 • Specific Organics ug/L **** Gross Alpha pCi/L 15 Gross Beta pCi/L 50 Radon pCi/L 300 A3-1 388444.10 022806 DOC • * Total Dissolved Solids shall be calculated as the sum of the following parameters: Calcium, Magnesium, Sodium, Potassium, Bicarbonate, Sulfate, Chloride, and Nitrate (as NO3). • ** If the iron concentration in the actual Raw Water is between 2,310 and 3,200 ug/L, the Company will be entitled to relieffrom the District for additional chemical costs necessary to meet the Enhanced Standards. If the iron concentration in the actual Raw Water is greater than3,200 ug/L, the Company will be entitled to relief from the District to pay for all additional costs necessary to meet the Enhanced Standards. • ***If the manganese concentration in the actual Raw Water is between 880 and 1,100 ug/L,the Companywillbe entitled to relief from the District for additional chemical costs necessary to meet the Enhanced Standards.If the manganese concentration in the actual Raw Water is greater than 1,100 ug/L, the Company will be entitled to relief from the District to pay for all additional costs necessary to meet the Enhanced Standards. ****The maximum allowable drinking water containment levels for specific organics set forth in the California Safe Drinking Water Act shall serve to establish the design Raw Water quality limit for such specific organics for the purposes of this Appendix. 3.2 RAW WATER QUALITY MONITORING • The Company shall perform monthly testing of the combined Raw Water prior to being treated by the Plant. The actual annual Raw Water quality will be calculated at the end of each Contract Year by a flow-weighted average of the monthly testing results for each Design Raw Water Quality Parameter. The District will not be responsible for any additional costs of dealing with Raw Water if the annual average is within the respective Design Raw Water Quality Parameter. • • • • • • A3-2 399444.10 022906 DOC • APPENDIX 4 SOURCE WATER PILOT TEST • 4.1 SOURCE WATER PILOT TEST A small scale(approximately 2 gpm)pilot plant will be constructed and operated at the site of one of the District's wells to be chosen by the mutual agreement of both parties. It is understood that the water from this well may not necessarily be representative of the water from the Wells to be drilled as part of the Project. • 4.1.1 Objective of Pilot Test The objective of the source water pilot test is to confirm the efficacy of the Plant process for removal of TDS, iron, manganese, flavor, color, and aroma. The pilot test will only indicate the efficacy of the proposed treatment process to treat the water from the chosen well to meet • the Enhanced Standards included in Appendix 2 since the actual water to be treated will not be available until the Wells to be constructed as part of the Project are completed. 4.1.2 District Responsibilities The District will provide: Power (two 15-amp circuits at 120VAC) via diesel generator; • Temporary fencing around the pilot plant (if there is not existing fencing); • Well water; and • Disposal of all water resulting from the pilot plant operation. • 4.1.3 Pilot Test Schedule The anticipated pilot test schedule is as follows: • Acquire equipment and setup pilot plant equipment- 3 weeks; • Pilot plant operation- 2 weeks; • Laboratory analyses- 3 weeks; and Prepare report on pilot test- 1 week. 4.1.4 Pilot Test Procedure The entire treatment train proposed for construction at the Plant will be tested, including a * functioning model of the following: • Chemical feeds; • Greensand filter; and • Reverse osmosis. • The system will be started in sequence according to the process flow diagram for the full scale treatment plant. Each component will be checked for proper operation before moving to the next. When all components are operating properly, the test will begin. It is expected that checking out the individual unit processes and operation of the pilot test will require approximately two weeks as noted under the pilot test schedule. In addition, the Company will cause Boyle Engineering to construct an air stripper which will be employed in the • source water pilot test for the informational purposes of the District. It is not anticipated A4-1 388444.10 022806 DOC • • that air stripping will be a process component of the full scale Plant. 4.1.5 Water Sampling and Analyses During operation, samples will be taken of the following: • Water from the well; • Filtrate from the iron/manganese filter; • Reverse osmosis permeate; • Reverse osmosis concentrate; and • Finished water (blend of permeate and iron/manganese filter filtrate). These samples will be subject to the testing noted in Table 4-1. 4.1.6 Pilot Test Equipment • The greensand filter will be supplied by Tonka Equipment,the vendor who will be furnishing the full scale iron/manganese filters for the Plant. This unit will approximate the process design of the full scale Plant as closely as possible, particularly with regards to empty bed contact time and bed depth. Boyle Engineering will supply its 2-gpm reverse osmosis pilot unit.This unit will require the use of concentrate recycle to obtain design recovery. 4.1.7 Installation of Pilot Plant After the District has erected the fencing around the pilot plant site,Boyle Engineering shall assemble the pilot plant. It is expected that it will require two or three days to install the pilot plant equipment and piping. 4.1.8 Pilot Plant Operation Boyle Engineering will operate the pilot plant for 8 to 10 hours per day for a period of at least 5 days. During operation,grab samples shall be taken on a regular basis to evaluate iron and • manganese concentrations,hydrogen sulfide concentrations,electrical conductivity,and pH of various streams. This information will be recorded onto a spreadsheet for future evaluation. In addition, samples for laboratory analysis will be taken at the beginning and end of the pilot test.The proposed sampling/analyses program is shown on Table 4-1. Two copies of the pilot plant report will be delivered to the District. • • A4-2 388444.10 022806 DOC • TABLE 4-1 WATER SAMPLING/ANALYSES PROGRAM CAPISTRANO DESALTER PILOT TEST Well Fe/Mn RO RO Sample Source Water Filtrate Permeate Concentrate Finished Water Sample/Analysis Frequency Begin/End 2/Day 2/Day 2/Day Begin/End 2/Day INORGANICS Total Hardness (as CaCO3) X X Calcium X X Magnesium X X Sodium X X Potassium X X Total Alkalinity (as CaCO3) X X Hydroxide X X Carbonate X X Bicarbonate X X Sulfate X X Chloride X X Nitrate (as NO3) X X Fluoride X X pH (Laboratory) X X pH (Field) X X X X X X Electrical Conductivity X X X X X X Total Filterable Residue at 180 C X X (TDS) Apparent Color (Unfiltered) X Aroma Threshold at 60 C X Flavor Profile X Lab Turbidity X X M BAS X X Aluminum X X Arsenic X X Barium X X Cadmium X X Chromium (Total Cr) X X Copper X X Iron X X X X Lead X X Manganese X X X X Mercury X X Selenium X X Silver X X Zinc X X NOTE:Begin/End= samples taken and analyzed(at a State-certified lab) at the beginning and end of pilot test. 2/Day= Samples taken and analyzed at pilot plant site with field instruments. . A4-3 388444.10 022806 DOC TABLE 4-1 WATER SAMPLING/ANALYSES PROGRAM CAPISTRANO DESALTER PILOT TEST Well Fe/Mn RO RO Sample Source Water Filtrate Permeate Concentrate Finished Water Sample/Analysis Frequency Begin/End 2/Day 2/Day 2/Day Begin/End 2/Day INORGANICS (CONTINUED) Langelier Index at 60 C X X Nitrite as Nitrogen (N) X X Beryllium X X Thallium X X Nickel X X Antimony X X Cyanide X X Metribuzin (SENCORE) X X TRIHALOMETHANES Bromodichloromethane X X Bromoform X X Chloroform (Trichloromethane) X X f Dibromochloromethane X X Total Trihalomethanes X X REGULATED ORGANIC CHEMICALS Benzene X X Carbon Tetrachloride X X Ethyl Benzene X X 1, 4-Dichlorobenzene (p-DCB) X X 1, 1-Dichloroethane (1, 1-DCA) X X 1, 2-Dichloroethane (1, 2-DCA) X X 1, 1-Dichloroethylene (I, 1-DCE) X X cis-1, 2-Dichloroethylene (c-I, 2- X X DCE) trans-1, 2-Dichloroethylene (t-1, X X 2-DCE) 1, 2-Dichloropropane X X Total 1, 3-Dichloropropene X X Monochlorobenzene X X (Chlorobenzene) 1, 1, 2, 2-Tetrachloroethane X X Tetrachloroethylene (PCE) X X 1, 1, 1-Trichloroethane (1, 1, 1- X X TCA) 1, 1, 2-Trichloroethane (1, 1, 2- X X TCA) Trichloroethylene (TCE) X X Trichlorofluoromethane (Freon X X 11) Trichlorotrifluoroethane(Freon X X 113) Vinyl Chloride (VC) X X m, p-Xylene X X o-Xylene X X Total Xylenes (m,p, & o) X X • A4-4 388444.10 022906 DOC Dibromochloropropane (DBCP) X x NOTE: Begin/End=samples taken and analyzed(at a State-certified lab) at the beginning and end of pilot test. 2/Day= Samples taken and analyzed at pilot plant site with field instruments. TABLE 4-1 WATER SAMPLING/ANALYSES PROGRAM CAPISTRANO DESALTER PILOT TEST Well Fe/Mn RO RO Sample Source Water Filtrate Permeate Concentrate Finished Water Sample/Analysis Frequency Begin/End 2/Day 2/Day 2/Day Begin/End 2/Day REGULATED ORGANIC CHEMICALS (CONT.) Ethylene Dibromide (EDB) X X Endrin X X Lindane (gamma-BHC) X X Methoxychlor X X Toxaphene X X Chlordane X X Diethylhexylphthalate (DEHP) X X Heptachlor X X Heptachlor epoxide X X Atrazine (AATREX) X X Molinate (ORDRAM) X X Simazine (PRINCEP) X X Thiobencarb (BOLERO) X X Bentazon (BASAGRAN) X X 2, 4-D X X 2, 4, 5-TP (SILVEX) X X Carbofuran (FURADAN) X X Glyphosate X X UNREGULATED ORGANIC CHEMICALS Bromobenzene X X Bromochloromethane X X Bromomethane (Methyl Bromide) X X n-Butylbenzene X X sec-Butylbenzene X X tert-Butylbenzene X X Chloroethane X X 2-Chloroethylvinyl Ether X X Chloromethane (Methyl Chloride) X X 2-Chlorotoluene X X 4-Chlorotoluene X X Dibromomethane X X 1, 2-Dichlorobenzene (o-DCB) X X 1, 3-Dichlorobenzene (m-DCB) X X Dichlorodifluoromethane X X Dichloromethane (Methylene X X Chloride) 1, 3-Dichloropropane X X 2, 2-Dichloropropane X X 1,1-Dichloropropene X X Hexachlorobutadiene X X Isopropylbenzene (Cumene) X X NOTE: Begin/End= samples taken and analyzed(at a State-certified lab)at the beginning and end of pilot test. • A4-5 388444.10 022806 DOC . 2/Day= Samples taken and analyzed at pilot plant site with field instruments. TABLE 4-1 WATER SAMPLING/ANALYSES PROGRAM CAPISTRANO DESALTER PILOT TEST Well Fe/Mn RO RO . Sample Source Water Filtrate Permeate Concentrate Finished Water Sample/Analysis Frequency Begin/End 2/Day 2/Day 2/Day Begin/End 2/Day UNREGULATED ORGANIC CHEMICALS(CONT.) p-Isopropyltoluene X X Naphthalene X x . n-Propylbenzene X X Styrene X X 1, 1, 1, 2-Tetrachloroethane X X Toluene X X 1, 2, 3-Trichlorobenzene X X 1, 2, 4-Trichlorobenzene X X . 1, 2, 3-Trichloropropane X X 1, 2, 4-Trichlorobenzene X X 1, 3, 5-Trimethylbenzene X X Methyl ethyl ketone (MEK, X X Butanone) Metyl isobutyl ketone (MIBK) X X r his (2-Chloroethyl) ether X X Alachlor (ALANEX) X X Aldicarb (TEMIK) X X Aldicarb Sulfone X X Aldicarb Sulfoxide X X Aldrin X X Benzo(a)pyrene X X Bromoacil (HYVAR) X X Butachlor X X Carbaryl (Sevin) X X Dalapon X X Diazinon X X Dicamba(BANVEL) X X Dieldrin X X Dimethoate (CYGON) X X Dinoseb (DNBP) X X Diquat X X Di(2-ethylhexyl) adipate X X i Diuron X X Endothall X X Hexachlorobenzene X X Hexachlorocyclopentadiene X X 3-Hydroxycarbofuran X X Methomyl X X Metolachlor X X Oxamyl (Vydate) X X Pentachlorophenol (PCP) X X PicWoram X X Polychlorinated Biphenyls (Total X X PCB's) . Prometryn (CAPAROL) X X Propachlor X X NOTE:Begin/End=samples taken and analyzed(at a State-certified lab)at the beginning and end of pilot test. 2/Day= Samples taken and analyzed at pilot plant site with field instruments. A4-6 388444.10 022806 DOC f APPENDIX 5 DESIGN REQUIREMENTS f 5.1 GENERAL This Appendix sets forth the basic principles, concepts and requirements for the Design/Build Work. It does not include detailed designs, plans or specifications or indicate or describe each and every item required for performance of the Design/Build Work and for achieving Acceptance. The Design Requirements are not intended to be inclusive of all the design requirements needed to meet the Contract Standards. Nothing in these Design Requirements relieves the Company of its obligation to meet the Contract Standards. 5.2 GENERAL OBJECTIVES The Project Improvements shall meet the following objectives: 1. The Project Improvements shall provide the necessary unit processes, process control, monitoring and control, and system redundancy in order to meet the Contract Standards. 2. The Project Improvements shall be designed in an integrated, comprehensive systems approach that takes into account the functional and hydraulic interrelationships of the Project with the Water System. 3. The Project Improvements shall be designed in a manner that is both environmentally compatible with the Sites and complies with Applicable Law. 4. The Project Improvements layout shall be designed to provide for efficient and safe access into and throughout the Sites. The Company shall cluster individual buildings and facilities to the extent practicable. 5. The Project Improvements shall be designed such that they can be maintained while continuing to meet the Contract Standards. 6. The Company shall select Project Improvements and landscaping to minimize the frequency of maintenance while presenting awell-kept and pleasing appearance. 5.3 CODES AND STANDARDS • 5.3.1 Codes The Company shall design the Project Improvements in accordance with the editions of all applicable codes and regulations established by applicable regulatory agencies in effect on December 31, 2001, including, but not limited to the following: 1. Uniform Building Code (UBC) / County of Orange Building Code. 2. Uniform Fire Code. 3. Cal/OSHA. 4. National Electric Code (NEC). 5. National Electrical Safety Code (NESC). 6. Air Pollution Quality Control District. A5-1 388464.10 022806 DOC 7. Environmental Protection Agency (EPA). 8. Department of Health, Education, and Welfare (HEW). 9. Regional Water Quality Control Board (RWQCB). 10. California Coastal Commission / Local Coastal Commission. ii. National Plumbing Code. 12. Uniform Mechanical Code. 13. NFPA Life Safety Code (1997 Edition). 14. Building Code and Commentary, ACI-318-95/318R-95. 5.3.2 Standards The Company shall follow Good Engineering and Construction Practice.These standards shall include, but not be limited to: 1. Acoustical and Insulating Materials Association (AIMA). 2. Air Pollution Control District (APCD). 3. Aluminum Association (AA). 4. American Association of State Highway and Transportation Officials (AASHTO). 5. American Concrete Institute (ACI). 6. American Gear Manufacturers Association (AGMA). 7. American Institute of Steel Construction (RISC). » 8. American Iron and Steel Institute (AISI). 9. American National Standards Institute (ANSI). 10. American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE). 11. American Society of Mechanical Engineers (ASME). 12. American Society for Testing and Materials (ASTM). r 13. American Water Works Association (AWWA). 14. American Welding Society (AWS). 15. American Wood Preservers Bureau (AWPB). 16. Anti-Friction Bearing Manufacturers Association (AFBMA). 17. Architectural Aluminum Manufacturers Association (AAMA). 18. California Department of Transportation (CalTrans). 19. Code of Federal Regulations (CFR). 20. Concrete Reinforcing Steel Institute (CRSI). 21. Environmental Engineering Concrete Structures ACI-350R, latest edition. 22. Dynamic Pressure on Fluid Containers,TID 7024, Chapter 6 and Appendix F, by Housner, G.W. 23. Factory Mutual Association (FM). 24. International Concrete Repair Institute (ICRI). 25. International Electric Conference (IEC). 26. Institute of Electrical and Electronics Engineers (IEEE). 27. Instrument Society of America(ISA). 28. Insulated Power Cable Engineers Association (IPCEA). 29. Joint Industry Conference (JIC). ► 30. National Association of Architectural Metal Manufacturers (NAAMM). 31. National Association of Corrosion Engineers(NACE). 32. National Bureau of Standards (NBS) Voluntary Product Standard(PS). 33. National Electric Code (NEC). 34. National Electrical Manufacturer's Association (NEMA). 35. National Fire Protection Association(NFPA). 36. National Woodworkers Manufacturers Association(NWMA). A5-2 388444.10 0228D6 DOC • 37. Occupational Safety and Health Administration (OSHA). 38. Prestressed Concrete Institute (PCI). 39. Product Standard (Prod. Std.). 40. San Diego Gas& Electric (SDG&E). 41. Steel Construction Manual (AISC), ninth edition. 42. California Department of Transportation Standard Drawings. 43. Standard Specifications for Public Works Construction (SSPWC). 44. Steel Door Institute (S.D.I.). 45. Steel Structures Painting Council (SSPC). 46. Welded Steel Tanks for Water Storage: ANSI/AWWA D 100-96. 47. All other applicable standards listed in the specifications, and the standards of utility service companies, where applicable. In the event that standards from two or more organizations contradict each other, the most stringent standards will apply. 5.3.3 Well Construction Specifications All Wells constructed by the Company must meet the Well construction specifications attached as Attachment 1 to this Appendix. 5.4 TREATMENT PROCESS REQUIREMENTS 5.4.1 General The treatment processes shall be comprised of unit processes that yield Finished Water meeting the Contract Standards. Acceptable unit processes shall have at least two years • commercial operating experience. 5.4.2 Required Treatment Process The Company shall use a membrane treatment process to desalinate brackish groundwater. • 5.4.3 Corrosion Control The Company shall use corrosion resistant materials and coatings in the performance of the Contract Services, to the extent their use is required by existing conditions. • A5-3 388444.10 022806 DOC r Attachment 1 Well Construction Specifications SECTION 1 NOTE: The Company shall perform all the work specified in these Well construction specifications in accordance with the Contract Standards, including, without limitation, the provisions of the latest edition of the California Well Standards and the Standard Specifications for Public Works Construction("Green Book"),and all amendments thereto,adopted by the Joint Cooperative Committee of Southern California Chapter,American Public Works Association and Southern California District, Associated General Contractors of California. The Wells will be constructed by the reverse circulation rotary drilling technique. Existing wells will be destroyed. Construction,development,and testing of the Wells and destruction of certain wells will generally include, but not be limited to, the following for each Well: • • Obtain Governmental Approvals from,without limitation, Orange County Health Care Agency and CADHS. • Comply with health requirements of Applicable Law including,without limitation, remediation, reconstruction or relocation of existing sanitary sewers and storm sewers. Mobilize and demobilize all required equipment and materials. • Meet all noise and discharge requirements. • Comply with all relevant environmental mitigation measures. • Dispose of all drill cuttings and fluids not meeting NPDES requirements off site by vacuum truck. • Drill a 36-inch diameter borehole and install and grout into place a 30-inch w diameter mild steel conductor casing to a depth of 50 feet. • Drill an 18-inch diameter pilot hole to an approximate depth of 170 feet. • 17eain pilot hole to 24-inch diameter to approximate depth of 170 feet. • Perform Eastman drift surveys every 60 feet during the pilot hole drilling. • Upon completion of the pilot hole, electric logs and directional/deviation survey shall be run by an independent firm retained by the Company and approved by the Company's geologist. • Perform caliper survey following pilot hole ream. • Complete Well construction,including installation of casing,screens,gravel pack, sanitary seals, sounding tube, etc. as stipulated by this Attachment 1. • Test the straightness of the well casing to a depth of 160 feet and an alignment survey to the bottom of the Well. Develop Wells by mechanical (air-lift swabbing with the drill rig) and chemical procedures. • Develop Well by pumping and surging. • Perform downhole flow meter survey and depth-specific water sampling while pumping. • Perform step drawdown and constant rate pumping test. Perform color video survey of the entire installed well casing. • Perform Well disinfection. • Perform Site clean up and restoration. • Properly abandon nearby wells. The Company acknowledges that it has relied and is relying on its own examination of(a) the Wellfield, (b) access to the Wellfield, (c) the conditions under which the work is to be performed and (d) all other data and matters requisite to the ftilfillment of the work and on its knowledge of existing facilities on and in the vicinity of the Wellfield. A5-4 388444.10 022806 DOC • SECTION 2 TENTATIVE CASING SCHEDULE 1 Approximate Approximate Depths Diameter and Types of Wall Thickness (feet) Casing(inches) (feet) Length 0 - 50 Conductor 30 x 3/8 50 0 - 90 316 Stainless Steel Casing 16 o.d. x 5/16 90 90 - 140 316L Stainless Steel 16 o.d. 50 Wire-Wrap Screen 140 - 160 316L Stainless Steel Casing 16 o.d. x 5/16 20 with Welded Bottom Plug Borehole Depth Interyal Borehole Diameter 0-50 feet 36-inch Drill 50-170 feet 18-inch Ream 50-165 feet 24-inch Annular Material Interval Type 0-50 feet conductor sand-cement grout seal 0-60 feet well sand-cement grout seal 60-165 feet filter pack Tubin¢ Interval Type 0 - 6 feet 2-inch diameter 316L stainless steel air vent tube 0 - 140 feet 2-inch diameter 316L stainless steel sounding/treatmen . t tubes (2 tubes) 0 - 60 feet 3-inch diameter 316L stainless steel gravel feed tube a A5-5 388664.10 022806 DOC SECTION 3 MOBILIZATION, DEMOBILIZATION, AND SITE CLEAN-UP • PART 1 - GENERAL A. Description This section includes the mobilization and demobilization of equipment, material and personnel for the Wellfield. B. Related Work Specified Elsewhere 1. Noise Ordinance: See Special Provisions- Section 4 of this Attachment. 2. Protection of Wellfield: See Special Provisions- Section 5 of this Attachment. • 3. Security Fencing: See Special Provisions - Section 6 of this Attachment. PART 2 - EXECUTION A. Mobilization Mobilization shall include the purchase of contract bonds; transportation of personnel, equipment, and operation supplies to and from the Wellfield; establishment of portable sanitary facilities and field office,and other necessary facilities at the Wellfield;and other preparatory work at the Wellfield,as well as all work at the Wellfield necessary to conduct drilling, construction, development, and testing operations. • The field office must have electricity, air conditioning, heater, telephone, proper lighting and office furniture, such as desk and two chairs to accommodate at least two field geologists. A copy of the Orange County Health Care Agency or other appropriate Well permit Governmental Approval shall be posted in the field office. The office shall have locking doors and windows,and the Company shall provide the Company's geologist with two sets of keys to the office trailer. Other preparatory work might include traffic abatement barricades, signs,ramps,as well as all necessary soundproofing and proper equipment mufflers. The noise barriers shall be placed within the work area limits identified by the Company geologist or the District. The mobilization phase will be deemed complete when all items necessary to conduct field ' operations are on site and operable. The Company's field superintendent will notify the Company's geologist prior to 1:00 p.m. when the mobilization phase, in his terms, is complete. The Company's geologist, upon Wellfield inspection and approval, will then allow drilling to commence the following morning. If the Company's geologist does not approve the Wellfield, drilling will not commence the following day and the Company's field superintendent will renotify the Company's geologist for additional site inspections. No stand-by time will be allowed during the mobilization phase. A5-6 388444.10 022806 DOC I� B. Demobilization Demobilization shall include removal of all equipment,materials,and temporary facilities + installed during mobilization, Well drilling, completion, and development phases of the work. Demobilization will also include restoration of the Wellfield to its original condition and will include those items specified in the initial Wellfield report. C. Wellfield Clean-up/Developed Wellfield Demobilization and Wellfield restoration from the developed Wellfield will include,but not be limited to,regrading of the ground surface disturbed during mobilization and drilling operations; filling of post holes; reconstruction of fences, walls, berms, drains, or other surface features; sweeping of paved areas; repair or replacement of damaged asphalt or concrete pavement; and replacement of bushes, trees, or ground cover, which were present prior to commencement of work. • A5-7 388444.10 022806 DOC N • SECTION 4 CONSTRUCTION NOISE ABATEMENT • PART 1 - GENERAL The Company is advised that the construction of the Wells will take place approximately 100 feet from residential neighborhoods. It shall be the Company's responsibility to comply with the City noise level restrictions per Section 9-3.615 and Section 9-5.22 of the M Municipal Code. It is the District's desire to maintain a courteous relationship with the residents adjacent to the construction site. Prior to construction mobilization,the Company will prepare and distribute a letter to the surrounding residents informing them of the pending construction and expected schedule of activities. In support of this, the Company's employees will be expected to conduct their work in a professional manner that is compatible with a residential neighborhood environment. If the Company cannot meet the noise level restrictions,the Company will stop work and perform corrective measures at its own expense. Additional measures may include increasing height or noise suppression capability of the noise barriers. If night work is discontinued to meet the noise requirements, this will be at the Company's expense. If during the course of the work noise limits are exceeded and work is stopped either by the District or any other Governmental Body, the Company shall not be entitled to compensation for loss of income or other expenses resulting therefrom. PART 2 - EXECUTION The Company shall notify the District and the local police station prior to the start of work. The Company shall take all steps necessary to keep within the above listed noise level requirements. The Company shall, at minimum, erect sound attenuation walls on all sides of the work area necessary to protect the neighbors. The sound walls shall be a minimum of 16 feet high and withstand wind loads common to the area. In addition, during test pumping the engine used will be enclosed by additional noise attenuation materials, without removing the site walls. • • A5-8 388444.10 022806 Doc 1 t SECTION 5 PROTECTION AND RESTORATION OF EXISTING FACILITIES PART 1 -GENERAL The Company will be responsible for the protection of public and private properties adjacent to the work and will exercise due caution to avoid damage to such properties. The Company shall repair or replace, at the Company's cost, all existing improvements that are damaged or removed as a result of its operations. Such improvements include curbs,gutters,sidewalks,pavements,utility installations,structures,lawns,etc. Repair and replacements will be at least equal to existing improvements and will match them in finish and dimension. The Company will protect the ground and pavement from leaks and spills of chemicals,fuel, oil and grease. Within the designated work area,the site will be regraded to restore the grade to near original. • r A5-9 388446.10 022806 DOC SECTION 6 TEMPORARY FACILITIES A. Company's Equipment 1. General The Wells will be drilled using the reverse circulation rotary method in which the uncased wall of the drill hole is held in place at all times with a circulating fluid. The Company will provide a complete reverse circulation rotary drilling unit, all tools, accessories, power, lighting, water, other equipment, and experienced personnel necessary to conduct efficient drilling operations at the site. In addition, the Company will supply a fully operational telephone at the site. i The entire area used for material storage and drilling operations including areas occupied by the field office, construction equipment, engines, motors and dewatering equipment shall be enclosed by the sound walls. The Company shall also install a 6-foot high chain-link security fencing with screen/shade cloth that can be securely locked at all times when work is not in progress. The Company shall furnish the Company's geologist with two keys to the gate lock. 2. Drill Rig The drilling unit(s) and associated equipment for the Wells will be in good condition and have a minimum drilling capacity according to the following schedule: Purpose Capacity Pilot Hole 18-inch diameter hole to approximate depth of 170 feet. Ream Pilot Hole 26-inch diameter hole to approximate depth of 170 feet. The drill rig shall have sufficient capacity to install up to 180 feet of 16-inch diameter Well screen and casing. 3. Drill Pipe The drilling pipe will be in good condition and will be connected by standard tool joints. Flanged drill pipe will not be used. Internal air lines may be used. However,sufficient air line will be available on-site so that the Wells can be drilled to its entire depth. Periodic exit from the Wells to install blank drill pipe for lack of adequate quantities of air line-equipped pipe is deemed inefficient and will not be allowed. 4. Mud Tanks Excavated mud pits will not be allowed. Portable tanks are required which allow the drill cuttings to settle. The tanks will have a minimum of three chambers and have sufficient capacity to allow for proper settling of drill cuttings as approved by 41 drilling Company's geologist. The tanks will be cleaned periodically to ensure that the drilling fluid remains clean prior to its re-entry into the boring. At no time shall the height of material settled in the tanks exceed two feet. Drilling fluid recirculated to the drill pipe shall not contain in excess of 2% sand. Detrital A5-10 388444.10 022806 DOC I materials cleaned from the tanks will be hauled off-site for proper disposal at the Company's expense. 5. Tremie Pipe Tremie pipe for installation of gravel pack and cement grout shall be in good condition and be connected by flush threaded joints to prevent bumping or damage to other Well casings. The Company shall employ tremie lengths of 5, 10, and 20 feet so the bottom of the tremie can be set to the desired depths prior to installation of grout and gravel pack materials. 6. Baker Tanks The Company shall utilize three 9,240 gallon(220 bbl) "Baker Tanks" (8 ft wide x 6 ft high x 30 ft long) for the retention of fluids generated during the course of the construction of the Wells, prior to their disposal. All fluid disposals shall be through the settling system and discharged in accordance with the NPDES Permit and as summarized herein. The Company shall be required to maintain adequate staff to conduct drilling and settling operations. The tanks shall be joined such that water flows between the tanks to maximize settling time and minimize disturbance of settled materials. A minimum of two full-height and full-width baffles shall be installed vertically in each tank to slow the flow of water and allow settling. Water shall enter the bottom of the first tank and shall be transferred to the bottom of the second tank by pumping via submersible (or other) pump or by gravity feed, from the top of the first tank. Transfer of fluid between the second and third tank shall be performed in similar manner. The settled water will be sampled and submitted for laboratory testing to insure compliance with the NPDES discharge requirements. Water meeting the discharge requirements will be conveyed to an approved discharge point in accordance with Applicable Law. Piping or hoses shall not leak such that it creates a nuisance, as determined by the Company's geologist. ' The settling system shall operate independently of the drilling fluids and displacement fluids storage tank. A fourth "Baker Tank" of 500 bbl capacity, equipped with protective cover, shall be utilized to contain all "heavy" drilling fluids generated by displacement during backfilling. These fluids shall be removed for disposal offsite, unless they can be adequately "treated", via settling, centrifuging,deflocculating or other pre-approved methods without disruption to the work schedule. All discharges originating from this source (e.g. drilling or displacement fluids) shall comply with the NPDES Permit obtained by the Company and as interpreted by the Company's Geologist. 7. Vacuum Truck Heavy fluids from initial development shall be contained on site and removed by vacuum truck. No heavy fluids or drilling mud shall be discharged to the storm drain. The capacity of vacuum trucks shall not exceed 3500 gallons per load. SECTION 7 rj CONDUCTOR CASING PART 1 - GENERAL A5-11 388444.10 022806 DOC • A. Description This section includes the drilling of a borehole and installation of the conductor casing, including the placement of a sanitary seal. B. Submittals 1. Certified test reports to show compliance with both the physical and chemical properties of the steel. 2. Delivery receipts for grout placed for sanitary seal. PART 2 - MATERIALS A. Conductor Casino s 1. The steel plate used in the fabrication of the conductor casing shall have a minimum thickness of 3/8-inch and shall meet the requirements of ASTM A 53, Grade B or ASTM A 139, Grade B. 2. The steel conductor casing shall have an outside diameter of 30 inches. The A conductor casing shall not be fabricated in less than 20-foot lengths. It shall be spiral welded or containing one longitudinal seam parallel to the casing axis and not more than one circumferential seam in 10 feet, or as otherwise approved by the District. All spiral or longitudinal and circumferential seams shall be butt- welded with shielded arc electrodes to assure full fusion with the parent metal and complete penetration. 3. The ends of each joint shall be machine-beveled. Casing centralizers shall be provided as indicated on the Company's plans. Centralizers shall be of the same chemical and physical properties as the well conductor casing. All joints in the conductor casing shall be securely welded in continuous passes e and shall be water tight. 4. All welding shall be done with shielded arc electrodes and shall be performed in accordance with American Welding Society Standards. 5. All casing material shall be new. i B. Sand-Cement Grout 1. The grout used for the sanitary seal shall be a 10.3-sack cement grout. There shall be no more than two parts by weight of sand to one part by weight of cement. The water-cement ratio shall be 5.2 to 6.5 gallons per sack of cement(94 pounds). 0 All on-site water additions shall be metered. 2. Cement used for the sanitary seal shall be a standard brand Portland cement conforming to ASTM C 150,Type 11. 3. Water used for cement and grout mixtures shall be clean and of potable quality. 41 4. Materials used as additives for Portland cement mixtures in the field shall meet the requirements and latest revisions thereof, ASTM-C494, 'Standard Specifications for Chemical Admixtures for Concrete." A5-12 388444.10 022806 DOC f • 5. Special quick-setting cement,retardants to setting,and other additives,including hydrated lime, to make the mix fluid (up to 10 percent of the volume of cement), and bentonite (up to 5 percent) to make the mix more fluid and to reduce shrinkage, may be used. PART 3 - EXECUTION A. Conductor Casing Bore • If the conductor casing is to act as a surface casing, the Company shall not start drilling without the Company's geologist on site to confirm the location of the Well. The Company shall drill a 36-inch hole to a depth of at least 50 feet. The Company's geologist will be on-site during the drilling to determine the exact depth of the hole to be drilled based on cuttings collected by the Company and the geologic log. B. Installation of Conductor Casing 1. When the drilling operation has been completed to the satisfaction of the Company's geologist, the conductor casing shall be installed. The length of the conductor casing shall be determined by the Company's geologist. 2. All field joints shall be properly butt-welded to assure complete penetration during welding with a minimum of two passes. All joints shall be water tight. Special care shall be exercised to insure that the casing is straight. Welders shall be certified in accordance with AWS 10.9-80 or ASME Section IX, and shall be qualified in the 2G and 5G positions or the 6G position. 44 3. At least three sets of steel guides 120 degrees apart horizontally shall be welded to the exterior of the casing and hold the casing in the proper position until the grout sanitary seal is in place. The first set of guides shall be placed 5 feet from the bottom of the conductor casing. The guides shall be fabricated and placed as shown on the Company's plans. 4. The conductor casing shall be held in plumb position and shall be placed on the bottom of the hole. 5. If the conductor casing should collapse prior to Well completion, the casing shall be withdrawn and replaced at the Company's expense. A5-13 388444.10 022806 DOC C. Installation of the Grout Sanitary Seal 1. After the conductor casing has been installed and aligned, the annular space between the conductor casing and the conductor casing bore hole shall be filled with grout from the bottom of the boring to ground surface. 2. The grout shall be pumped into the annular spaces through a tremie pipe. The bottom of the tremie pipe shall remain submerged in the grout throughout the placement of the grout. The placement procedure shall receive approval of the Company's geologist prior to installation of the sanitary seal by the Company. The Company shall take all precautions to prevent the collapse of the conductor casing during placement of the grout. 3. The Company shall not operate any equipment on-site during the 24-hour period immediately after the sanitary seal has been placed. 4. In the event the borehole collapses prior to completion of the sanitary seal, the Company shall take whatever steps are necessary to reopen the hole and place the sanitary seal as specified. Any such remedial action shall be conducted at the Company's expense. a A5-14 388444.10 022806 DOC SECTION 8 PILOT BORE • PART 1 - GENERAL A. Description This section includes the drilling of the pilot bore by reverse circulation rotary method to an approximate depth of 170 feet. The purpose of the pilot bore is to determine the thickness and nature of all formations penetrated, the location of water bearing strata, and other hydrological and geological information. B. Related Work Specified Elsewhere 1. Drilling Fluid (Section 9) C. Submittals A 1. Results of each drift survey shall be immediately made known to the Company's geologist on-site and shall be furnished to the Company's geologist in the daily construction progress report within 24 hours of each survey completion. 2. Construction progress report shall be submitted every 24 hours after drilling begins. ' PART 2 - MATERIALS A. Drift Survev The mechanical drift indicator shall be an Eastman mechanical drift indicator available . from the Eastman Oil Well Survey Company,or approved equal by the District. A 3 degree unit shall be used with the indicator. B. Drilling Fluid The Company shall maintain controlled drilling fluid characteristics during the entire drilling operation as specified in Section 9. PART 3 - EXECUTION A. Pilot Bore Drilline . 1. A pilot bore shall be drilled from the bottom of the conductor casing to the depths previously discussed in Part lA of this section. The diameter of the pilot hole shall be 18 inches. The Company's geologist will be on-site during the drilling process to determine the exact depth of the hole to be drilled based on cuttings and the geologic log. The Company shall drill to the depth as directed by the Company's geologist. The Company shall take all measures necessary to protect the top i portions of the pilot bore from caving or raveling. 2. The Company shall maintain a record showing any variation in the addition and amount of clays or chemical products or water required during drilling as set forth A5-15 388444.10 022806 DOC • in this Appendix. The depths at which such changes are required shall be shown in the daily reports. B. Drift Survev In order to insure that drilling of the pilot bore meets alignment specification, the Company shall furnish and employ a self-checking mechanical drift indicator to measure hole deflection. Drift indications shall be taken at 60-foot intervals immediately after each 60-foot increment of pilot bore is drilled. The first drift survey shall be conducted at a depth 60 feet below ground surface. The drift from vertical shall be not more than 0.5 of 1 degree. Any deviation shall be corrected by the Company at its expense. If the drift survey indicates that the bore hole has excessive deviation the Company shall be required to run a more accurate geophysical log, such as a continuous alignment/magnetic multishot with gyroscope to document the alignment direction and dogleg severity condition of the bore hole prior to any further work at the site. C. Formation Sampling 1. The Company's geologist shall be on-site to collect cuttings during the drilling of the pilot hole. Cuttings will be collected at each formation change in addition to the composite samples collected over 5-foot intervals. The Company shall provide a sample collection diversion tube in the discharge pipe to the mud tanks and shall assist the Company's geologist in obtaining representative cutting samples and shall provide the Company's geologist with the depth interval corresponding to each sample. The Company's geologist shall place each sample in a plastic bag with a tight seal. All containers will be labeled by the Company's geologist to indicate the Well number, date, time and depth intervals of the collected sample, i and stored in a manner to prevent breakage or loss. Containers as approved by - the Company's geologist, will be furnished by the Company. The Company's geologist will develop a detailed lithologic log based on cutting samples and sample depths provided by the Company. 2. A complete lithologic drilling log and shift record of construction activities shall ' be prepared by the driller for the Company's geologist. 3. Upon completion of the pilot bore, an electric log shall be run. A5-16 388444.10 022806 DOC • • SECTION 9 DRILLING FLUID PART 1 - GENERAL A. Description This section covers the drilling fluid used to maintain the wall of the borehole to prevent • caving. B. Submittals: The following records shall be kept by the Company: 1. Certifications of all drilling fluid additives prior to their arrival at the Wellfleld. ' 2. A mud program designed by a qualified mud engineer shall be submitted 2 days prior to the commencement of drilling. 3. The daily construction report shall contain a complete mud condition form recording,but not limited to,mud weight,sand content,viscosity,water loss,and wall cake thickness as outlined in Part 2 - Materials. PART 2 - MATERIALS A. Drilling Fluid Only fresh water shall be used in drilling fluids whether employed alone or in combination ' with drilling additives. Only high grade approved commercial clays, or commercial synthetic drilling products(polymer) in common usage in Los Angeles or Orange County for water well drilling shall be used in the make-up of any drilling fluid. Organic drilling additives or "brown bag" drilling fluid substitutes shall not be used. Drilling with a mixture of water and unprocessed mud,clay, or other material will not be permitted. The drilling fluid shall possess such characteristics as are required to adequately maintain the ' walls of the hole, to prevent caving of the walls as drilling progresses, and to permit recovery of representative samples of cuttings. Drilling fluid characteristics including viscosity, weight, and sand content shall be determined not less than twice in each shift by the Company and reported to the District. All drilling fluid test equipment and test procedures shall be equal to those normally used in the oil well drilling industry. If"lost circulation" or other drilling problems require the addition of bentonite gel or other • materials, such material may be added only with the prior approval of the Company geologist. The Company shall specify at the time of award those products intended for possible use on the Well construction work. The drilling fluid shall possess such characteristics as are outlined in the mud engineer's drilling program, and shall not exceed a sand content above 2%, total solids content above 8%, and a fluid weight of 9.0 lbs./gallon at any time during the drilling process. Water loss shall not exceed 12 cubic centimeters (cc) at any time during the drilling process (especially if long sequences of clay formations are encountered). Drilling fluid characteristics including viscosity,weight,sand content,water loss,and wall cake thickness shall be determined not less than every four hours by the Company and i reported to the geologist. At any time,the geologist may request additional tests to be run or repeated. The Company shall comply with the geologist's request. A record shall be maintained (i.e. posted) and submitted to the geologist showing any variation in the addition and amount of approved chemical products or water required during drilling. A5-17 388444.10 022806 DOC The depths at which such changes are required shall be shown in the daily reports. PART 3 - EXECUTION A. The Company shall maintain controlled drilling fluid characteristics during the entire operation of Well construction. If proper control of the drilling fluid is not maintained to the satisfaction of the Company's geologist, the Company shall be required to retain or employ at his own expense an experienced,qualified mud engineer on the job during all operations to supervise and maintain drilling fluid characteristics to the satisfaction of the Company's geologist. The District reserves the right to employ its own mud engineer to verify or interpret any information obtained from the Company's mud engineer. B. The Company is cautioned to maintain the minimum viscosity ofthe drilling fluid that will raise cuttings and adequately condition the wall of the hole. The Company shall remove all mud cake on the wall of the hole during the development of the well or placing of the gravel. If determined by the Company geologist that an excessive amount of drilling fluid additives have been used, resulting in a mud cake on the wall of the hole that is impractical to remove by mechanical development, the Company shall be directed to provide chemical development. The method of chemical development shall be specified • by the Company geologist. No payment shall be made to the Company for any required chemical development. C. Only above ground mud tanks will be allowed for the collection and settlement of drill cuttings. The Company shall provide adequate baffled tanks with solids control equipment, in the form of shale shakers and desanders/desilters, for the collection and . removal of drill cuttings/solids from the fluid before recirculation to the borehole. The Company shall provide a sample collection box, splitter box, or other such approved device, for the collection of representative formation samples. D. The sand content of the drilling fluid shall be measured and recorded a minimum of every four hours during drilling or circulation. The sand content of the fluid returning to the borehole shall be maintained at 2% (by volume), or less, at all times. In the event that drilling additives are used, the Company shall maintain careful mud control. Procedures must be adopted to insure removal of these additives during the development process. The Company shall maintain a continuous log of mud weight, funnel viscosity, 30-minute water loss,wall cake thickness,pH and sand content. Fluid • checks shall be taken at a minimum of every four hours during drilling, whenever conditions appear to have changed, or if difficulties arise.The circulating fluid shall not exceed the following parameters at any time: Weight : Reverse Circulation: 7.5 to 8.5 pounds per gallon normal range, with a 9.0 lbs./gal maximum. Direct Mud Rotary: 9.2 to 9.4 pounds per gallon normal range; with a 9.4 lbs./gal maximum. Funnel Viscosity (sec./Qt): Reverse Circulation: 28 to 35 seconds in normal range, 38 sec. Maximum. Direct Mud Rotary: 30 to 45 seconds in normal range. 30-Minute Water Loss: 15 cubic centimeters maximum. Filter Cake: 3/32-inch maximum. A5-18 388444.10 022806 DOC • Sand Content of Fluid Entering Borehole: 2% by volume maximum. pH: 7.0 to 9.0 units. M E. All drill cuttings and drilling mud shall be disposed of by the Company outside the limits of work in accordance with the applicable ordinances and regulations of governmental agencies having jurisdiction. No additional compensation will be paid to the Company for disposal and rehabilitation work. F. After the borehole has been reamed, and before the caliper log is run, the drilling fluid shall be appropriately thinned with water in preparation for well casing and gravel pack installation. r M A5-19 388444.10 022806 DOC • SECTION 10 GEOPHYSICAL LOGS AND DIRECTIONAL/DEVIATION SURVEY PART 1 - GENERAL This section describes the geophysical logs and directional/deviation survey to be run by an independent firm retained by the Company and approved by the Company geologist. Geophysical logs and a directional/deviation survey shall be run upon completion of the 0 pilot bore. PART 2 - MATERIALS A. Geophysical log f The geophysical logs shall consist of a spontaneous potential, 16-inch normal, 64-inch normal, point resistance, natural gamma, and guard, unless otherwise specified by the Company's geologist. The horizontal scale for the plot of the spontaneous potential shall be 20 millivolts per inch. The horizontal scale for the plot of the 16-inch normal,64-inch normal,and point resistivity shall be 20 ohm-meter per inch. The vertical scale for all logs shall be 10 feet per inch. The vertical adjustment required to determine the true depth for each of the electric log curves shall be indicated on the plot. The logs should be run on digital/analog equipment with a minimum of one data point per vertical foot recorded. The data should be provided on a 3-1/2 inch disk to the District in the following electronic formats: TIFF, DWG or DXF(compatible with AutoCadd). 13. Directional-Deviation Survey A directional and borehole deviation survey shall be run throughout the full depth of the pilot hole to evaluate borehole straightness and verticality. Gyroscopic or magnetic equipment shall be used. The vertical scale for all logs shall be 10 feet per inch. PART 3 - EXECUTION A A. Upon completion of the pilot bore,the geophysical logs and directional/deviation survey shall be run. Before running geophysical logs and directional/deviation survey, the Company shall cease drilling and circulate fluid for not less than one hour. The geophysical logs and deviation survey shall commence within one-hour of the Company removing the drill pipe and bit. r 13. The geophysical logs and directional/deviation survey shall become the property of the Company's geologist at the time the logging is completed. The logs will be run in the presence of the Company's geologist. The Company shall provide 6 field copies of the logs to the Company's geologist for interpretation immediately upon completion. The Company shall provide the District with ten final copies of each geophysical log, one reproducible original, and one floppy disk of each log at no additional cost within one week. C. The logging speed for all logs shall be 20 feet per minute, unless otherwise approved by the Company's geologist. D. If logging information indicates that the completion of a particular Well is not warranted, a the Company's geologist has the right to terminate further work on the Well. E. The Company shall be required to provide whatever assistance may be necessary to A5-20 388444.10 022806 DOC • accomplish the geophysical logs and directional/deviation survey. F. The deviation survey shall record discrete readings at station depths no greater than 20 • feet apart. G. The accuracy for inclination shall be 0.2 degrees or less. The accuracy of the azimuth will be 2 degrees or less. All readings shall be relative to true north. The vertical deviation from true north shall not exceed 10 inches per 100 feet in the pilot hole. A second deviation survey will be conducted after reaming. If these specifications are not met in • the reamed bore hole, the hole will be abandoned as described in Section 23 - Abandonment and another borehole will be drilled and re-surveyed at the Company's expense. H. The drift or deviation shall be calculated by the"minimum curvature"method or approved equal, and shall be stated on the survey. • I. The survey and log shall present a tabulated list of station depths with the following items as a minimum: 1. Station depth 2. Inclination • 3. Azimuth 4. True vertical depth 5. North/South departure 6. East/West departure 7. Total departure • J. The directional/deviation survey shall include graphical plots with a minimum of plan view and vertical sections, both north/south and east/west. K. The Company shall perform the necessary measures during the 24 hours after the geophysical logs and deviation survey are run to insure the stability and preservation of the pilot bore. • • • • A5-21 399444.10 022806 Doc • • SECTION 11 SEALING PILOT BORE • PART 1 - GENERAL This section includes the installation of a bentonite seal from the bottom of the pilot bore to the bottom depth of the pilot bore ream as determined by the Company's geologist. The pilot hole seal shall be placed prior to the start of any reaming activities as directed by the • Geologist. PART 2 - MATERIALS The seal used to backfill the pilot bore up to the base of the scheduled ream shall be a 50:50 mixture(by volume) of 1/8 to 1/4 inch bentonite chips(Baroid Benseal or approved • equal) and sand. Gravel used for the seal mixture shall be a No. 3 sand or the same sand as used for gravel packing the Well. The bentonite chip and gravel mixture shall be thoroughly mixed in a dry condition prior to emplacement in the pilot bore. PART 3 - EXECUTION • A. Sounding Pilot Bore Installation of the tremie pipe to the bottom of the pilot bore will constitute sounding the hole. Should the tremie pipe fail to reach the bottom of the pilot bore, the Company, at its own expense, shall be required to re-enter the hole with drilling equipment and clear all obstructions to the required sealing depth. • B. Installing Seal The tremie pipe shall extend from the ground surface to the bottom of the zone to be sealed. The seal shall be placed from the bottom of the interval to the top, in a continuous operation. The Company will sound the Well to verify the location of the top • of the seal after each load of seal mixture has been pumped. C. Records The Company shall keep a record of the volume of seal mixture used. The volume shall not be less than the calculated volume of the annular space between the reamed borehole • and the well casing. • • A5-22 388444.10 022906 DOC • SECTION 12 REAMING PILOT BORE • PART 1 - GENERAL A. Description This section includes the reaming of the pilot hole to the final bore diameter specified by • the Company's geologist. B. Related Work Specified Elsewhere 1. Drilling Fluid [Section 9] • C. Submittals Construction Progress Report shall be submitted every 24 hours after drilling begins. PART 2 - MATERIALS • Company shall maintain controlled drilling fluid characteristics during the entire drilling operation as specified in Section 9. PART 3 - EXECUTION A. Reaming Pilot Bore • 1. Upon completion of the interpretation of the geophysical logs or aquifer zone isolation sampling, and written authorization by Company's geologist, the Company shall proceed with reaming the pilot bore. The reamed borehole shall be 24-inch diameter, extending to an approximate depth of 170 feet. • The exact depths and diameters shall be determined by the Company's geologist after examination of the drill cuttings, geologic log and geophysical logs. 2. A record shall be kept showing any variation in the addition, and amount of drilling fluid or water required during the drilling operation. The depths at which such changes are required shall be shown in the daily reports. • 3. Upon completion of the reaming operations, a caliper survey and directional/deviation survey shall be run. • • A5-23 388444.10 0229M Doc • • SECTION 13 CALIPER SURVEY • PART 1 - GENERAL This section describes the caliper survey to be run by an independent firm retained by the Company and approved by the Company's geologist. The caliper survey shall accurately measure the bore diameter. • PART 2 - MATERIALS The caliper used to perform the survey shall have a minimum of three arms and be capable of indicating a hole diameter to 60 inches. The horizontal scale for the caliper plot shall be four inches diameter per inch and the vertical scale shall be 10 feet per inch. • Caliper measurements should be run on all digital equipment. The log should present total borehole volume (cubic feet) and annular borehole volume (cubic feet) for given casing size, with capability to compensate for casing and bore hole size changes. The caliper log should be provided on 3-1/2 inch disk to the District in the following electronic formats: TIFF, DWG or DXF (compatible with AutoCAD). • PART 3 - EXECUTION A. Upon completion of the reaming,a caliper survey shall be run. Before running the caliper survey, the Company shall cease drilling and circulate fluid for a minimum of one hour. B. The caliper survey shall become the property of the Company's geologist at the time the • logging is completed. The log will be run in the presence of the Company's geologist. The Company shall provide six field copies of the log to the Company's geologist for interpretation immediately upon completion. The Company shall provide the District with ten final copies of the caliper survey, one reproducible original of the survey,and a floppy disk at no additional cost. • C. Logging speed for all logs shall be 40 feet per minute, unless otherwise approved by the District. D. If the caliper survey shows the hole to be less than the specified diameter at any point or the hole is less than the specified depth, the hole shall be re-reamed or re-drilled and resurveyed at the Company's cost. • E. The Company shall be required to provide whatever assistance may be necessary to accomplish the caliper survey. F. The Company shall perform necessary measures during the 3 hours after the caliper survey is run to insure the stability and preservation of the bore. • • A5-24 388444.10 022806 DOC • • SECTION 14 WELL CASING, SCREEN, SOUNDING/TREATMENT TUBES, • GRAVEL FEED TUBE, AIR VENT AND CENTRALIZERS PART 1 - GENERAL A. Description • 1. This section covers the supply and installation of the blank well casing, well screen, sounding/treatment tubes, air vent, the permanent gravel feed tube and centralizers. B. Submittals • 1. The Company shall submit certified test reports to show compliance with both physical and chemical properties of the steel prior to delivery of the material to the site. PART 2 - MATERIALS • A. ASTM A312 OR ASTM A778 Type 316L Stainless Steel Blank Casing 1. The blank stainless steel casing shall be manufactured in accordance with ASTM Standard A312 or ASTM A778,Type 316L stainless. The casing shall be 16-inch nominal pipe size (diameter) x 0.3125-inch (5/16-inch) wall thickness and shall not be fabricated in less than 20-foot lengths. It shall be spiral welded or contain • one longitudinal seam parallel to the casing axis and not more than one circumferential seam in ten feet, or as otherwise approved by the Company's geologist. All spiral or longitudinal and circumferential seams shall be butt-welded with shielded arc electrodes to assure full fusion with the parent metal and complete penetration. • 2. In all cases,the Company shall insure that the blank casing used in conjunction with the screen shall have the same I.D. and thickness as the screen to insure that the inside diameter of the blank casing matches the inside diameter of the screen. 3. Casing joints shall be machined perpendicular to the casing axis and furnished • with a collar for welding. Collars shall be welded to the top of each section at the factory. a. Collars for the 16-inch casings shall be 3/8-inch in thickness. All collars shall be 6 inches in height and have the same physical and chemical properties as the corresponding casing sections. In all cases,collars shall • be rolled to fit the outside casing diameter and welded to the top of each casing section. The inside edge of the collar and the outside edge of the adjacent casing section shall be ground to remove sharp edges or burrs. The ends shall be machined and perpendicular to the axis of the casing so they do not vary more than 0.010 inch at any point from the true plane at right angles to the axis of the casing. • b. Three equally spaced 3/8-inch diameter alignment holes shall be provided in each collar to insure proper matching of the sections. A5-25 388444.10 022806 Doc • • 4. Unless otherwise required, the casing shall be fabricated as shown on the Company's plans. The centralizers and end cap shall be of the same chemical and physical properties as the well casing. • 5. All welding shall be done with shielded arc electrodes and shall be performed by certified welders in accordance with American Welding Society Standards. 6. All casing material shall be new. • B. ASTM A312 or ASTM A778 Type 316L Stainless Steel Wire Wrap Well Screen 1. The well screens in the Company's plans shall be 16-inch nominal pipe size, continuous slot wire wrapped,Type 316L stainless steel as manufactured by US Filter/Johnson Screens or Roscoe Moss Company heavy duty or pre-approved equal. The screen should be designed to withstand a minimum collapse pressure • of 65 psi for a 0.060-inch slot opening. The wire shape shall cause the slot opening to widen inwardly to minimize clogging. The wrap wire height shall be 0.220-inch and the width shall be 0.15-inch to provide the desired collapse strength. 2. The wire wrap well screen and attached end fittings shall be 16-inch nominal pipe 1 size and fabricated from 316L stainless steel. The well screen shall be of the maximum inlet area (minimum 28 percent open area) consistent with strength requirements and a minimum collapse pressure of 65 psi. 3. Screen yield tensile strength must exceed at least twice the total weight of 16-inch pipe size screen and 16-inch o.d. standard well casing suspended below the top • screen joint. In order to provide this the screen support rods shall provide a minimum safe hanging weight of 9,100 pounds. 4. Screens shall be manufactured in minimum 10-foot lengths complete with 16-inch pipe size 316L stainless steel weld rings attached to each end. The weld rings shall be 6 inches in length. The screen section ends shall be square to 0.100-inch • over the first two feet of the assembly, and the assembly straight to within 0.200-inch over any ten foot length of section. 5. All continuous slot screen designs shall be sufficient in collapse strength and tensile strength for a maximum 170-foot depth setting (consult manufacturer). • 6. Other Equivalent Screen: The Company may, at its discretion, submit specifications for an alternate Well screen to be used in the construction of this monitoring well. Any substitution of well screen must be approved by the District prior to commencement of mobilization. 7. All other equivalent continuous slot screen designs shall be sufficient in collapse • strength and tensile strength for a maximum 170 foot depth setting (consult manufacturer). 8. All screen material will be new and steam-cleaned prior to delivery on-site. The screen shall be stamped in a non-alterable manner with the product reference, which is identical to that found on the design report,Bill of Lading and purchase order. The product reference number shall be stamped onto the collar or weld ring prior to delivery to the site. A5-26 388444.10 022806 DOC • • C. ASTM A312 OR ASTM A778 Type 316L Stainless Steel Sounding/Treatment Tubes The Company shall have the sounding/treatment tubes on site 24 hours prior to • installation. The sounding tube shall be 2-inch nominal diameter 316L stainless steel pipe conforming to ASTM A312 or ASTM A778 Steel. Pipe shall be Schedule 40 with flat, beveled or threaded ends. The bottom and top of each pipe shall be fitted with a threaded stainless steel cap and be positioned per the detail on the Company's plans. All material shall be new. The bottom part of each sounding/treatment tube shall be 2-inch diameter 316L stainless steel pipe with machined vertical slots spaced every 6-inches vertically and • alternating at 180 degrees around the pipe. The slot opening shall be 0.030-inch wide by 2.5-inch long. The Iength and position of the slotted pipe at the bottom of the sounding/treatment tubes shall be equal to the length of 16-inch well screen. The sounding/treatment tubes shall be placed 180-degrees apart as shown in the Company's plans. • D. ASTM A312 OR ASTM A778 Type 316L Stainless Steel Permanent Gravel Feed Tube The gravel feed tube shall be 3-inch nominal diameter stainless steel pipe conforming to ASTM A312 or ASTM A778 Steel. Pipe shall be Schedule 40 with flat or beveled ends. The top of the pipe shall be fitted with a threaded steel cap and be positioned per the Company's plans. All material shall be new. • E. ASTM A312 OR ASTM A778 Type 316L Stainless Steel Air Vent The Company shall install approximately 6 feet of 2-inch Type 316L stainless steel pipe, Schedule 40, conforming to ASTM A312 or ASTM A778 Steel. The top of the vent tube shall be fitted with a threaded steel cap and be positioned per the detail on the Company's • plans. All material shall be new. F. Casing Centralizers The Company shall furnish and install casing centralizers on the 16-inch casing and well screen. All centralizers must be stamped or marked to identify the type of steel, 316L • stainless steel. Centralizers shall not be placed directly on the well screen. The centralizers shall be installed per the detail on the Company's plans. All material shall be new. PART 3 - EXECUTION • A. General Within 24 hours of completion of the geophysical logs, the Company's geologist will provide the Company, the District and the District's geologist with a written schedule stipulating the hole reaming depths and the locations casing and screen, the water level sounding/treatment tubes, and the gravel feed tube. • B. Joints and Inspection Holes All field joints shall be properly filet or butt-welded during installation with a minimum of two continuous passes per circumference. All witness holes shall be properly filled by welding. Welders shall be certified in accordance with Section IX of the ASME Boiler and • Pressure Vessel Code (1995) or AWS 10.9-80 and shall be qualified in the 2G and 5G positions or the 6G position. Welding electrodes shall be conforming to Class E 308-15 for Type 316L stainless steel casings. Welding stainless steel to other steel is not anticipated, except at the dielectric coupling. A5-27 388444.10 022806 DOC • • C. Centralizers Three steel guides shall be welded to all casing sections 120 degrees apart at intervals of • not more than 60 feet to centralize and hold the casing in the proper position until the gravel is in place. The first set of guides shall be placed 5 feet from the bottom of the casing. The guides shall be fabricated from high strength low alloy steel or Type 316L stainless steel. Only like metals shall be welded onto the casing. Three steel guides shall be welded to the bottom of the gravel feed tube to prevent the end • from contacting the face of the bore, during installation. D. Construction of Sounding/Treatment Tube 1. The Company shall install a water level sounding and chemical injection tube within the annulus between the well casing, the conductor casing, and the final • reamed hole. The bottom of the sounding/treatment tube will be provided with a welded or threaded cap. 2. The top of the sounding pipe shall be widened away from the well head,beginning at a minimum depth of 8 feet below ground surface, to permit insertion of investigative tools or chemical feed tubing without obstruction from the well head • or pump. This will require cutting through the conductor casing to pull the sounding tube away from the well casing. 3. The 2-inch stainless steel pipe used for the sounding/treatment tube shall be secured to the well casing at 20-foot intervals by inserting a 3/4 inch x 2 inch x 3 inch stainless steel or PVC spacer between the well casing and 2-inch tube. The • two sounding/treatment tubes will be secured to the 16-inch well casing with stainless steel binding straps positioned at the casing collars as presented in the Company's plans. 4. The sounding/treatment tubes will be attached to the well casing as the casing is placed into the reamed bore. • E. Installation of Casing, Screen, Sounding Tube, and Gravel Feed Tube 1. The permanent and temporary gravel feed tubes shall be installed and properly located in the reamed borehole prior to the installation of any well casing. Three casing guides shall be welded at the bottom of the permanent gravel feed tube • prior to installation. The top of the permanent gravel feed tube shall be pulled away from the well head to permit access without obstruction from the well head or pump. During placement of the top 20 feet of gravel pack, fresh water shall be pumped through the gravel feed tube to keep the bottom free of sediment and open. A temporary fitting should be welded to the top of the tube to attach awater hose. • 2. The well casing string shall be suspended in tension from the surface by means of a clamp. The bottom of the casing shall be at a sufficient distance above the bottom of the reamed bole as to insure that none of the casing will be supported from the bottom of the hole. The Company must use appropriately sized casing clamps or elevators to handle the casing. No lifting lugs or extra metal may be • welded to the exterior of the casing, screen or casing collars. 3. The Company shall temporarily cap the sounding/treatment tubes during placement of the gravel envelope. A5-28 388444.10 022806 DOC • • 4. If for any reason the casing cannot be placed in the correct position, or at a depth acceptable to the Company's geologist,the Company shall construct another well immediately adjacent to the original location and complete this well in accordance with the specifications and drawings at no additional cost to the District. The abandoned hole shall be properly sealed at the Company's expense. S. If any of the casings should collapse prior to well completion, they shall be withdrawn and replaced at the Company's expense. • 6. All work required to be repeated, and all additional materials, labor, and equipment required, shall be furnished at the expense of the Company and no claim for additional compensation shall be made or be allowed therefore, except as specifically provided herein. 7. The well casing,sounding/treatment tubes,air vent and the gravel feed tube shall • be completed per the details on the Company's plans. F. Well Capoina Upon completion of all work in connection with well construction, development, testing, and disinfection,the well shall be capped by tack welding a 1/4-inch thick steel plate over • the top of the inner well casing. The gravel feed tube, air vents and sounding tubes shall be fitted with a threaded cap and positioned per the details on the Company's plans. • • • • • A5-29 388444.10 022806 DOC • • SECTION 15 GRAVEL ENVELOPE i PART 1 - GENERAL A. Description This section covers the supply and installation of the gravel or filter envelope to the depth i specified by the Company's geologist. B. Submittal A description and recent certified sieve analysis of gravel pack to be used must be submitted three days prior to the anticipated date of shipment from the supplier. • PART 2 - MATERIALS Gravel Envelope Allgravel for packing shall be hard,waterworn coarse sand or gravel,washed clean of silt, i sand, dirt and foreign matter (crushed gravel will not be accepted). It shall be well rounded, graded, coefficient selected, and shall have a uniformity less than 2.5. The actual gradation and uniformity of the gravel shall be determined by the Company's geologist after examining the drill cuttings and given to Company in writing. All gravel is subject to approval by the Company's geologist prior to use in the packing process. Gravel shall be of the type provided by Oglebay Norton Industrial Sands, Inc. (Colorado Silica Sand) or approved equal. For bidding purposes, an 8 x 12 gradation is suggested at this time. PART 3 - EXECUTION A. The gravel, if stockpiled on site, shall be kept free of all foreign matter. • B. Prior to placement of the gravel envelope, the drilling fluid shall be thinned with clean water. The gravel envelope shall be installed in the annular space between the reamed hole and the casing through a construction tremie pipe from the bottom of the borehole. As gravel placement progresses, the gravel feed line shall be gradually withdrawn; however, at no time shall the bottom end of the temporary gravel feed line be more than • 40 feet above the top of the emplaced gravel pack. During gravel placement,water shall be pumped from the well casing. A device approved by the Company's geologist shall be used to sound the level of the gravel throughout the placement of the envelope. A gravel pump may be used for installing the gravel. C_ During the placement of the gravel in the annulus, calcium hypochlorite (65 percent • available chlorine) in granular form shall be added to the gravel at a uniform rate of two tablets per cubic foot or one pound of the granular form per cubic yard. Alternatively, sodium hypochlorite (12.5 percent available chlorine) in liquid form, and not more than 60 days old as noted on the manufacturer's labeling, shall be added to the gravel at a uniform rate or 0.5 gallon per cubic yard. • D. During placement of the gravel in the annulus, a clay dispersant, such as NW220 or approved equal, shall be added to the gravel at a uniform rate of 0.5 gallon per cubic yard. E. Fresh water shall be pumped down the permanent gravel feed tube during placement of A5-30 388444.10 022806 DOC • • the top 20 feet of filter pack. This procedure is intended to keep the gravel feed tube open before adding any gravel to the tube. Approximately 10 feet of filter pack material shall be placed in the tube before starting mechanical development. • F. After the gravel envelope has been placed to the depth specified by the Company's geologist, a swab shall be carefully worked opposite all screened sections. As the gravel settles, more shall be added. This operation shall continue until there is no further measurable settlement of the gravel. • G. Upon completion of this operation, and after removal of the swab, all rock, sand and foreign materials shall be removed from the casing by bailing. H. After initial consolidation of the gravel envelope by swabbing,the grout sanitary seal shall be placed. • 1. The Company shall record the volume of gravel used. The volume shall not be less than the calculated volume of the annular space between the casing and the borehole wall based on the caliper survey. • • • • • • A5-31 388444.10 022806 DOC • • SECTION 16 SANITARY SEAL • PART 1 - GENERAL This section includes the completion of the sanitary seal, sealing the annular space between the conductor casing or bore hole wall and the well casing. • PART 2 - MATERIALS Sanitary Seal 1. Cement used for the sanitary seal shall be a standard brand Portland cement • conforming to ASTM C 150, Type II or Type V. 2. The grout used for the sanitary seal shall be a 10.3-sack sand-cement grout. There shall not be more than two parts by weight of sand to one part by weight of cement. The water-cement ratio shall be 5 to 6 gallons of water per sack of cement (94 pounds). All on-site water additions shall be metered. • PART 3 - EXECUTION A. After placement of the casing,screen,and the final lift of gravel envelope,the sanitary seal shall be completed. The annular space between the well casing and conductor casing or borehole wall shall be filled with grout by tremie from the top of the gravel pack to ground surface. B. The tremie shall extend from the ground surface to the bottom of the zone to be grouted. Grout shall be placed from bottom to top, in a continuous operation unless determined by the Company that a staged placement is required to prevent casing collapse. A minimum of two cement placement stages separated by approximately 8 hours of set time should be anticipated. The bottom end of the tremie shall be no more than 15 feet above • the top of the emplaced gravel pack prior to placing the grout. The tremie shall be slowly raised as the grout is placed, but the discharge end of the tremie must be submerged in the emplaced grout at all times until grouting is completed. C. The Company shall not operate any heavy equipment on-site during the 24-hour period immediately following the placement of the sanitary seal. • D. The Company shall take whatever precautions are necessary to prevent casing collapse during placement of the sanitary seal. In the event the casing collapses prior to completion of the sanitary seal, the Company shall take whatever steps are necessary to reopen the well and place the seal as specified. Any such remedial action shall be conducted at the Company's expense. • E. The Company shall keep a record of the volume of grout used. The volume shall not be less than the calculated volume of the annular space between the conductor casing or the reamed borehole, and the well casing. • A5-32 38a444.10 022ao6 Doc • • SECTION 17 ALIGNMENT TEST • PART 1 - GENERAL Description The Company shall test to determine the plumbness and straightness of the well casing • to the base of the 16-inch casing. PART 2 - MATERIALS A. Dummy for Well Casino • Straightness of the well casing shall be tested by lowering a 40-foot long dummy into the well. The outer diameter of the dummy shall be 1/2-inch less than the inside diameter of the well casing. The dummy shall consist of a rigid spindle of extra heavy pipe with three rings rigidly fixed to the pipe so that they cannot move longitudinally along the pipe. The rings shall consist of suitable material which will not harm the interior of the casing while being lowered or raised. • B. Directional/Deviation Survey Alignment of the well casing shall be tested performing a directional/deviation survey as described in Section 10 to the bottom of the well. PART 3 - EXECUTION A. The Company shall lower the dummy down the entire length of 16-inch well casing exercising care not to damage the well screen. Should the dummy fail to move freely throughout the entire length of the casing test section, the Company shall undertake corrective measures at its own expense. B. The Company shall test plumbness and alignment of the well with the directional/deviation equipment described in Section 10. The instrument shall be lowered or raised through the entire length of the well casing. Deviation measurements shall be taken a minimum of every 10 feet. The completed well shall be drilled in such vertical alignment that a line drawn from the center of the well casing at ground surface to the center of the well casing at the bottom of the well shall not deviate from the vertical more than 6 inches in 100 feet of length and shall be no closer to the inside wall of the casing than 6 inches. C. The Company shall guarantee that the well,when completed,shall be sufficiently straight and plumb for the free installation and operation of a turbine or submersible pump with 14-inch bowls set to the bottom of the 16-inch casing. D. All alignment tests shall be conducted in the presence of the Company's geologist. A5-33 386464.10 022806 DOC • • SECTION 18 WELL DEVELOPMENT • PART 1 - GENERAL A. Description This section covers the development of the well using an air-lift swab and a test pump. • B. Related Work Specified Elsewhere 1. Technical Provisions: Section 5 and Section 6. 2. NPDES Permit - Special Provisions. • PART 2 - MATERIALS A. Swab Swabbing of the well shall be done with a close fitting double swab whose outside • diameter of the surge blocks shall not be more than 1/8 inch smaller than the inside diameter of the screen section. The perforated section between the surge blocks shall measure no less than 10 feet and no more than 15 feet in length. Individual perforations shall be small and distributed evenly throughout the circumference and length of the swab tool. Total open area of the perforations shall not exceed the inside cross sectional area of the drill pipe. • B. Temporary Water Containment The Company shall treat all discharge waters to permit settlement of suspended solids to a level acceptable by the NPDES Permit requirements and the Regional Water Quality Control Board of the State for discharge to the approved discharge point in accordance • with Applicable Law. C. Discharge Line The Company shall provide the temporary discharge piping required to convey well development water to the appropriate disposal area. • D. Test Pump and Flow Meter The pump furnished shall be of the deep well turbine type capable of pumping up to 1500 gallons per minute (gpm) from a depth of 170 feet. A satisfactory throttling device shall be provided downstream of the flow meter and manometer so that the discharge can be • reduced to 300 gpm. An in-line flow meter with 6-digit straight reading totalizer and rate of flow indicator dial,which reads in gallons per minute,will be installed in the discharge pipe. E. Test En$dne • The test engine shall perform consistently and continuously without erratic or variable rpm. The test engine shall be equipped with muffiers and additional sound proofing at the engine to meet the noise reduction requirements. The test engine shall not expel oil, fuel or hydraulic fluids from the blow by or exhaust. A5-34 788444.10 022806 DOC • PART 3 - EXECUTION A. Development with Air-Lift Swab 1 1. The Company shall commence development with air-lift swab equipment within 36 hours after completion of the sanitary seal. 2. Air-lift swab development shall proceed from the top of the screen to the bottom of the screen. Swabbing shall continue for the full depth of the well. • 3. The double swab shall be raised and lowered for a minimum of 20 minutes every 20 feet of screen. Simultaneously, water shall be lifted with air inside the drill pipe. After the water becomes free of sediment and there is no more movement of the gravel pack, the swab shall be lowered to the next interval. f 4. The Company shall run clean water continuously down the gravel feed tube during the operation and add gravel as needed. 5. The Company shall bail or air-lift sediment from the bottom of the well as required. 6. It is anticipated that surging and air lifting shall continue for approximately 30 • hours or until all sand and mud have been washed through screened sections of the well to the satisfaction of the Company's geologist. Upon completion of this procedure, the well shall again be bailed or air lifted clean of all accumulated sediment to its full depth. B. Development with Test Pump • 1. Within 48 hours after completion of well development using the air-lift swab the Company shall commence well development by using the test pump. 2. The quantity of water being pumped from the well at commencement of development pumping shallbe limited and gradually increased as the water clears. • From time to time, the pump shall be stopped and the water in the pump column allowed to flow back through the pump bowls and through the screened sections into the aquifers. This procedure, with increasing pumping rates, shall be repeated as development of the well continues and shall be done in a manner satisfactory to the Company's geologist. 1 3. Development of the well shall be continued for approximately 24 hours or until the well produces not more than 5 parts per million of sand by volume, 15 to 20 minutes after surging at a pumping rate of 1500 gpm. 4. During the test, the rate of sand production shall be measured by the Company using a centrifugal sand separating meter as described in the Journal of American . • Water Works Association, Volume 46, No. 2, February, 1954. The centrifugal sand-separating meter shall be furnished by the Company. The results of all sand production tests shall be expressed in parts per million at 5 minute intervals and shall be provided to the Company's geologist immediately. The final sand production test shall be conducted in the presence of the Company's geologist. • 5. Clean water shall be added continuously down the gravel feed tube during development. 6. If, during the development operations,there is any indication of settlement of the A5-35 388444.10 022806 DOC • gravel envelope, more gravel shall be added as needed and the quantity recorded and reported to Company's geologist. • 7. After completion of development pumping,the Company shall measure the depth of the well to determine the amount of sediment deposited in the bottom. If the amount of sediment is greater than 15 feet,the Company shall pull the pump and clean the well of all accumulated sediment and foreign material and reinstall the pump. • • • • • • • • A5-36 399444.10 022906 ooc • SECTION 19 CHEMICAL WELL DEVELOPMENT PART 1 - GENERAL This item is only applicable if a clay-based drilling fluid is employed for well construction and results in a wall cake that cannot be removed by swabbing and air-lifting. Work will consist of introducing a clay dispersant such as NW-220 or equivalent into the well • adjacent to the screen intervals to disperse and remove any residual wall cake at the face of the bore. PART 2 - EXECUTION A. Upon completion of any portion of required mechanical well development, at the request of its geologist,the Company shall pre-mix 5 gallons of liquid NW-220 with approximately 500 gallons of potable water. A portion of this solution appropriate for 20 feet of well (approximately 35 feet of 16-inch casing in a 26-inch borehole) shall be pumped through the perforated double swab air-lift tool throughout a 20-foot section of well screen. Swab each interval a minimum of 15 minutes to disperse the chemical. The double swab tool will then be moved to the next screen interval. B. After injecting and swabbing each screen interval the chemical will remain in the well for 12 hours and then the well will be pumped or air-lifted clear. • • • ♦ • A5-37 388444.10 022806 DOC • SECTION 20 WELL PRODUCTION AND AQUIFER TESTS PART 1 - GENERAL This section covers pumping tests that include the step drawdown test with increasing discharge rate; a constant discharge test; and time-recovery test. PART 2 - MATERIALS A. Discharee Line and Meter The Company shall provide the temporary discharge piping required to convey well testing water to an appropriate discharge point. The discharge pipe shall include an in-line meter with 6-digit, straight reading totalizer, registering in units of 100 gallons with a rate of flow indicator dial which reads in gallons per minute, and is suitable for a flow range of 500 to 5000 gpm. The flow meter shall be factory calibrated at three different rates(600, 900 and 1200 gpm) prior to use on this job. The Company shall furnish results of the manufacturer's calibration to the Company's geologist prior to conducting the pumping tests. The Company shall also provide and maintain a manometer to measure the • discharge accurately. The discharge line shall also include a tap not more than 20 feet from the well with a valve to take water samples and measuring sand content. C. Test Pump The pump furnished shall be of the deep well turbine type capable of pumping up to 1500 + gallons per minute (gpm) from an estimated maximum pumping level of 160 feet. A satisfactory throttling device shall be provided downstream of the flow meter and manometer so that the discharge can be reduced to 300 gpm. D. Water Level Probe The Company shall furnish an electrical depth gage capable of indicating changes in the well water level to the nearest one-tenth foot and shall furnish and install an air line with direct reading gage calibrated in feet. The Company shall provide whatever assistance may be required by the Company's geologist. PART 3 - EXECUTION A. General Within 48 hours after the completion of well development with a test pump,the Company shall reinstall the pumping equipment and pump used for well development and commence the well production and aquifer tests. The Company shall schedule all tests in advance so that the Company's geologist can be on site throughout each testing period. B. Step Drawdown Test 1. The well shall be "step' tested at rates of approximately 1/2, 3/4, 1, and 1-1/4 times the design capacity of the well,unless otherwise directed by the Company's geologist. 2. The complete test for the well is estimated to require approximately 12 hours. A5-38 388444.10 022806 DOC • 3. The Company shall operate the pump and change the discharge rate as directed by the Company's geologist. 4. Discharge rate from the pump shall be controlled by both agate valve and engine throttle. The discharge shall be controlled and maintained at approximately the desired discharge for each step with an accuracy of at least plus or minus 5 percent. 5. During the test,the Company will record the time,pumping level,discharge rate, and rate of sand production every 15 minutes. 6. The rate of sand production will be measured by the Company using a centrifugal sand separating meter as described in the Journal of American Water Works Association, Volume 46, No. 2, February, 1954. Rate of sand production will be determined at 5-minute intervals. The results of all sand production tests will be • expressed in parts per million at 5 minute intervals. The centrifugal sand-separating meter shall be furnished and installed by the Company. C_ Constant Discharge Test 1. A constant discharge test shall commence not less than 12 hours after completion • of the step drawdown test. The rate of pumping shall be determined by the Company's geologist. The Company shall insure that the pumping rate selected remains constant throughout the test. The test duration shall be approximately 48 hours. When the test is completed and the pump stopped, the Company's geologist will measure recovery of the water level in the well for a period of approximately 24 hours. • 2. During the drawdown and recovery tests, the Company will record the discharge rate, sand production rate, the time and measure the water level in the pumped well at 15 minute intervals. 3. The Company shall provide qualified personnel on a 24-hour basis during both the step drawdown and constant discharge pumping tests to assure proper operation of the pumping test equipment and assist Company's geologist when necessary. 4. No payment will be made to the Company for pumping tests interrupted by the malfunctioning or failure of pumping equipment. If the test is interrupted, the water levels will be allowed to fully recover, after which the test will be restarted. • 5. When the production tests are complete, Company shall remove the pump and clean the well of all accumulated sediment and foreign material. The Company shall demonstrate that the well has been properly cleaned by measuring the depth of the well in the geologist's presence. • i A5-39 388444.10 022806 DOC • • SECTION 21 WELL DISINFECTION PART 1 - GENERAL Description This section covers the disinfection of the well. Work shall consist of providing chemicals, labor and equipment to mix and place the disinfecting chemicals in the well, surge with the pump and the required contact time. PART 2 - MATERIALS The disinfectant shall be HTH, Perchloron or equal dry powder, with 70 percent free chlorine, added to the well at the dosage of five (5) pounds per 100 feet of water filled casing and screen. Alternatively, sodium hypochlorite (12.5 percent available chlorine) in liquid form, can be used at a dose of 1 gallon per 1,000 gallons of well volume. PART 3 - EXECUTION • A. The disinfecting agent shall be uniformly applied throughout the entire water depth of the well using the test pump for surging without discharge. The dispersion of the disinfectant shall be assisted by pouring into the well a volume of water equal to the volume of water contained in the well, after the disinfectant has been emplaced. This will cause the disinfectant to flow out of the well into the area adjacent to the screen. r B. All accessible portions of the well above the water level shall be maintained in a damp condition with water containing the required concentration of disinfecting agent for a period of not less than 20 minutes. The disinfecting agent shall be left in the well for a period of at least 12 hours. • A5-40 388444.10 022806 DOC • SECTION 22 CAMERA SURVEY » PART 1 - GENERAL A. Description This section covers the performance of a color video camera survey over the full depth of the well. The camera survey shall be run by a firm retained by the Company and • approved by the Company's geologist. B. Submittal Copies of the tapes ofthe camera survey shall be provided to the Company's geologist,the District and the District's geologist within 48 hours after the survey is complete. PART 2 - MATERIALS A. Camera The camera used for the survey shall be equipped with centralizers and capable of both • vertical and side scan without the use of mirrors. The equipment used by the fine for the color video camera survey shall produce a tape with an automatic depth indication. B. Tapes The Company shall provide the Company's geologist with two I/2-inch VHS tapes of the . camera survey. PART 3 - EXECUTION A. Prior to conducting the camera survey, the pump shall be pulled and the well allowed to remain idle for at least 12 hours. During this period and the camera survey, 5 gpm of . clear water shall be run in to the well below the water surface. The camera survey shall be run for the full depth of the well. The survey shall be run in the presence of the Company's geologist. If the water clarity prevents a clear video survey,the survey will be rerun after corrective measures are implemented by the Company, at no cost to the District. • B. The Company shall be required to provide whatever assistance may be required to accomplish the camera survey. C. The video survey shall become the property of the Company's geologist and the District at the time each survey is completed. • A5-41 388444.10 022806 DOC • SECTION 23 ABANDONMENT • PART 1 - GENERAL Description Abandonment hereunder shall include abandonment of any remaining or unused portion of the pilot hole that is not being used for final well completion. PART 2 - MATERIALS A. Sealing Materials Acceptable impervious sealing materials that maybe employed in the abandonment ofthe wells include neat cement or sand-cement grout. 1. Sand cement grout shall be composed of not more than 188 pounds of sand and one 94-pound sack of Portland cement(2 parts sand to 1 part cement by weight) to five to seven gallons of clean water. This is equivalent to a 10.3 sack mix. M Bentonite, to make the mix more fluid and reduce shrinkage, may be used to a total of 5% of the volume of cement. 2. A neat cement mixture shall be composed of one cubic foot(one sack) of Portland cement to five to seven gallons of clean water. Bentonite, to make the mix more fluid and reduce shrinkage, shall be used to a total of 5%of the volume of cement. 41 3. Quick setting cement,retardants to setting,hydrated lime,and additives to make the mix more fluid may be used up to a total of 10% of the volume of the cement. Bentonite, to make the mix more fluid and reduce shrinkage, may be used to a total of 5% of the volume of cement. B. Filler Material Suitable filler materials include clay,silt,sand,gravel,crushed stone and those described in the previous section. Material containing organic matter shall not be used. PART 3 - EXECUTION A. Abandonment Prior to Installation of Casings If abandonment of the encased borehole is, by reason of any actions of the Company, including, but not limited to, such causes as total lack of potential aquifers,insufficient number of potential aquifers, or unacceptable quality; losing tools; damaging the well; misalignment; or any other cause attributed to careless or poor workmanship, the hole shall be completely filled with bentonite, cement, or other impervious earth materials in accordance with state law. No payment will be made for drilling and filling the hole so abandoned,or for mobilization and demobilization,for this procedure. TheCompanyshall drill a new hole as shown on the Plans or as specified by the Company's geologist. A5-42 388444.10 022806 DOC • B. Abandonment During or After Installation of Casing and/or Well Screen Necessity to abandon the cased hole shall be deemed caused by actions of the Company or his negligence. In the event the hole is abandoned after the installation of casing and/or screen, the Company shall, at the discretion of the District's geologist, pull or leave the installed sections in place. In either instance, the hole shall be abandoned in accordance with Applicalbe Law by backfilling the casing and/or hole with bentonite, cement, or other impervious earth material. No payment will be granted for lost or damaged casings and/or their installation in a well abandoned by reason of any action of the Company. The Company shall be required to drill a new well as shown on the Plans, or as indicated by the Company's geologist. • • r • A5-43 388444.10 022806 DOC • SECTION 24 DESTRUCTION OF EXISTING WELL • PART 1 - GENERAL A. Description This section includes the destruction of the existing wells located near the proposed brackish water wells. Most of the wells are more than 30 years old and well construction records may not be available. B. Submittals 1. The California Water Well Driller's Report form shall be fully completed in the format required by the State for water well destruction. The Report must be signed by the California Licensed well driller. 2. The Company shall submit the name and qualifications of any subcontractors needed to perform the destruction to the Company's geologist at least 10 days prior to destruction. • PART 2 - MATERIALS A. Sealing Materials Acceptable impervious sealing materials that may be employed in the abandonment of the • wells include neat cement or sand-cement grout. Quick setting cement, retardants to setting, hydrated lime, and additives to make the mix more fluid may not be used. 1. Sand-cement grout shall be composed of not more than 188 pounds of sand and one 94-pound sack of Portland cement (2 parts sand to 1 part cement by weight) to five to seven gallons of clean water. This is equivalent to a 10.3 sack mix. Bentonite to make the mix more fluid is not permitted. 2. A neat cement mixture shall be composed of one cubic foot(one sack) of Portland cement to five to six gallons of clean water. Bentonite to make the mix more fluid and reduce shrinkage, shall not be used. • B. Filler Material No filler materials such as clay, silt, sand, or gravel shall be used. Material containing organic matter shall not be used. PART 3 - EXECUTION • The objective of the requirements described in this Section is to restore, as nearly as possible, those subsurface conditions which existed before the well was constructed in order to prevent the well from creating a conduit for inter-aquifer groundwater movement. Well destruction will prevent contamination of the groundwater by surface water. i A5-" 398444.10 022906 Doc A. Obstruction Removal Prior to sealing, the following items must be completed. 1. If present remove and dispose of the existing pump and motor or other devices in the well. 2. Before destruction, the well shall be sounded to determine whether there are any obstructions that will interfere with the sealing procedure. The Company shall run an 8-inch diameter or larger bailer into the well to determine its depth or the presence of an obstruction. 3. If there are any obstructions, the Company shall immediately notify the District's geologist. The Company shall then attempt to remove the obstruction by bailing or other suitable means. • 4. The well shall be cleaned so that all fill at the bottom, debris and lubricating oil are removed for proper disposal. If an obstruction is determined to be in the form of hardware rather than fill material, and cannot be removed, the Company may attempt to pass the obstruction with a smaller pipe to place the sealing materials, eventually leaving the obstruction sealed in the well. • B. Destruction Method - Gravel Envelope Well The principal objective of well destruction is to protect the aquifers from inter-aquifer flow. An additional concern is the intercommunication of the destroyed well and the nearby new wells. Blank casing above the existing well screen shall be perforated to a depth of 20 feet below ground surface. The Company shall place the sealing materials in the manner defined below. 1. Perforate the blank casing using a mill-knife or other approved perforating device opposite the selected zones to be sealed. Perforations shall consist of a minimum of two rows of perforations 24-inches apart having four slots per row. The length of the slots is not intended to be larger than 4-inches. The maximum blade width on the perforator shall be 3/16-inch. The perforator shall be run on solid tools in order to insure proper placement and position in the well. The Company shall notify the District's geologist 48 hours in advance of the perforating in order that an inspector be present at the time of perforating. • 2. A tremie pipe shall be run to 5 feet above the bottom of the well. The Company shall fill the well with sealing material from the bottom up in one continuous operation. The Company shall proceed to fill the entire volume of the well with sealing material until completely filled to approximately 5 feet below ground surface. The Company must keep the bottom of the tremie pipe below the level of • sealing material throughout the filling procedure. The Company must calculate the volume of the well casing and record the volume of sealing material placed in the well. 3. A hole approximately 6 feet square shall be excavated around the well casing to a depth of 5 feet below ground surface and the well casing removed to the bottom * of the excavation. The sealing material shall be allowed to flow over the top of the casing into the excavation to form a cap. After the well has been properly filled, allowing sufficient time for the sealing material in the excavation to set, the excavation shall be compacted around the sealed well in order to restore the existing ground surface to the surrounding grade. AS-45 388444.10 022806 DOC • • 4. During periods of no work on the well, such as overnight or waiting for the sealing materials to set,the well and surrounding excavation shall be covered and the site secured. The cover shall be sufficiently strong and anchored to prevent the introduction of foreign material into the well and to protect the public from a potentially hazardous situation. • • • • • A5-46 388444.10 022806 DOC • • APPENDIX 6 DESIGN/BUILD WORK REVIEW PROCEDURES • 6.1 PURPOSE The District, the District Engineer and the Independent Engineer shall be given the opportunity to review and comment on the Design/Build Work in accordance with Article VI of the Service Contract. 6.2 DESIGN REVIEW PROCEDURES At a minimum, the Company shall prepare and submit to the District the following: 1. Design submittal protocol and schedule. 2. Design submittal for each element of design (listed below) at the level to which each element has been then-currently designed prior to the start of construction of such element. 3. One-hundred percent completion for each element of the design. 4. Permit applications. 5. Record drawings (complete, as-built drawings). The Company shall submit to the District a design submittal protocol and schedule no later than 30 days following the Contract Date. The design submittal protocol and schedule shall identify the elements of the design of the Project Improvements, identify the content of each design submittal for each element to be prepared by the Company, identify the expected submission dates for each design submittal for each element, identify the Governmental Bodies having final acceptance or approval responsibilities, and indicate the anticipated schedule for the design progress meetings between the parties. All design drawings shall be prepared by an engineer licensed in the State. The elements of design that will each be the subject of a design submittal are expected to be the following: • Plant Layout: The Company shall prepare detailed plans and design drawings of • the Project Improvements to be located at the Plant Site. • Plant Site Grading/Paving: The Company shall prepare a detailed design drawing of the grading/paving work to be performed at the Plant Site prior to the construction of the Project Improvements. Demolition: The Company shall prepare a detailed design drawing for removing existing structures from the Sites. • Proiect Improvement Foundations: The Company shall prepare a detailed design drawing of the foundation for each Project Improvement to be located at the Plant Site. Preparation of such design drawings shall occur upon finalization of the Plant layout. • Chemical Storage Tank Enclosure: The Company shall prepare a detailed design drawing of the chemical storage tank enclosure to house the bulk chemical storage tanks. Reverse Osmosis Building: The Company shall prepare a detailed design drawing of the reverse osmosis building that shall house the two reverse osmosis treatment trains. A6-1 388444.10 022806 DOC • • Yard Pining: The Company shall prepare detailed design drawings of the piping that will connect the treatment plant equipment at the Plant Site. Such design drawings shall be coordinated with the design drawings for the Project Improvement foundations, chemical storage tank enclosure and reverse osmosis building. • Well Layout: The Company shall prepare a detailed design drawing of each Well Site. Raw Water Transmission Line: The Company shall prepare a detailed design drawing of the Raw Water Transmission Line. • Finished Water Transmission Line: The Company shall prepare detailed design drawings of the Finished Water Transmission Line, which shall be coordinated with the design drawings of the Tirador Well water collection pipeline. • • Concentrate Disposal Line: The Company shall prepare detailed design drawings of the Concentrate Disposal Line. • Strawberry Hill Booster Pumping Station: The Company shall prepare detailed design drawings of the Strawberry Hill Booster Pumping Station. • Instrumentation and Control System: The Company shall prepare detailed design drawings for the Instrumentation and Control Systems. • Landscaping: The Company shall prepare detailed design drawings of all landscaping to be performed at the Sites. The Company shall coordinate the implementation of the above-mentioned design drawings as necessary. The District and the Independent Engineer shall have the right to review, but not approve, the design submittal for each element of the Project. Prior to the commencement of construction,the design of each element of the Project Improvements, as evidenced in the design submittal for each such element, shall be at a level which is, in accordance with Good Engineering and Construction Practice,sufficient to ensure the proper construction of the element. To the extent that the District asserts that the design does not comply with the Contract Standards,the District shall advise the Company in writing of such assertion and the basis of its claim. The District and the Company shall meet to review the District's assertion within 5 days of receipt of the District's written claim(or such other time as mutually agreed upon) and attempt,in good faith,to resolve the dispute; provided, however, that the existence of a dispute between the District and the Company as to whether the Company's design complies with the Contract Standards shall not prevent, preclude or delay the Company from proceeding with the design or construction of the Project, including that portion of the design or construction that is the subject of the dispute. The District and the Company may utilize non-binding mediation in accordance with Section w 13.16 of the Service Contract to attempt to resolve any dispute. The Company shall not be required to modify or alter the design absent either mutual agreement by the District and the Company or an order issued by a court of competent jurisdiction that the design does not conform to the Contract Standards. The Company may,and is expected to,implement elements of design and construction on a concurrent basis. 6.3 CONSTRUCTION REVIEW PROCEDURES The Company shall submit to the District all critical construction-related documentation, including Governmental Approvals, shop test results, shop drawings, the results of tests and inspections and other available data to document conformance with the Design Requirements. A6-2 389444.10 022906 DOC • The District and the Independent Engineer shall have the right to review, but not approve, the construction-related submittals provided by the Company. To the extent that the District asserts that a construction-related submittal does not comply with the Contract Standards,the District shall advise the Company in writing of such assertion and the basis of its claim. The District and the Company shall meet to review the District's assertion within 5 days of receipt of the District's written claim(or such other time as mutually agreed upon) and attempt, in good faith,to resolve the dispute; provided, however, that the existence of a dispute between the District and the Company as to whether the Company's construction-related submittal complies with the Contract Standards shall not prevent, preclude or delay the Company from proceeding with the construction of the Project, including that portion of the construction that is the subject of the dispute. The District and the Company may utilize non-binding mediation in accordance with Section 13.16 of the Service Contract to attempt to resolve any dispute. The Company shall not be required to modify or alter the construction-related submittal absent either mutual agreement by the District and the Company or an order issued by a court of competent jurisdiction that the construction-related submittal does not conform to the Contract Standards. The Company may, • and is expected to, implement the elements of construction on a concurrent basis. • • • • A6-3 388444.10 022806 DOC • • APPENDIX 7 LIQUIDATED DAMAGES FOR FAILURE TO • MEET THE WATER TREATMENT GUARANTEE 7.1 PURPOSE This Appendix sets forth the liquidated damages to be paid by the Company for failure to meet certain Water Treatment Guarantee parameters in accordance with Section 9.2 of the Service Contract. 7.2 LIQUIDATED DAMAGES Except to the extent excused by Uncontrollable Circumstances,if the Company fails to treat Raw Water and produce and distribute Finished Water in compliance with the water quality • requirements set forth in Table 7-1, below, the Company shall pay liquidated damages to the District in the amounts set forth in Table 7-1 in accordance with the provisions of this Appendix 7. 7.3 TESTING SCHEDULE • 7.3.1 General Test Frequency The general test frequencies listed in column three of Table 7-1 are the minimum testing frequencies to be employed by the Company for the purpose of evaluating compliance with the water quality requirements. If Applicable Law, or any Governmental Body, requires more frequent testing, the testing frequencies listed in Table 7-1 shall be modified, in • each instance, to follow such requirement. 7.3.2 Reduced Testing Frequency If each test of corrosivity at the general testing frequency indicates that such element is within the water quality requirements, as set forth in the second column of Table 7-1,for A a period of three years, the testing frequency for such element will revert to the testing frequency established by CADHS standards. If each monthly test of flavor and aroma indicates that either of such elements are within the water quality requirements, as set forth in the second column of Table 7-1, for a period of six months, the testing frequency for such element will be reduced to one test for each six month period. • 7.3.3 Test Failure If any test of any of the elements set forth in column 1 of Table 7-1,whether at the general testing frequency or at a reduced testing frequency as provided for in Section 7.3.2 hereof, indicate that any such element is not within the water quality requirement for such element as set forth in the second column of Table 7-1, the testing frequency for such • element shall increase to the failure mode testing frequency as set forth in column five of Table 7-1. The Company shall continue to test such element at the failure mode test frequency until such failure mode testing indicates that the element has met the particular water quality requirement in each test conducted during the failure mode test duration,as indicated in column six of Table 7-1. The testing frequency for such element shall then revert back to the general testing frequency indicated in column three of • Table 7-1. A7-1 388444.10 022806 DOC • • 7.4 FINISHED WATER QUALITY REQUIREMENT VIOLATIONS 7.4.1 Violations Generally • A violation of a water quality requirement will be deemed to have occurred as of the date of receipt by the Company of a State-certified laboratory report indicating that a particular element listed in Table 7-1 is out of compliance with the applicable water quality requirement. No violation will be deemed to have occurred,however,if tests of Finished Water samples taken on the date the Company receives such State-certified laboratory • report indicate that the particular element is in compliance with the applicable water quality requirement. In the event multiple Finished Water elements are determined to be out of compliance with the water quality requirements,each event of non-compliance will be deemed a separate occurrence for purposes of assessing liquidated damages. A violation of awater quality requirement shall continue and the Company shall be required to pay liquidated damages for such violation for each day of non-compliance in accordance • with Table 7-1 until the date the Company takes a sample of Finished Water resulting in a State-certified laboratory report indicating that the particular element has been brought back into compliance with the applicable water quality requirement. 7.4.2 Number of Violations The violation number columns listed in Table 7-1 set forth the liquidated damage amounts to be paid by the Company for each day of non-compliance during a single violation event. Liquidated damages payable by the Company for each day of non- compliance will be increased in accordance with Table 7-1 for each subsequent violation event relating to the same element in a given Contract Year. At the beginning of each Contract Year the violation event count will automatically be reset to zero for all elements, • except in instances where a violation has not been cured,in which case the violation will carry forward to the next Contract Year for purposes of calculating liquidated damages. The violation event count will be reset to zero for any element out of compliance with the water quality requirements at the end of a Contract Year upon the date the Company takes a sample of Finished Water resulting in a State-certified laboratory report indicating that such element is in compliance with the water quality requirements. • • • • A7-2 388444.10 022806 DOC • • • • • • • • • • • • Table 7-1 Liquidated Damages for Non-Compliance with Water Treatment Guarantee Failure mode test frequency, $/day/ General (days per re- $/day/ $/day/ Contract Year, Water Quality Test Reduced test after Failure Mode Contract Year, Contract Year, Violation No. 3 Element Requirements Frequency Testing failing result) Test Duration Violation No. 1 Violation No. 2 or more Corrosivity 0 - 0.36 LSI once every yes 7 28 100 200 400 three years Iron < 100 ug/L once every no 7 14 100 200 400 30 days Manganese < 25 ug/L once every no 7 14 100 200 400 30 days Turbidity < 0.05 NTU once every no 7 28 100 200 400 90 days Total Dissolved < 500 mg/1 once every no 7 28 100 200 400 Solids 30 days Flavor < = 1* once every yes 7 28 100 200 400 (Chlorine only) MWD rank 30 days -T Aroma < = 1* once every yes 7 28 100 200 400 (Chlorine only) MWD rank 30 days *Flavor and aroma values are calculated using Metropolitans "Flavor-Profile Analysis of Water," set forth in Attachment 2.1 to Appendix 2. A7-3 • APPENDIX 8 ACCEPTANCE TEST PROCEDURES AND STANDARDS • 8.1 ACCEPTANCE TEST PROCEDURES The Acceptance Test shall demonstrate the ability of the Project to treat Raw Water in accordance with the Contract Standards,the Water Treatment Guarantee and the Water Delivery Guarantee. The Acceptance Test plan shall define the procedures to be used, the specific measurements to • be made, the proposed usage of permanent and temporary instrumentation, the organization of the test team,the testing schedule, and the operating and maintenance schedule during testing. The Acceptance Test plan shall include specific, detailed sampling protocols to be utilized in conducting the Acceptance Test. The Acceptance Test plan shall specify the quantities of Raw Water to be supplied from the Wellfield for the purpose of start-up, commissioning and testing prior to Acceptance. The plan for disposal of Finished Water and Raw Water produced and used • in the Acceptance Test shall also be specified in the Acceptance Test Plan. The Acceptance Test shall not be conducted until the Acceptance Test plan is approved,and authorization is received from the District and the Independent Engineer. The Acceptance Test plan shall address the Company's approach and details for meeting the requirements of this Appendix.The District and the Independent Engineer shall comment on, approve or disapprove the Acceptance Test plan within 30 days of receipt. However, the Acceptance Test plan shall not be considered complete • and approved until all the District's comments and the comments of the Independent Engineer are resolved. Approval shall not be unreasonably withheld provided that all parties make every effort to provide expeditious response to all comments. All labor, materials, equipment, and services required to perform the Acceptance Test shall be supplied by the Company. During the Acceptance Test, the Company will operate all systems • under normal operating conditions, including, but not limited to, routine equipment operation, maintenance services and chemical and electricity usage. The Company shall staff the Project in accordance with the requirements of Article VIII of the Service Contract during the Acceptance Test. During the Acceptance Test, both halves of the Project's reverse osmosis and iron/manganese • filter systems shall be operated sequentially,each at 2.57 MGD to simulate 5.14 MGD,the design treatment capacity of the Project. Operation of each half at 2.57 MGD shall constitute acceptable demonstration of the Project's capacity to produce 5,128 AF/yr of Finished Water. The Acceptance Test shall be conducted for a minimum of 6 days, with a minimum of 48 hours of continuous operation of each of the two reverse osmosis trains. • During the Acceptance Test, the Project Improvements must also successfully demonstrate the following: 1. Manual shutdown and start-up of the Project Improvements as a functioning train to demonstrate the Project's ability to deliver Finished Water; 2. Automatic shutdown of the Project Improvements as a functioning train to • demonstrate the Project's ability to deliver Finished Water; and 3. Operation of each train(reverse osmosis and iron/manganese filter)to produce the quantity and quality of Finished Water as stipulated above. During the Acceptance Test the Finished Water will be regularly monitored for compliance with the Water Treatment Guarantee. Samples shall be analyzed by an outside laboratory certified for • water analyses by the State. Finished Water quality shall be sampled in accordance with Table 8-1. During the Acceptance Test, the Project will be discharging Brine into the South Orange County A8-1 388444.10 022806 DOC • • Wastewater Authority Ocean Outfall, the Finished Water will be discharged into the San Juan Creek, and the iron and manganese waste will be discharged into the sewer system. Should the performance of the Project be deemed to be unsatisfactory at any time during the Acceptance • Test, immediate action shall be taken by the Company to ensure that the Brine entering such ocean outfall does not exceed existing limits of Applicable Law or pose a threat to human health and the environment,and that the Finished Water entering the San Juan Creek does not exceed Applicable Law limits. If remedial action is considered unlikely to satisfy this requirement, the Project will be shut down and the trial terminated until such time as the above requirement is satisfied. • Acceptance Testing shall commence after operation of the Plant has stabilized for at least 24 hours of continuous operation. Each process unit shall be operated continuously during the Acceptance Testing period. The Company shall follow the testing schedule presented in Table 8-1 below. Table 8-1 Acceptance Test Parameters and Frequency Frequencyof Sampling Events events per da of testing) Iron/ Reverse Manganese Osmosis Finished • Constituent Raw Water Filtrate Permeate Water Calcium 1 - 1 1 Magnesium 1 - 1 1 Sodium 1 - 1 1 Potassium 1 - 1 1 Bicarbonate 1 - 1 1 • Chloride 1 - 1 1 Nitrate 1 - 1 1 Sulfate 1 - 1 1 Total Dissolved 1 - 1 1 Solids • Electrical 4 4 4 4 Conductance H 4 4 4 4 Barium 1 - 1 1 Fluoride 1 1 1 Iron 1 1 1 1 • Manganese 1 1 1 1 Silica 1 - 1 1 Strontium 1 - 1 1 Temperature 4 - - - Flavor - - 1 • Aroma - - - 1 Color - - - 1 Corrosivi - - 1 Silt Density Index 4 4 - - Total Organic 1 - 1 1 Carbon • Trihalomethane 1 - 1 Formation Potential Haloacetic Acid 1 - 1 Formation Potential A8-2 388444.10 022806 DOC • • Results for the testing of Finished Water shall be used to determine whether the Project passed the Acceptance Test. Results for the testing of iron/manganese filtrate, and reverse osmosis permeate shall be provided to the District solely for informational purposes. Results for the • testing of Raw Water shall be used to determine if the actual Raw Water quality exceeds the Design Raw Water Quality Parameters and the adjustments that may be necessary to the Acceptance Test criteria based on such test results. The Company shall also make available the results of any additional testing beyond that required by the Acceptance Test. The Acceptance Test Procedures and Standards shall be deemed to have been satisfied when the • Finished Water quality parameters are at or below the applicable standards for each parameter listed in Table 8-1 for three consecutive samples for each parameter at least 24 hours apart. The Finished Water standards are all Applicable Law and the Enhanced Standards found in Appendix 2.Once the applicable standard is met by any parameter for three consecutive sampling events, sampling may cease for that parameter and continue solely for the remaining parameters. If the Project has not met the Acceptance Test Procedures and Standards for all parameters after six • sampling events,the Company will be required to make any process changes it deems necessary and begin the Acceptance Test again from the beginning. At least one of the three necessary consecutive passing samples for each parameter shall be analyzed by a State certified laboratory. The District reserves the right to request split samples for all testing events to perform its own analyses. • 8.2 ACCEPTANCE TEST REPORTS In accordance with Section 7.10 of Service Contract, the Company shall provide: 1) Certification that testing was conducted in accordance with the Acceptance Test plan, including CADHS standards; • 2) Certification of the results of the testing, including a determination of the extent to which the Project complies with the applicable Performance Guarantees; 3) All relevant data measured and recorded during the test(s); 4) All relevant calculations used in determining test results; and 5) Any other available data reasonably requested by the District. • • • • A8-3 388444.10 022806 DOC • • APPENDIX 9 GOVERNMENTAL APPROVALS • 9.1 RESPONSIBILITIES The Company shall operate the Project to meet the requirements of all Governmental Approvals including, but not limited to, those listed in Table 9-1. • Table 9-1 Permits Permit/Contract Issuing Agency 1 Water Supply Permit California Department of Health • Services 2 Well Operation Permit California Department of Health Services 3 1 Well Development Permit Orange County Health Department • 4 Well Flushing Water Discharge Permit South East Regional Reclamation Authority 5 Well Flushing Water Discharge Permit Regional Water Quality Control Board 6 Well Development Water Discharge Regional Water Quality Control Board Permit • 7 Permit to Construct Under Railroad Line Southern California Regional Rail Authority 8 Licensee Contract to Operate Across Rail Orange County Transportation Line Authority 9 Permit to Operate Portable/ Fixed Air Quality Management District • Generator 10 Compliance with Mitigated Negative Multiple agencies Declaration 11 Permit to Construct across creek Orange County Flood Control • 12 Brine Discharge Permit Regional Water Quality Control Board/National Pollution Discharge Elimination System/South Orange County Waste Authority [18 Brine Discharge Agreements South East Regional Reclamation Authority/Santa Margarita Water • District/South Orange County Waste Authority Electrical Power to Well Sites San Diego Gas and Electric Water Rights Regional Water QualityControl Board • Water Rights Agreements San Juan Basin Authority Permit to Construct Under Freeway California Department of Transportation Fire Department Approval Orange County Fire Department A9-1 388444.10 022806 DOC • • APPENDIX 10 GUARANTEED MAXIMUM ELECTRICITY UTILIZATION • The Guaranteed Maximum Electricity Utilization consists of the Guaranteed Maximum Electricity Consumption and the Guaranteed Maximum Electricity Demand, each as set forth below. 1. Guaranteed Maximum Electricity Consumption: • WATER DELIVERED AF YR ELECTRICITY USED KWH 1 9203 981 tCJo 2,880 5 y 28 000 3,840 7S 000 • 4,320 7,477,100 4,800 8,250,000 5,280 9,092,300 Electricity for intermediate water delivery numbers will be calculated on a pro-rated basis. • 2. Guaranteed Maximum Electricity Demand: 1275 kilowatts • • • • • A10-1 388444.10 0 8�os �foc • APPENDIX 11 INSURANCE REQUIREMENTS r PART 1: REQUIRED OPERATION PERIOD INSURANCE 1. Company Insurance Coverage. The Company shall obtain,pay for and maintain the insurance coverages listed below with respect to the management, operation and maintenance of the Project: • (a) workers'compensation insurance required by Applicable Law covering all of the employees of the Company; (b) employer's liability insurance with limits of$1,000,000 per accident or employee disease; • (c) comprehensive general liability and property damage insurance,including contractual liability and products completed operations coverage,with a combined single limit of liability of$1,000,000 per occurrence for bodily injury and for property damage, a general aggregate limit of$2,000,000 (excluding products completed operations), an aggregate limit of$2,000,000 for products completed operations,a limit of$1,000,000 for • personal injury and advertising injury, $100,000 for fire damage and a$10,000 medical expense for any one person; (d) excess liability insurance above the required commercial general pollution (on a claims made basis), commercial automobile and employer's liability insurance to result in an overall liability coverage in the amount of$10,000,000 per occurrence and • an aggregate annual limit of$10,000,000; (e) pollution legal liability insurance with limits of$1,000,000 per loss and an annual aggregate limit of$2,000,000; and (t) commercial automobile liability insurance, including owned, non-owned • and leased or hired vehicles,with a$1,000,000 combined single limit for bodily injury and property damage, including non-owned and hired coverage. 2. Additional Insureds. The Company and Subcontractors shall include the District, the Board of Directors of the District, the City, the City Council and each of their respective officers, officials, agents, volunteers and employees as additional insureds (the "Additional • Insureds") on all insurance policies required pursuant to this Part 1. The District and the Company shall waive the subrogation rights of their various insurance carriers in favor of the other party. 3. Insurance Certificates. Insurance, and any renewals thereof, shall be evidenced by certificates of insurance issued or countersigned by a duly authorized representative of the • issuer and delivered to the District for its review 30 days prior to the Acceptance Date or, in the case of a renewal, as reasonably provided by the insurer. The certificates of insurance shall require 30 days written notice to the District of cancellation(except with respect to cancellation for non-payment of premiums to which a 10-day written notice shall be required), intent not to renew, or, to the extent that it would affect the District or its rights or obligations under such policy or the Service Contract,any reduction or change in its coverage by the insurance company. • All-I 388444.10 022806 DOC • • 4. Non-Recourse Provision. All insurance policies shall provide that the insurers shall have no recourse against the Additional Insureds for payment of any premium or assessment and shall contain a severability of interest provision in regard to mutual coverage • liability policies. The coverages provided by mutual coverage liability insurance policies required pursuant to the Service Contract shall be the primary source of any restitution or other recovery for any injuries to or death of persons or loss or damage to property incurred as a result of an action or inaction of the Company or its Subcontractors,or their respective suppliers,employees, agents,representatives,or invitees,that fall within these coverages and also within the coverages of any liability insurance or self-insurance program maintained by the District. • 5. Subcontractors. The Company shall be responsible for ensuring that all Subcontractors which are working on the Sites, secure and maintain all insurance coverages and other financial sureties required by Applicable Law in connection with their presence and the performance of their duties at or concerning the Project. • 6. Specific Provisions for Commercial General Liability Insurance. Commercial General Liability insurance, as required under this Part 1, shall include premises-operations, blanket contractual, products and completed operations, personal and advertising injury, host liquor liability,explosion,collapse,underground hazards,broad form property damage including completed operations, and independent Companys coverages. • 7. Specific Provisions for Workers'Compensation Coverage. Workers'compensation insurance shall be in accordance with the requirements of Applicable Law,as amended from time to time. The required workers' compensation insurance shall include other states' coverage. 8. Specific Provisions for Pollution Legal Liability Insurance. Pollution legal liability insurance, as required under paragraph 1(e) above,shall include coverage for off-site third party • bodily injury and property damage resulting from pollution conditions emanating from covered locations, off-site clean-up costs, on-site bodily injury, property damage and pollution clean-up costs, and owner's spill liability for third party claims. 9. Qualifications of Insurers. The Company is required to obtain the insurance set forth herein with insurance companies that carry an A.M. Best Company's "A" or equivalent • rating. In addition, insurance must be obtained and maintained with insurers authorized to do business in the State. 10. Cost of Insurance. If the District chooses to arrange for any of the insurance coverages outlined in this Part 1, the District may elect to obtain such insurance, provided that: • (a) written notice is received by the Company at least 90 days prior to the Contract Year during which the District will assume this responsibility or 90 days prior to the expiration date of the insurance placed by the Company; (b) the District names the Company as an Additional Insured and waives its subrogation rights upon assumption of such responsibility; and • (c) the District pays any cancellation penalty (or short-rate) arising out of canceling the Company provided coverage required by this Part 1, prior to its expiration date. All-2 388444.10 022806 DOC • PART 2: REQUIRED CONSTRUCTION PERIOD INSURANCE 1. ComoanV Insurance Coverage. To the extent the Company has not obtained or r does not continue to maintain such insurance coverage pursuant to paragraph 1 of Part 1 of this Appendix,the Company shall obtain, pay for and maintain the insurance coverage listed below with respect to the Design/Build Work and any Capital Modifications, without any reimbursement obligation on the part of the District: (a) workers'compensation insurance required by Applicable Law covering all • of the employees of the Company; (b) employer's liability insurance with limits of$1,000,000 per accident or employee disease; (c) commercial general liability and property damage insurance, with contractual liability and products completed operations coverage,with a combined single limit of liability of$1,000,000 per occurrence for bodily injury and for property damage, a general aggregate limit of$2,000,000 (excluding products completed operations), an aggregate limit of$2,000,000 for products and completed operations,a limit of$1,000,000 for personal injury and advertising injury, $100,000 for fire damage, and a $10,000 medical expense for any one person; • (d) excess liability insurance above the required commercial general,pollution (on a claims made basis), commercial automobile and employer's liability insurance to result in an overall liability coverage in the amount of$10,000,000 per occurrence and an annual aggregate limit of$10,000,000; • (e) commercial automobile liability insurance, including owned, non-owned and leased or hired vehicles,with a$1,000,000 combined single limit for bodily injury and property damage, including non-owned and hired coverage; (f) pollution legal liability insurance with limits of$1,000,000 per loss and an annual aggregate limit of$2,000,000; and • (g) "builder's risk" insurance, covering loss, damage or destruction to the Project and any Capital Modifications(including boilers and machinery coverage) caused by physical damage in an amount equal to the full replacement value of the Project,with no co-insurance provision written on a completed value form. 2. Bonds. The Company shall obtain, pay for and maintain (a) the Construction Performance Bond and the Payment Bond required under Section 15.2 of the Service Contract, (b)professional engineers and architects liability insurance in the amount of$2,000,000,and(c) Company's equipment floater insurance, covering all the Company's equipment while stored on-site during the Construction Period. • 3. Additional Insureds. The Company and Subcontractors shall include the District, the Board of Directors of the District, the City, the City Council and each of their respective officers, officials, agents, volunteers and employees as additional insureds during the Construction Period (the "Additional Insureds") on all insurance policies, except the workers' compensation and employer's liability policies in this Part 2. The District and the Company shall waive the subrogation rights of their various insurance carriers in favor of the other party. • Ali-3 388444.10 022806 DOC • • 4. Insurance Certificates. Insurance, and any renewals thereof, shall be evidenced by certificates of insurance issued or countersigned by a duly authorized representative of the • issuer and delivered to the District for its review prior to the Construction Date or, in the case of a renewal, as reasonably provided by the insurer. The certificates of insurance shall provide for 30 days written notice to the District of cancellation (except with respect to cancellation for non-payment of premiums to which a 10-day written notice shall be required), intent not to renew, or, to the extent that it would affect the District or its rights or obligations under such policy or the Service Contract,any reduction or change in its coverage by the insurance company. • 5. Non-Recourse Provision.All insurance policies,except the workers'compensation, employer's liability, and professional liability policies, shall provide that the insurers shall have no recourse against the Additional Insureds for payment of any premium or assessment and shall contain a severability of interest provision in regard to mutual coverage liability policies. The coverages provided by mutual coverage liability insurance policies required pursuant to the • Service Contract shall be the primary source of any restitution or other recovery for any injuries to or death of persons or loss or damage to property incurred as a result of an action or inaction of the Company or its Subcontractors, of their respective suppliers, employees, agents, representatives, or invitees,that fall within these coverages and also within the coverages of any liability insurance or self-insurance program maintained by the District. 6. Subcontractors. The Company shall be responsible for ensuring that all • Subcontractors of the Company working on the Sites secure and maintain all insurance coverages and other financial sureties required by Applicable Law in connection with their presence and the performance of their duties pursuant to the Service Contract. 7. Specific Provisions for Commercial General Liability Insurance. Commercial general liability insurance, as required above, shall include premises-operations, blanket • contractual, products and completed operations, personal injury and advertising injury, host liquor lidbility,explosion,collapse,underground hazards,broad form property damage including completed operations, and independent Companys coverages. 8. Specific Provisions for Workers'Compensation Coverage. Workers'compensation • insurance shall be in accordance with the requirements of Applicable Law,as amended from time to time. The required workers' compensation insurance shall include other states' statutory coverage. 9. Specific Provisions for Pollution Legal Liability Insurance. Pollution legal liability insurance, as required under paragraph 1(t) above, shall include coverage for off-site third party bodily injury and property damage resulting from pollution conditions emanating from covered • locations, off-site clean-up costs, on-site bodily injury,property damage and pollution clean-up costs, and owner's spill liability for third party claims. 10. Qualifications of Insurers. The Company shall obtain the insurance set forth herein with insurance companies that carry an A.M. Best Company's "A" or better rating. In addition, insurance must be obtained or maintained with insurers authorized to do business in • the State. • All-4 388444.10 022806 Uoc • • APPENDIX 12 OPERATION AND MAINTENANCE STANDARDS • 12.1 GENERAL The Company shall perform the Operation Services in accordance with this Appendix and the Contract Standards. Operational decision-making shall always be based on the following overall objectives: • Protection of the health and welfare of the public; • Protection of the health and safety of the Project operating staff; • Preservation of the long-term capability of the Project to supply groundwater desalination services; • Protection of the environment; • Protection and preservation of the Project; and • Maximization of Project operational efficiency and minimization of operational costs. 12.2 OPERATION AND MAINTENANCE • The Company shall maintain the Project in good working order and repair, in a neat and orderly condition, and shall maintain the aesthetic quality of the Project (with due allowance for reasonable wear and tear of the Project Structures). The following sections set forth requirements for the operation and maintenance of the Project, and are intended to address certain major activities required in the performance of the Operation Services. These Sections, however, are not intended to include all specific activities that are necessary for the performance of the • Operation Services or the fulfillment of the Contract Standards. 12.2.1 Analytical Services The Company shall perform sampling,testing,and any other analytical procedures of Raw Water,Finished Water, and Brine discharge to demonstrate compliance with the Contract • Standards. The Company shall perform all applicable testing related to process control at its own expense. All testing and analytical procedures, with the exception of process control testing,shall be performed by alaboratory certified by the CADHS,utilizing either an in-house or outside laboratory. The Company shall prepare laboratory data for all applicable regulations, permits monitoring, and operating reports and shall forward the results from the laboratory to the appropriate Governmental Bodies, including the • District. The District at its own expense may also perform testing, sampling and analytical procedures as it deems necessary. To the extent additional testing, sampling and analytical procedures are required by a Change in Law applicable to the Project, including any revisions to the CADHS permit,the Company shall be responsible for such activities and the expense of such activities shall be paid in accordance with the Uncontrollable Circumstance provisions of the Service Contract. • 12.2.2 Project Equipment and Chemicals The Company shall keep all Project Equipment in good operating condition and maintain adequate Project Equipment in inventory in order to facilitate the repair and replacement of Project Equipment, if necessary, in a timely fashion so as not to disrupt the operation • of the Project. Such Project Equipment shall meet the specifications provided for in the Al2-1 388444.10 022806 DOC • • Operations and Maintenance Manual including any revisions or amendments thereto. The Company shall operate all Project Equipment, and perform all tests and testing, as • may be required or recommended pursuant to applicable warranties, Good Industry Practice and Applicable Law. The Company shall promptly notify the District in the event of any major Project Equipment failure. All equipment, including instrumentation (but excluding rolling stock) and computers dedicated to the automatic operation of the Project, (such as SCADA) and chemicals • provided by the District or the Company on and after the Contract Date, including any equipment or chemical ordered by the Company or the District for the Project, shall be deemed to be owned by the District and shall remain a part of the Project upon termination or expiration of the Service Contract. All such equipment, including instrumentation and rolling stock, shall be in good operating condition, as adjusted for normal wear and tear. • 12.2.3 Buildings Services The Company shall perform building services to maintain the current condition of the Project throughout the Term. The Project Structures shall be maintained at a level adequate for the efficient, long-term reliability and preservation of the Project. The Company shall, at a minimum, perform the following activities relevant to the buildings and grounds: 1. Maintain the buildings, grounds and landscaping in an aesthetically attractive and clean condition; 2. Implement regularly scheduled pest control measures,or more frequently as required,and immediately upon discovery of potential pest infestations; 3. Repair all plumbing leaks and failures immediately; and 4. Apply paint as necessary and appropriate, but at a minimum every 10 years all paint surfaces shall be repainted. 12.2.4 Utilities • As of the Acceptance Date, the Company shall be responsible for supplying and paying for all Utilities except electricity,including but not limited to natural gas,heating,fuel oil, telephone and water. The Company shall use its best reasonable efforts to minimize energy consumption and demand. This includes, but is not limited to, the sequential start-up of the treatment trains and the use of variable frequency drive(VFD) or soft-start • motors for all motors rated at 50 horsepower or higher. 12.2.5 Water System The District will retain responsibility for maintenance, repair, and replacement of the Water System. The Company shall coordinate its activities with the District, as directed • by the District, to minimize disruption of the operation and maintenance of the Water System and to prevent any interference with pipeline cleaning and maintenance activities. 12.3 OPERATION AND MAINTENANCE COSTS The Company shall provide,at its sole cost and expense,all labor,materials,machinery,vehicles, • including, but not limited to office equipment, copiers, computers, fuel, chemicals, supplies, Al2-2 388444.10 022806 DOC • • materials,spare parts,expendables,consumables,testing and laboratory analysis,and any items required for the operation,maintenance and management(including all repair and replacement) of the Project in accordance with the terms and provisions of the Service Contract. 12.4 OPERATIONS MONITORING AND REVIEW The District will actively participate in review of the Company's management, operation and maintenance of the Project throughout the Term as reasonably necessary to assure the Company's compliance with the Contract Standards and all terms and conditions of the Service Contract. 12.4.1 Operation Records The Company shall maintain a record keeping system for all operation and maintenance functions performed on the Project. Records shall include, but not be limited to,records • of Project operation, maintenance procedures, emergency incidents, personnel, and inventory (equipment and chemicals). 12.4.2 Quarterly Meetings The District and the Company shall meet on a quarterly basis at the Plant or other mutually agreed upon location to discuss the prior three monthly reports and Project performance, including maintenance issues, Project conditions, Applicable Law compliance, invoicing issues, public relations, and other relevant issues. Copies of all documentation discussed or distributed relating to these meetings shall be distributed by the Company to all District and Company attendees. 12.4.3 Compliance With Wellfield Monitoring Plan The Company shall comply with the District's Wellfield Monitoring Plan, which includes routine monitoring of water levels, Raw Water quality, and well performance. A copy of the Wellfield Monitoring Plan is attached hereto as Attachment 1 to this Appendix. • 12.5 REGULATORY COMPLIANCE The Company shall be responsible for a number of regulatory compliance matters,including but not limited to, the following: • Water quality monitoring in compliance with both Finished Water quality and wastewater discharge permits; • Timely submission of all required regulatory correspondence, including self-reporting forms and CADHS, EPA and Regional Water Quality Control Board requirements; • Routine communication with operations staff concerning process control, permit compliance, water quality standards, reviews of laboratory results, etc.; and The Company shall utilize quality assurance/quality control programs and direct management oversite to address: • Data reduction, validation, and reporting; • Internal quality control checks; • Performance and system audits; Preventive maintenance on monitoring equipment; A 12-3 388444.10 022806 DOC • • • Assessment of precision and accuracy of the data; • Corrective action associated with any complications; and • Sampling Procedures - [a] calibration procedures of equipment and frequency; [b] confirmation of laboratory analytical procedures and the appropriate standard method. s • • • • • i Al2-4 388444.10 022806 DOC • ATTACHMENT 1 WELLFIELD MONITORING PLAN • INTRODUCTION Monitoring in the Wellfield should be performed on aroutine schedule using consistent methods and equipment. Monitoring of water level and Raw Water Quality Parameters,annual Raw Water quality testing and annual checks of Well performance will provide a comprehensive database for use in basin management. WATER LEVEL AND PRODUCTION MONITORING Water levels should be measured and recorded quarterly for each Well. Reference points, such as top of sounding tube, should be surveyed for elevation and used consistently to gauge the depth of water. Static water levels should be obtained 24 hours after stopping the pump. • Pumping levels should be measured 24 hours after start up. Record the date and time of each reading and note the amount of time that the Well has been off or on. All water levels should be measured to the nearest 0.1 foot. Monthly totalizer readings should also be recorded for each Well. A sample field data form is included on the last page of this Attachment. • Procedure. If the Well is pumping, measure and record the instantaneous flow rate and the totalizer readings,measure and record the pumping level,record the time and shut off the pump. Allow the Well to recover at least 24 hours before measuring the static water level; record time of the reading. Record the totalizer reading. Restart the pump. If the Well is not pumping, measure and record the static water level,meter reading and time. It is not necessary to measure • pumping level during periods of non-pumping. Measure the pumping level 24 hours after the pump start-up. FIELD WATER QUALITY MONITORING Field measurements of pH,temperature and electrical conductivity should be measured monthly 0 for active Wells. Field test results should be recorded on the field data form. LABORATORY WATER QUALITY MONITORING Water quality analyses should be performed for each Well at least as frequently as required by CADHS. Laboratory testing for the Design Raw Water Quality Parameters (as set forth in • Appendix 3) is recommended. This testing program at a minimum must satisfy testing required by the CADHS for potable wells. The recommended minimum list of analytes are: pH, electrical conductivity, TDS, hardness, alkalinity, Ca, Mg, Na, K, Fe, Mn, CO,, HCO3, Cl, SO,, F, color, turbidity, and NO,. SPECIFIC CAPACITY TEST • At least once per Contract Year the specific capacity should be determined for each Well. The Well should be shut down for at least 24 hours to measure and record the static water level. The pumping rate should be maintained at a constant rate during the test. Record the pumping level and flow rate. Calculate and record the specific capacity(in accordance with the formula set forth below) and compare to previous test results. • Al2-5 388444.10 022806 DOC 0 • SPECIFIC CAPACITY(GPM/FT) = PUMPING RATE IGPMI DRAWDOWN(FEET) r Procedure. Prior to restarting a Well pump that has been out of service at least 24 hours, the Company should measure the static water level. Start and continue pumping at the planned rate. Measure and record the pumping level and pumping rate 24 hours after starting the pump. • • • • • • • • • Al2-6 388444.10 022806 DOC • • • • • • • • • • • WELLFIELD DATA- CAPISTRANO VALLEY WATER DISTRICT FIELD DATA FORM DATE OBSERVER REFERENCE PUMPING TOTALIZER WELL ID POINT TIME WATER LEVEL RATE READING FIELD PARAMETERS COMMENTS ELEV. (FT.) (FT.) (GPM) PH TEMP. E.C. Tirador Static Pumping Static Dance Hall Pumping CVWD No.1 Static Pumping SJBA No. 2 Static Pumping CVWD No. 4 Static Pumping Kinoshita Static Pumping South Alipaz Static Pumping Mariner Static Pumping Al2-7 • APPENDIX 13 OPERATION AND MAINTENANCE MANUAL • 13.1 Requirements 13.1.1 Company Operation and Maintenance Manual As part of its responsibilities for achieving Final Completion under Section 7.16 of the • Service Contract, the Company shall provide the District with a copy of its initial Operation and Maintenance Manual for the Project within 120 days after the Acceptance Date. 13.1.2 Operation and Maintenance Manual Contents • The Company shall prepare and submit to the District for approval a comprehensive final Operation and Maintenance Manual at least 90 days prior to the transfer of operations to a successor, including the District. The District will review the draft Operation and Maintenance Manual and return one marked-up copy with comments and conditions for approval within 45 days of the initial submittal. The Company shall submit five copies of a final version of the Operation and Maintenance Manual incorporating the District's reasonable and acceptable changes and comments 30 days following the return of the draft manual. The Operation and Maintenance Manual shall specify all normal, as well as reasonable emergency procedures and tests to be conducted for the operation and maintenance of the Project, inclusive of all facilities and equipment. The Operation and Maintenance Manual shall be a comprehensive manual organized into • separate sections addressing each of the unit processes involved, the overall Project operation and control, auxiliary Project Equipment, and grounds and building maintenance. At a minimum, the Operation and Maintenance Manual shall include the following: 1. Routine maintenance schedule for all major systems(including membranes)and • schedule of expected shutdowns; 2. Copies of all Governmental Approvals,including all permits,licenses and other regulatory documents obtained for the Company's services, if not previously submitted; 3. Operation procedures for all major equipment within the Project during start-up, normal, alternate, and emergency operation modes; • 4. Equipment and Project manufacturers/suppliers operation and maintenance manuals; and 5. Forms and checklists to be used to monitor equipment and process Project operation and preventive maintenance, including: • Monitoring and reporting requirements. • A summary of the chemicals used at the Project. • Updates to the Operation and Maintenance Manual. Each separate unit process, auxiliary Project processes and grounds/building section of the Operation and Maintenance Manual shall include a detailed written explanation of the following: • A13-1 388444.10 022806 DOC • • • The process, including its key components. • The Project function including its purpose and normal operating parameters. Equipment summary including nameplate data, supplier/local representative, and manufacturer. • Description of Project instrumentation and controls, including an alarm summary. • Description of normal Project operations including startup and shutdown, adjustment of variable functions and settings, interface with other plant systems, routine monitoring checklists and record keeping forms. • Maintenance,including predictive and preventive maintenance forprocess functions, such as cleaning and hose down, flushing and inspection; mechanical functions, such as changing lubricating fluids and filters, checking rotating equipment balance, and changing valve seals and packing;electrical functions,such as checking tightness of wiring terminal connections, exercising breakers, and recalibrating meters; instrument and control functions, such as sensor calibration; and structural maintenance, such as crack repairs and restoration of surface corrosion protection systems. • Trouble shooting for Project malfunctions. 13.2 Operation and Maintenance Manual Approach The Company shall develop a computerized maintenance management plan for predictive preventive,and corrective maintenance.The plan shall include all Project components,along with inspection and maintenance frequencies,inspection and maintenance techniques, and the type of record-keeping system required for each piece of equipment. Weekly specific maintenance procedures shall be performed on all Project Equipment. The maintenance management plan shall include such items as: • Review equipment manufacturer operation and maintenance manuals for each piece of equipment at the Project and include procedures in the plan as recommended. 0 Perform equipment lubrication, minor adjustments, minor repairs, and calibrations. • Make visual observations and regularly track motor amperage readings, pump pressure readings, equipment run times, and oil temperatures to determine equipment efficiencies. • Make necessary adjustments to equipment as required to ensure proper operation of all equipment (e.g. adjustment of packing sleeves). • Conduct annual meter calibration on all flowmeters to verify accuracy,checking both the meter and the recorder to assure all signals are acceptable. The Company shall track all maintenance activities, labor hours spent, spare parts used, and work orders generated for each piece of Project Equipment. Each section of Project operations shall be categorized within the program with its own identity. For example, subgroups may consist of: • Weekly and monthly work orders for the Project. • Spare parts inventory for the Project. • History of work orders performed. • Manufacturer's information. A13-2 388444.10 022806 DOC 0 • • Vendor data. • Annual report on maintenance, including pertinent graphs. • The Company shall use a designation system for each piece of Project Equipment. Project Equipment files maintained by the Company shall contain records of all maintenance performed, malfunctions, time and date of malfunctions, repairs, parts replaced, and costs. Project Equipment files shall be updated on a weekly basis and shall be available for review upon request. • 13.1.3 Preventive Maintenance and Record Keeping The Company shall obtain a custom maintenance manual from its membrane supplier for the operation and maintenance of the specific membrane system used at the Project. • • • • • • A13-3 388444.10 022806 DOC • • APPENDIX 14 SAFETY AND SECURITY PLAN • 14.1 Requirements The parties acknowledge that the Company maintains,as part of its general business operations, operating manuals and other instructional material which are designed to address safety and security matters with respect to facilities it operates generally. The standards and requirements • set forth herein represent a standard of safety and security to be maintained at the Project. The Company shall not be required to comply with every specific requirement set forth in this Appendix but shall,however,maintain safety and security of the Project to a standard consistent with the standard set forth in this Appendix,taken as a whole. The Company further represents that its own manuals, to be implemented at the Project,set a standard that taken as a whole are • equal to or more stringent than that set forth in this Appendix. The Company shall provide for and maintain the security and safety of the Project. The Company shall develop and submit to the District a safety and security plan for the Construction Period at least 21 days prior to the Construction Date. The Company shall develop and submit to the District a safety and security plan for the Operation Period at least 60 days prior to the • Acceptance Date. The Company will implement the safety plans, and shall be responsible and obligated to enforce all safety, security and health laws, rules, regulations, and/or procedures. Any and all persons entering the Project shall be identified and provide appropriate documentation of authorization to have access to the Project. The Company is responsible for providing the appropriate procedures to maintain a log of any and all persons accessing the Project. • The structural integrity of the fences shall be maintained and kept in neat order. Gates, access points, and doors to the Project shall be kept locked. Entrance to such facilities and structures shall be protected against unauthorized entry. The Company is responsible for maintaining all security alarms in working order. • 14.2 Safety and Security Plan Approach The Company shall ensure that all staff have training that is appropriate to their level of work. The Company shall place appropriate signage around the Wellfield and all Project Structures. All mechanical equipment will be supplied with shaft guards and other safety devices that must • be replaced if they are removed for any reason. The Company shall provide fire extinguishers at various locations around the Sites. In addition, the Company will provide all necessary personnel protective equipment,including but not limited to hard hats, hard-toed safety shoes, gloves, safety glasses and eye shields, etc. A first aid kit shall be kept at the Plant. • The Company shall maintain a form of'lockout-tagout"program for all electrical equipment. All electrical-driven equipment having remote and/or automatic controls shall have signs attached, stating they may start at any time. • A14-1 388444.10 022806 DOC • • 14.2.1 Corporate Safety Manual All Company personnel shall follow the Company's corporate safety manual,the standards • of which are consistent with the standards set forth below: • Employees observing and obeying every rule, regulation, and order as is necessary to the safe performance of the Contract Services and shall take such action as is necessary to obtain observance. • Anyone suspected to be under the influence of intoxicating liquor or drugs shall • not be allowed on the job while in that condition. • Horseplay, scuffling, and other acts that tend to have an adverse influence on the safety or well being of the employees are prohibited. • No one shall knowingly be permitted or required to work while his ability or alertness is so impaired by fatigue, illness, or other causes that it might unnecessarily expose him or others to injury. • Employees shall not enter chambers,tanks, or other similar places that receive little ventilation, unless it has been determined by appropriate test equipment that the air contains no flammable or toxic gases or vapors and all other specific Project-developed procedures are followed. • Employees shall not handle or tamper with any electrical equipment,machinery, or air or waterlines in a manner not within the scope of their duties. • All injuries shall be reported promptly so that arrangements can be made for medical or first aid treatment; any job-related injury requiring a visit to a physician requires a physician's release in order to return to the job. • Employees must wash thoroughly after handling injurious or poisonous substances and follow all special instructions from authorized sources regarding this matter; hands should always be thoroughly cleaned just prior to eating. • No burning,welding or other source of ignition shall be applied to any enclosed tank or vessel, even if there are some openings, until it has first been determined that no possibility of explosion exists, and authority for the work is obtained from the Project Operator. • Any damage to scaffolds or other supporting structures shall be repaired or reported promptly. • Eye shields shall be worn when working in areas of eye hazard. • Loose or frayed clothing, dangling ties, etc. shall not be worn around moving machinery or other sources of entanglement. • Machinery shall not be repaired or adjusted while in operation, nor shall oiling of moving parts be attempted, except on equipment that is designed or fitted with safeguards to protect the person performing the work. • Employees shall not work under vehicles supported by jacks or chain hoists without protective blocking that will prevent injury if jacks or hoists should fail. 14.2.2 Housekeeping The Company shall implement and maintain general housekeeping procedures, the • standards of which are consistent with the standards set forth below,to ensure the basic working conditions and aesthetic appearance of the Project: • The lawn and landscaped areas shall be maintained to provide for a visually pleasing atmosphere. • All trash shall be picked up and disposed of properly. • The Project Structures shall be kept as clean as possible by hosing or sweeping. A14-2 388444.10 022806 DOC • • • Any process area shall be hosed down and kept free from accumulations of screenings, grit or other objectionable matter. • The chemical feed areas shall be free from debris and chemical stored in the • appropriate manner to provide for a safe area. • Pumps, mixers, drives, and other mechanical equipment shall be kept free of accumulations of excess grease and oil. • The control areas shall be kept in a clean and orderly manner;trash should not be allowed to accumulate, and records should be kept in an organized manner to allow for fast and efficient retrieval when needed. • Tools and equipment shall be kept well maintained and organized. • Spare parts inventory shall be kept well organized and up to date to allow for easy inventory and spare part retrieval. 14.2.3 Safety Training and Documentation • The Company shall implement and maintain a comprehensive safety training program, the standards of which are consistent with the standards set forth below. The Company shall maintain and update records of all safety events and activities in accordance with Applicable Law requirements. All such records and reports provided to any Governmental Body shall also be provided to the District by the Company. • 14.2.4 Hazardous Materials Plan The Company shall demonstrate a hazard communication program to cover all issues of Hazardous Material handling. This program shall include subjects such as: • Hazard Determination Procedures • Labels and Warning Procedures • Material Safety Data Sheet (MSDS) Procedures • Informing Companys Concerning Hazards • Employee Hazardous Detail Training Procedures • Hazard Communication Standard Training Requirements • Company personnel that handle Hazardous Material shall receive special training that will include such topics as: Confined Space Entry • Chlorine Safety • Hazardous Gases and Detectors • Hazardous Communication Standard (Right-to-Know) • Hazardous Material Response Team Training • Safe Chemical Handling and Use • Emergency Response Training • The Company's emergency response training shall cover emergencies such as severe storms, earthquakes, regulatory related emergencies, chemical gas escapes, and accidents. All new employees shall receive safety training and emergency response training. Routine drills shall be scheduled to ensure employee familiarity with emergency response procedures. • A14-3 368444.10 022806 DOC • • 14.2.5 Security 14.2.5.1 Lighting • The Project shall have lighting systems with either continuous/timed on-off systems or motion-sensitive intermittent key area lighting. 14.2.5.2 Fencing • The Plant shall be secure,with solid walls or protective fencing appropriate to the Sites and the surrounding area. 14.2.5.3 Well Enclosures All Well enclosures shall consist of solid building structures,and include lighting, • telemetry,emergency response capability 24 hours per day,seven days per week, and coverage/coordination with local safety departments. No chemicals shall be stored at the Wellfield. 14.2.5.4 Finished Water Monitoring • The Company shall monitor water quality at various stages of the treatment process, including at the Finished Water stage. The following Finished Water results shall be integrated with a system alarm during non-staffed periods: conductivity, turbidity, chlorine, and pressure. 14.2.5.5 Landscaping • The Company shall employ the appropriate landscaping reasonably necessary to minimize security issues. 14.2.5.6 Police Coordination • The Company shall ensure coordination of security issues with District staff and the local police department. • • A144 388444.10 022806 Doc • APPENDIX 15 • COMMUNITY OUTREACH PLAN 15.1 REQUIREMENTS The Company shall prepare and submit to the District for approval a proposal for a comprehensive Community Outreach Plan within 30 days after the Contract Date. The proposed • Community Outreach Plan shall describe the avenues with which the Company will proactively communicate the details of the Project to the general public during all phases of the Project. The Community Outreach Plan should include face-to-face meetings between the general public and representatives of the Company and literature describing the Project and the anticipated schedule of implementation. The Company will be responsible for addressing all complaints related to its work on the Project in a timely and satisfactory manner. • 15.2 COMMUNITY OUTREACH PLAN APPROACH The Company shall use a variety of methods for communicating with the general public. These shall include, but not be limited to, Project tours, video/slide presentations for the public and local schools, mailings, customer bill inserts, and community involvement. The Company shall • evaluate community needs before using specific outreach instruments. The Company shall work with the District to finalize the message delivered through the Community Outreach Plan. Elements of the plan shall include, but not be limited to, the following:development ofreliable,District-controlled water resources;high water quality provided by advanced reverse osmosis; conservation of the State's water resources by desalinating • brackish water; rate consistency due to the fixed-price, long-term contract; and retention of District ownership and control of water rates. 15.3 COMMUNITY OUTREACH PLAN OUTLINE A copy of the Company's Community Outreach Plan Outline is included as Attachment 1 to this • Appendix 15 and is entitled "Community Relations Program Plan for the Phase I Groundwater Recovery Plant". • • • A15-1 388444.10 022806 DOC • • Attachment 1 Community Relations Program Plan • for the Phase I Groundwater Recovery Plant Executive Summary The Community Relations program will be custom tailored to the District's specific requirements within the allotted budget. Elements of the community relations program will be implemented • systematically over the course of the Plant construction, based on careful analysis of then- current needs and in response to overall Project goals. Professional Staff The community relations program will be designed and administered by the Corporate Communications Department of Southwest Water Company (parent company of the Company). • Team members include: The members of the Corporate Communications Department have managed numerous community relations programs and have extensive experience in media relations, writing, publication production,Web site development and other public relations-related areas.One team member will be designated as the principal program manager and liaison with District, City and • other Project officials; however, all team members will maintain current awareness of the community relations program and will be available as needed for program administration. Community Relations Program Goals The Plan will address four key elements: • 1. Create public awareness of the Project(including anticipated benefits)within the City. A project of this size and duration will become part of the community consciousness simply by"being there." The Company will develop and implement a `post-vote, pre-construction" program of community communication that begins before the first shovelful of dirt is turned and extends throughout the construction process and past completion. • 2. Educate the public about the desalting process and Project technology. Public acceptance of any new municipal system,process or policy depends heavily on a clear and accurate knowledge of related technical issues.The Company will develop a fact- based summary of the Project to help counter rumors, factual errors or other mis- perceptions that could foster negative public opinion. • 3. Maintain public knowledge of the Project's progress. Citizens will receive regular project updates through multiple available channels (e.g., direct mail, news media, Internet and face-to-face interaction). 4. Facilitate two-way communication between members of the community and • Project officials with regard to Project issues. The Company will supply the community with a convenient means of making inquiries and requesting more information specific to personal concerns regarding the Project. Community Relations Program Essentials The community relations partnership with the City will include as many of the following elements • as possible.The Company team will work through the City's community liaison for all phases of A15-2 388444.10 022806 DOC • • the plan, ideally with frequent meetings and updates. Nothing will be issued without District approval and all materials will comply with the District's mission and graphic standards. The suggested program components include: • 1. Regular media contact - The Company will continue existing and foster new relationships with representatives at local newspapers, community cable television outlets and radio stations(e.g., KSBR,which does regular City segments).In addition to issuing routine news releases at appropriate times during the Project,we will pitch feature story ideas and photo opportunities to the local media. We will develop a detailed fact sheet for distribution to reporters and other interested parties. 2. Public information events -The Company will design and coordinate a variety of events,such as agroundbreaking ceremony,"open house"at various stages of Project construction,field trip opportunities for local schools,VIP tours and a ribbon-cutting ceremony. • 3. Telephone hotline - To help address the need for two-way community communication, the Company will arrange for a dedicated toll-free project hotline. 4. Direct resident contact - Regular print communications will be prepared by the Company for inclusion in the District's existing quarterly newsletter that goes out with • water bills. If desired, door hangers can be developed by the Company (and distributed by the City) to inform citizens in a particular area of more timely information as needed. 5. Internet-based communication-The Company will provide information and updates on a timely and regular basis for the Project on a section of the City's existing website, • either within an existing page or as its own section. The Web presence will be publicized in newsletters, bill stuffers, construction signage and local media. 6. Project signage-In accordance with local ordinances,the Company will help the City (which already has capabilities and contacts in this area) develop signs in and around the Project Site to address both safety and informational needs. • 7. Existing community publications - The Company will make use of existing community publications such as the City's quarterly business newsletter,the monthly Chamber of Commerce newsletter, and the Parks& Recreation Department's events and classes newsletter. Other avenues will be researched for potential application, such as the Rotary Club and Kiwanis Club publications. • 8. Existing community events -The Company will work with the City staff to use, if appropriate, the City's many public events as venues for highlighting the Project. 9. Local school involvement-The Company staff will visit local schools to conduct age- appropriate lessons or workshops about the Project and water issues in general. This • will be either on an ad hoc basis or as a recurring part of the science curriculum. Essay and poster contests will be suggested to generate interactivity and indirect parental involvement. The Company will supplement such visits with printed materials from our archive, PowerPoint presentations, etc. • A15-3 389444.10 022806 Doc • • 10.Plant model-The Company will construct a tabletop replica of the Project that can be situated in schools, libraries, rec centers and the like for casual viewing or to support informal talks. • 11,Contingency plan-For the Project and the Company will design a contingency plan for communicating unforeseen construction delays or Project changes. The contingency plan will include procedures to be followed in the event of an emergency (e.g.,earthquake or major accident). A list of key contacts will be developed to ensure • that all necessary parties are quickly informed of any unusual occurrences. Response procedures will be included as well. • • • • • • • A15-4 388444.10 022806 DOC • • APPENDIX 16 PROJECT EVALUATIONS • 16.1 BASELINE PROJECT RECORD AND ANNUAL INSPECTIONS As required by Section 10.2 of the Service Contract, the Independent Evaluator shall develop a Baseline Project Record. The Baseline Project Record shall be a complete listing of all assets that constitute the Project on a completed and installed basis with an installed cost greater than • $1,000. The Baseline Project Record shall consist of two sections that indicate whether the asset is considered part of(1) the Project Equipment, or(2) the Project Structures. All newly added assets shall be entered in the Baseline Project Record together with their evaluation designators,installation date, and installation cost.All assets that are removed from the Project shall be deleted from the Baseline Project Record. Assets that are removed from 41 service but left in place shall continue to be shown in the Baseline Project Record. The Company shall annually provide the District a hard copy and digital form of all updated Baseline Project Record listings along with a written summary of the changes made in the Baseline Project Record since it was last updated. Each asset listed in the Major or Minor Project Equipment list(described below)shall be assigned • a unique asset number that is entered into the Baseline Project Record along with a name or short verbal description of the asset. The asset numbers,naming conventions and nomenclature used in the Company's computerized maintenance management system, developed pursuant to Section 10.4 of the Service Contract, shall be used. The Baseline Project Record shall be compiled using Microsoft Excely,Microsoft Accessv or some • other computer software program mutually agreed to by the parties. The master copy of the Baseline Project Record shall be prepared in hard copy form,each page of which shall be initialed by both parties. The District shall keep the master copy of the Baseline Project Record. The Company shall also provide the District an electronic copy of the Baseline Project Record. 16.1.1 Project Equipment • The Company shall, no later than 30 days following the Acceptance Date, provide the District with a baseline status of the Project Equipment. The Company shall continue to inspect the Project Equipment during the Operation Period and update the Baseline Project Record annually. Project Equipment shall be listed as in the example tabulation provided in Table 16-1. 16.1.2 Project Structures The Independent Evaluator shall make an initial record of the functionality and structural integrity of the Project Structures in accordance with Section 10.2 of the Service Contract. The initial evaluation shall be the standard against which all future evaluations of the • Project Structures are compared. As part of the evaluation, a photographic and video record shall be made of the exterior and interior of the Project Structures,where possible. The Company shall perform the evaluations of Project Structures during the Operation Period and update the Baseline Project Record annually. Based on the initial evaluation, each Project Structure will be assigned a functionality and structural integrity rating in accordance with Section 16.2.2 of this Appendix to establish its initial overall condition. • Project Structures shall be listed as in the example tabulations provided in Table 16-2. A16-1 388444.10 022806 DOC • • 16.2 FINAL EVALUATION OF THE PROJECT Prior to the Termination Date, as required by Section 10.2 of the Service Contract, the r Independent Evaluator shall perform a final evaluation of the Project. 16.2.1 Final Project Equipment Evaluation Step 1: Estimate Remaining Life of Project Equipment For the final Project Equipment evaluation, the Company, the District, and the Independent Evaluator will verify the accuracy,including the proper designation of each asset, and completeness of the Baseline Project Record prepared by the Independent Evaluator and maintained by the Company. Assets removed from service but left in place shall continue to be shown in the Baseline Project Record. However, the initial value, replacement value and remaining life of these assets will be set to zero.These assets shall be designated as not included in the evaluations. The Independent Evaluator will then estimate the remaining life of all the Project Equipment having an installed cost equal to or greater than $1,000 listed in the Baseline Project Record, as provided below. The Independent Evaluator shall not estimate the remaining life for Project Equipment having an installed cost of less than $1,000. An example of the information to be provided in Step 1 for the Project Equipment is presented in Table 16-3, found at the end of this • Appendix. 16.2.1.1 Remaining Life Evaluation The Independent Evaluator will estimate the remaining life value (in years, rounded to the nearest whole number) of all the Project Equipment using the following methods and procedure. The remaining life of an asset shall be based upon its ability to perform its intended function, taking into consideration its performance history, physical condition, availability, replacement costs and maintenance costs. In determining the remaining life of an asset, the Independent Evaluator will not consider whether an asset is outmoded and, if replaced, would enhance the capabilities of the Project. The Independent Evaluator will conduct the following procedures to establish the remaining life of the Project Equipment: • Visually inspect the Project Equipment. • Monitor related instrumentation to determine the asset's physical condition and operation characteristics. • Review all repair, rebuild and replacement records, and consult with manufacturers. • Inspect all readily accessible parts and surfaces for any installation problems, excessive vibration, noise or temperature, the condition of coatings, signs of wear or corrosion, and leakage of any fluids. • For motor-driven equipment,these inspection activities shallbe conducted while such equipment is in operation. For Project Equipment with an installed cost of$100,000 or greater(as indicated in the Baseline Project Record) or Project Equipment designated as "Critical • Assets" (as designated by the parties), diagnostic testing will be performed to A16-2 388464.10 022806 DOC • • supplement and enhance the information obtained through the visual inspections with photographic and video recording and review of repair and replacement records. Such diagnostic testing may include,but is not limited to, • vibration analysis, oil sampling and testing, and motor circuit analysis. In such cases, the diagnostic testing shall be conducted by manufacturer-approved personnel or other appropriate qualified service technicians. If the District and Company agree that such diagnostic testing is unwarranted for any asset, then the Independent Evaluator may determine the remaining life without performing such tests. If the Independent Evaluator cannot estimate the remaining life of any asset using the procedures detailed above, then the District and the Company shall determine the remaining life of the asset by mutual agreement, subject to the dispute resolution procedures set forth in the Service Contract. • The Remaining Life of the Project Equipment shall be added to the Baseline Project Record as shown by example in column F of Table 16-3 found at the end of this Appendix. The development of the remaining life shall take into consideration the following: • Spare parts included in the spare part inventory are not included in the calculation of the weighted average useful life; • Obsolete and unused assets are not included in the calculation of the weighted average useful life; and • Assets comprising the Project Structures are not included in the calculation of the weighted average useful life. Step 2: Determining Weights to be Applied to Each Asset The "weighting factor"for an asset is the current replacement value of the asset (the "Replacement Value") divided by the sum of the Replacement Values of all assets comprising the Project Equipment having an installed cost equal to or greater than $1,000. Weighting factors to be applied to each asset shall be • calculated using the following equation: F; = VAEVJ Where, F, = Weighting Factor of asset "i' • V; = Replacement Value of asset"i'in current dollars as of the evaluation date Y-V; = the sum of the Replacement Values of all assets comprising the Project Equipment having an installed cost equal to or greater than $1,000, from i=1 to i=N i = a particular asset number N = number of assets of Project Equipment having an installed cost equal to or greater than $1,000 • A16-3 388444.10 022806 DOC • The Independent Evaluator shall determine the Replacement Value of each piece of Project Equipment using standard valuation techniques. If the Replacement Value of an asset cannot be readily determined,then the Independent Evaluator • will inflate the initial installed cost of the asset (as established in the Baseline Project Record) by the same rate of change as the CPI-U from the year the asset was installed(or purchased)to the year for which the Replacement Value is being calculated. The initial installed cost for an asset will be the actual, as-built vendor information(that is, labor and materials invoices). • An example of the calculation of asset Weighting Factors is presented in the following table, which is excerpted from Table 16-3. The Weighting Factor for Asset Number 1 is calculated by dividing its Replacement Value of$75,000 by the total Replacement Value of $750,000, yielding a Weighting Factor of 0.1000. Weighting Factors shall be rounded to four decimal places. • Asset Weighting Factor(Example) Replacement ksset Number- Asset Name & Manufacturer Value Weighting Factor 1 Desanders $75,000 0.1000 2 Iron/Manganese Filters $15,000 0.0200 • 3 Reverse Osmosis Feed Pumps $150,000 0.2000 4 De assifiers $127,000 0.1700 5 250 HGL Zone Finished Water Pum s $142,500 0.1900 6 1350 HGL Zone Finished Water Pumps 1 $2400.3200 TOTAL 750,500 000 1.0 *Asset numbers shall be assigned in accordance with the Baseline Project Record. Step 3: Determine Weighted Remaining Life The Weighted Remaining Life shall be calculated by multiplying the Remaining Life of an asset by the Weighting Factor for that asset as shown in the following • equation: W, _ (FJ(LJ Where, W; = Weighted Remaining Life of asset "i'in years • F; = Weighting Factor of asset "i' L; = Remaining Life of asset"i' in years An example of the calculation of the Weighted Remaining Life is presented in the following table excerpted from Table 16-3. The Weighted Remaining Life of 1.0000 for asset number 1 is calculated by multiplying the Weighting Factor 0.1000 by the Remaining Life of 10. The Independent Evaluator shall calculate the Weighted Average Useful Life for two separate categories of Project Equipment: (1) Project Equipment having an installed cost of$2,500 or greater ("Major Project Equipment'j, and (2) Project • Equipment having an initial installed cost of between$1,000 and$2,500("Minor A 16-4 388444.10 022806 DOC • • Project Equipment"). The Weighted Average Useful Life for the Major Project Equipment is the sum of the Weighted Remaining Life values for assets constituting the Project Equipment having an installed cost equal to, or greater • than,$2,500. The Weighted Average Useful Life for the Minor Project Equipment is the sum of the Weighted Remaining Life values for assets constituting the Project Equipment having an installed cost between $1,000 and $2,500. Weighted Remaining Life of Project Equipment (Example) Weighted Asset Remaining Life Weighting Remaining Life Number• Asset Name & Manufacturer in ears Factor in ears 1 Desanders 10 0.1000 1.0000 2 Iron/Manganese Filters 10 0.0200 0.2000 3 Reverse Osmosis Feed Pumps 10 0.2000 2.0000 4 De assifiers 10 0.1700 1.7000 5 250 HGL Zone Finished Water 10 0.1900 1.9000 Pumps 6 350 HGL Zone Finished Water 10 0.3200 3.2000 Pumps WEIGHTED AVERAGE USEFUL LIFE - This value is the sum of the 10 • weighted remaining life. The weighted average useful life = sum Li*Vi Sum Vi from i=1 to i = N. *Asset numbers shall be assigned in accordance with the Baseline Project Record. The Weighting Factor and Weighted Remaining Life of the Project Equipment shall be added to the Baseline Project Record as shown by example in columns G and H of Table 16-3 found at the end of this Appendix. 16.2.2 Final Project Structures Evaluation 16.2.2.1 Functionality Evaluation • The functionality evaluation shall determine if the operating Project Structures operate properly and perform the function for which they were intended. Project Structures to be evaluated as part of the functionality evaluation shall include: • All buildings, concrete basins and metal tanks (in excess of 500 gallons capacity). • All piping, both underground and exposed. • All valves. • Wells. • Electronic communications and control systems. • All electronic communications and control systems constituting Project Structures shall be tested for proper operation. Pipes shall be checked to assure that they are free of blockage, that fluids can be conveyed and that there is no leakage (as per applicable industry leakage standards). Detection,transmission and recording instrumentation shall be checked. • A16-5 388444.10 022806 DOC • 16.2.2.2 Structural Integrity Evaluation The structural integrity evaluation shall include visual inspection with photographic and video recording of all Project Structures, including, but not limited to: • Buildings and concrete structures, both above and below ground, including doors, hatches, stairways, and windows. • Walkways, roads and other paved areas. Fencing. • Finish system- paint, sealants and other liquid applied finishes. • Floor, ceiling, roofs and wall system - tiles, carpeting, raised floors and drop ceilings. Structures and paved areas shall be checked for structural defects and damage, • such as cracks and concrete deterioration that could reduce their service life. Finish systems shall be visually inspected to assure that they provide adequate coverage and afford the desired protection. Occurrence of flaking, corrosion, rot and inadequate coverage should be noted. Floor, ceiling,roofs and wall systems should be visually inspected for excess wear and damages. 1 16.2.2.3 Rating As part of the functionality and structural integrity evaluation of each Project Structure, a rating of 1 to 5 will be assigned to each of the applicable Project Structures. The rating will utilize the following criteria: 5 - Excellent overall condition. Asset fully functional as designed. No visible defects, cracking or wear. • 4-Good overall condition. Asset functions as needed for current operating conditions. Visible signs of minor defects and wear is less than expected. • 3 - Fair overall condition. Asset functions as needed for current operating conditions. Visible signs of moderate defects and expected wear. r 2-Poor overall condition. Asset operable,but does not function as needed for current operating conditions. Visible signs of major defects, wear is more than expected and there may be personnel safety issues. • 1 - Inoperable/Imminent Failure. Asset is non-functional and requires major repair or replacement to restore operation. Significant safety or structural concerns. i The findings of the functionality and structural integrity evaluation shall be tabulated on a spreadsheet such as in the Baseline Project Record. An example tabulation is presented in Table 16-2. Videotape records made of the initial condition of assets, whether or not structural or other physical defects are revealed, shall be included as part of this Final Asset Evaluation. The location on the videotape corresponding to any listed defect shall be entered in the spreadsheet with each listing. 16.3 EVALUATION REPORTS AND PRODUCTS The procedures followed, together with the findings and results of the final asset evaluation • process,shall be presented in a final asset evaluation report(the"Final Asset Evaluation"). Text, A 16-6 388444.10 022806 DOC spreadsheets and databases shall all be prepared using a computer software program mutually agreed to by the parties. The Independent Evaluator will provide the District and the Company with preliminary drafts of all documents for review and comment. Both parties shall initial final documents on each page for authentication and shall receive an authenticated copy of all final reports, databases, spreadsheets, video documentation and handwritten notes. The Final Asset Evaluation shall consist of at least the following clearly delineated sections: • The Final Baseline Project Record. • Weighted Average Useful Life of the Project Equipment (both Major and Minor). • Functionality and Structural Integrity of the Project Structures. • Supplemental information as may be determined by the Independent Evaluator. 16.3.1 Baseline Project Record This section of the Final Asset Evaluation shall include the initial Baseline Project Record. 16.3.2 Project Equipment The Project Equipment portion of the Baseline Project Record shall include the listing of all assets to be included in the calculation of the Weighted Average Useful Life together with their corresponding Service Life and Remaining Life values. The procedures used to determine which assets to include in or exclude from the schedule shall be detailed. This section of the Final Asset Evaluation shall provide the Weighted Remaining Life of the Project Equipment and summarize the steps followed by the Independent Evaluator to establish the Weighted Average Useful Life for both the Major Project Equipment and the Minor Project Equipment. All calculations performed to determine Weighting Factors and the Weighted Average Useful Life shall be included with the Final Asset Evaluation. 16.3.3 Project Structures r The Project Structures portion of the Baseline Project Record shall provide the results of the functionality and structural integrity evaluation of the Project Structures. Those assets that do not exhibit physical or structural defects shall be noted as such in the Final Asset Evaluation with a statement regarding the overall condition. The findings of the functionality evaluation shall be tabulated on a spreadsheet. 16.3.4 Supplemental Information. This section of the Final Asset Evaluation shall include all supplemental information used by the Independent Evaluator,including,but not limited to, results of diagnostic testing, value indices used, equipment supplier information, and notes and calculations to support its findings and conclusion. This supplemental information may be included as appendices or attachments to the Final Asset Evaluation. A16-7 388444.10 022906 DOC • Table 16-1. PROJECT EQUIPMENT EVALUATION • (Hypothetical Example) Asset Date Purchased/ Purchase Price Description/ Number* Asset Name (8&Manufacturer) Installed (Installed) Comments 1 Desanders 2006 $50,000 2 Iron/Manganese Filters 2006 $10,000 3 Reverse Osmosis Feed Pumps 2006 $100,000 • 4 Degassifiers 2006 $85,000 5 250 HGL Zone Finished 2006 $95,500 Water Pumps 6 350 HGL Zone Finished 2006 $160,000 Water Pumps • *Asset numbers shall be assigned in accordance with the Appendices. Table 16-2. PROJECT STRUCTURES FUNCTIONALITY AND INTEGRITY EVALUATION (Hypothetical Example) • Structural Functionality & Asset Asset Name (& Structural Integrity Structural Video • Number* Manufacturer) Defect(s) Integrity Rating Location (expressed as 1 to 5) PIPING AND VALVES S1 Raw Water Leaking pump discharge 3 • pump discharge valve valve S2 Building A Chlorine Leaking PVC piping 2 solution feed pipe • S3 Sedimentation Cracked and leaking 1 B-Basin tape, Basin foundation index 310 S4 Building J Broken concrete steps 3 B-J tape 1, index 130 S5 Building J Collapsed building wall 3 B-J tape 2, index 100 A16-8 388444.10 022806 DOC • S6 Building E Centrate 200 feet of DI piping 1 pipe severely corroded • INSTRUMENTATION AND CONTROL SYSTEMS S7 Finished Water High water alarm in 1 Reservior A Finished Water Reservoir A is inoperative S8 Plant-wide 12 of 50 phone extensions 2 Intercomm/ operable, intercomm phone system inoperable ABOVEGROUND SYSTEMS S9 Operations Foundation wall (east) 3 B-OP tape, • Building cracked index 1340 S 10 Pump Station Concrete dry well in 2 PS-WW tape, pumping station is cracked index 560 and seeping • WALKWAYS, ROADWAYS, FENCING AND OTHER PAVED STRUCTURES S11 Fencing Raw Water Numerous holes and 2 RWPS tape, Pumping Station broken gate index 25 S12 Driveway at Plant Numerous cracks and 3 D1 tape, heaving index 1300 • S13 Concrete Sidewalk Numerous cracks, heaving 2 RWPS tape, and broken curbing index 670 FINISH SYSTEMS (INCLUDING PAINTS AND COATING) S14 Residuals Building Interior structures need 4 RES tape, • paint index 2500 S15 Operations Inadequate coating of 3 OP tape, Building walkways index 1100 S16 Building B Exterior paint flaking 3 B-B tape, • index 1400 WALL, ROOFS AND FLOORING SYSTEMS S17 Building C ceiling Flaking ceiling in 3 B-C tape, building C index 250 • S18 Building A office Tile severely cracked in 2 B-A tape 2, floor numerous locations. index 450 Significant overall wear S19 Chemical building Plywood walls buckling and 1 B-C tape, cracking index 190 • *Asset numbers shall be assigned in accordance with the Appendices. A 16-9 388444.10 022806 DOC • • • • • • • • • • • • Table 16-3. PROJECT EQUIPMENT EVALUATION (Hypothetical Example) A B C D E F G H Purchase Date Price Weighted Asset Asset Name (& Purchased/ (Installed Replacement Remaining Weighting Remaining Number* Manufacturer) Installed Cost) Value Life (years) Factor Life (years) 1 Desanders 2006 $50,000 $75,000 10 0.1000 1.0000 2 Iron/Manganese 2006 $10,000 $15,000 10 0.0200 0.2000 Filters 3 Reverse Osmosis 2006 $100,000 $150,000 10 0.2000 2.0000 Feed Pumps 4 Degassifiers 2006 $85,000 $127,000 10 0.1700 1.7000 5 250 HGL Zone 2006 $95,500 $142,500 10 0.1900 1.9000 Finished Water Pumps 6 350 HGL Zone 2006 $160,000 $240,500 10 0.3200 3.2000 Finished Water Pumps TOTAL - - - $750,000 - 1.0 - WEIGHTED AVERAGE USEFUL LIFE 10 *Asset numbers shall be assigned in accordance with the Appendices. A16-10 388444.10 022806 DOC • APPENDIX 17 ACKNOWLEDGED SUBCONTRACTORS • This Appendix sets forth the list of Subcontractors that the District has acknowledged that the Company intends to use to assist in performing the Contract Services: 1. Boyle Engineering, for engineering services • 2. Osmonics Corporation, for reverse osmosis equipment 3. J.C. Cushman, Inc., for construction services Additional Subcontractors may also be subsequently identified and used to perform the Contract Services subject to the provisions of Section 16.7 of the Service Contract. • • • • • • • • A17-1 388444.10 022806 Doc • APPENDIX 18 EXIT TEST AND TRANSITION PLAN • 18.1 EXIT TRANSITION PLAN At the expiration or earlier termination of the Service Contract, the Company shall provide all services reasonably necessary for a smooth,uninterrupted transition of service to the District or its new operator. The Company shall prepare an exit transition plan describing such services to be provided by the Company to the District as set forth in Section 13.11 of the Service Contract • within 180 days prior to expiration of the Term, or concurrently upon termination resulting from an early termination of the Service Contract in accordance with its terms. The exit transition plan shall describe and outline, at a minimum, the following services and information: • Weekly meetings with the District to discuss operations and maintenance activities at least three months prior to the end date. • List of all documents developed by the Company during the Term to perform the Operation Services and provide electronic and hard copy of the latest version of the documents. These documents are to include Operation and Maintenance Manuals, SOPS and emergency plans. • List of all reports prepared by the Company and submitted to the District and Governmental Bodies within the last five years and provide hardcopy of each. • These reports include monthly operating reports and annual reports. • List and original copy of all laboratory records,including raw data, bench sheets, log books, etc. for the last five years. • List of equipment vendors, warranty information and vendor manuals. Provide copy of vendor manuals and vendor training materials. • List of Utilities. • List of Governmental Approvals. • Electronic and hard copy of as-built drawings. • Inventory of chemicals, consumables and spare parts. • List of software and the transfer of electronic database and where legally allowable, the transfer of software licenses. • 18.2 EXIT TEST PROCEDURES AND STANDARDS Upon notice of termination or expiration of the Service Contract, the Company shall perform an exit test to demonstrate the Project's ability to meet all Applicable Law and the Enhanced Standards. The exit test shall last one week and will consist of Finished Water quality and Finished Water quantity tests. Daily Finished Water quantity testing will be performed to • determine the Project's ability to meet its maximum production level for a sustained period of time. Finished Water quantity testing will consist of hourly readings of Finished Water production quantity rates. On the first and seventh day of the exit test, the Company will perform Finished Water quality testing to demonstrate compliance with all Applicable Law and the Enhanced Standards defined • in Appendix 2. The Project will be deemed to have passed the exit test if all seven daily Finished Water quantity tests demonstrate a production rate for the Plant to enable production of 5.14 mgd of Finished Water,and both Finished Water quality tests meet the requirements of Applicable Law and the Enhanced Standards. Both Finished Water quality tests shall be analyzed by a State certified laboratory. All Finished Water quantity and quality testing results shall be provided to the District. If the Project does not pass the exit test, the Company will be required to perform • the exit test again from the beginning. The Company must pass the exit test before the Project is transferred to the District. • A18-1 388444.10 022806 DOC • APPENDIX 19 EXAMPLE SERVICE FEE CALCULATION • The following example illustrates the calculation of the Service Fee for the Company in accordance with Article XII of the Service Contract. The cost figures used in these sample calculations are for demonstration purposes only and are not necessarily consistent with the actual terms of the Service Contract. The annual Service Fee calculation is based on the following formula: • SF = BOC ± EI BOC = FC +VC FC = OMC + LC + RC VC = DAE1 + DAE2 + ESE • where, SF = Service Fee BOC = Base Operating Charge EI = Extraordinary Items Charge or Credit FC = Fixed Component OMC = Operation and Maintenance Component LC = Labor Component • RC = Replacement Component VC = Variable Component DAE1 = First Water Demand Adjustment Element DAE2 = Second Water Demand Adjustment Element ESE = Electricity Savings Element • General Assumptions: Operation and Maintenance Component = $500,000 Labor Component= $200,000 Replacement Component = $100,000 CPI Modifier used to calculate the Adjustment Factor = 0.90 • Guaranteed Maximum Electricity Consumption (at 4,800 AF) = 8,280,000 kilowatt hours Guaranteed Maximum Electricity Consumption(at 5,231 AF) = 9,092,300 kilowatt hours Guaranteed Maximum Electricity Demand= 1,200 kilowatts Price per acre-foot Finished Water above 4,800 acre-feet: $151 per acre-foot Price per acre foot Finished Water above 5,231 acre-feet: $228 per acre-foot • CONTRACT YEAR 1 Specific assumptions for the year: Finished Water delivered: 5,000 acre-feet Electricity Consumption: 8,000,000 kWh Average Monthly Electricity Demand: 1,180 kW • Generation Charges: $0.04 per kWh Demand Charges: $400 per kW Base Operating Charge The Base Operating Charge is the sum of (1) the Fixed Component and (2) the Variable • Component. BOCYear 1= FC,. 1+ VC,I • A19-1 388444.10 022806 DOC • Fixed Component The Fixed Component is the sum of the (1) Operation and Maintenance Component, (2) Labor Component, and (3) Replacement Component. The Operation and Maintenance Component, Labor Component, and Replacement Component shall be adjusted annually by the Adjustment • Factor (beginning in Contract Year 2). FCYe9r 1= OMCYedr I+ LCYear I + RCYear 1 FCYear 1 = $500,000 + $200,000 + $100,000 • FCY,ar I = $800,000 Variable Component The Variable Component is the sum of the (1) First Water Demand Adjustment Element, (2) Second Water Demand Adjustment Element, and (3) Electricity Savings Element. • VCYear 1= DAE lye.,I+ DAE2Y, + ESEYeae 1 First Water Demand Adjustment Element The First Water Demand Adjustment Element will apply if the District requests and the Company delivers between 4,800 acre-feet of Finished Water in a Contract Year and 5,231 acre-feet of Finished Water in a contract year. The First Demand Adjustment Element is the product of$151 • dollars per acre-foot and the difference between the volume of Finished Water delivered(which shall not exceed 5,231 acre-feet) and 4,800 acre-feet. DAE,,a„= ($231 per acre-foot) * ((Finished Water Delivered)YC,,, - 4,800 acre-feet), if Finished Water Delivered,,,,, > 4,800 acre-feet • Finished Water Delivered,,,,, = 5,000 acre-feet Finished Water Delivered,,,,, > 4,800 acre-feet Therefore, the first Demand Adjustment Element is applied in Year 1. • DAE,Qa„= $30,200 Second Water Demand Adjustment Element The Second Water Demand Adjustment Element will apply if the District requests and the Company delivers more than 5,231 acre-feet of Finished Water in a Contract Year. The Second Water Demand Adjustment Element is the product of$228 per acre-foot and the difference • between the volume of Finished Water delivered and 5,231 acre-feet. DAE2Y ,, = ($228 per acre-foot) * ((Finished Water Delivered)Yee,, - 5,231 acre feet), if Finished Water Delivered,,, > 5,231 Finished Water Delivered,, = < 5,231 acre-feet • Therefore, no Second Water Demand Adjustment Element is applied in Year 1. Electn'citu Savings Element The Electricity Savings Element will be the sum of the (1) Electricity Consumption Savings and (2) Electricity Demand Savings. • ESE,,,,,= E”CS,,a,,+ EDS,.,1 • A19-2 388446.10 022906 DOC • Electricitu Consumption Sav ngs If the Annual Electricity Consumption (AEC) for the Project in a Contract Year is less than 95% of the Guaranteed Maximum Electricity Consumption(GMEC) applicable for that Contract Year, and the Average Monthly Electricity Demand(AMED) for the Project for the Contract Year is less than or equal to the Guaranteed Maximum Electricity Demand (GMED) for the Contract Year, then the Company shall be entitled to an Electricity Consumption Savings (ECS) equal to 50% of the product of. (1) the average Generation Charges (GC) for the Contract Year, measured in dollars per kilowatt hour consumed ($/kWh); and (3) the difference between (a) 95% of the Guaranteed Maximum Electricity Consumption and(b) the actual annual electricity consumed, • measured in kilowatt hours,for the Project in the Contract Year. Generation Charges are defined as all charges based upon kilowatt hours consumed, including any directly related prorated charges and taxes. GMECI,,,, =[(Production, , - Production.;,,) (GMEC.,,,- GMEC.;,J] + GMEC.;,, (Production.,,, - Production.;,,) • =[(5,000 - 4,800 acre-feet)] (9,092,300 - 8,280,000 kWh) + 8,280,000 kWh [(5,231 - 4,800 acre-feet)] GMEC,,,,, = 8,656,937 kWh • 0.95 x GMEC,,,,, = 8,224,090 kWh AEC,,,,, = 8,000,000 kWh AMEDy,,,, = 1,100 kW AMED,,,,, < 1,200 kW • AEC,,,,, < 0.95 x GMEC,,,,,,and AMED,,,,, < GMED,,,,,; therefore ECS applies. ECSY,,,, = 0.5 x GC,,,,, x [(0.95 x GMEC,,,,,) - AEC,,,,,] = 0.5 x ($0.04/kWh) x [(0.95 x 8,656,937) - 8,000,000 kWh] ECSy,, = $4,482 Electicitu Demand Savings If the Average Monthly Electricity Demand(AMED) for the Project in a Contract Year is less than • the 95% of the Guaranteed Maximum Electricity Demand (GMED) applicable for that Contract Year,and the annual electricity consumption for the Project for the Contract Year is less than or equal to the Guaranteed Maximum Electricity Consumption for the Contract Year, then the Company shall be entitled to an Electricity Demand Savings(EDS) equal to 50% of the product of. (1) the average Demand Charges(DC)for the Contract Year, measured in dollars per kilowatt demanded($/kW);and(2)the difference between(a)95%of the Guaranteed Maximum Electricity Demand and (b) the actual average monthly demand for the Project in the Contract Year. Demand Charges are defined as all charges based upon monthly kilowatt demand,including any directly related prorated charges and taxes. GMEDy,,,, = 1,200 kW 0.95 x GMED,,,,, = 1,140 kW AMED,, = 1,180 kW > 0.95 x GMED,,,,,, therefore no EDS applies. EDS,,,,, = $0 • A19-3 388444.10 022806 rxx: • ESEY.,I =ECSY.„+EDS,, = $4,482 + 0 • ESEYaa,, = $4,482 VCYear 1 = DAElYear, + DAE2, + ESEYe.r, = $30,200 + $0 + $4,482 • VCY�r I = $34,682 Therefore, the Base Operating Charge for Contract Year i is: BOC,.,1 - FCYear 1 + VCYear 1 • BOC,.,I = $800,000 + $34,682 BOCY.„1 = $834,682 Extraordinary Items No extraordinary items are anticipated in Contract Year 1. • EIr..,1 = 0 Service Fee Total Based on the above calculations, the Service for Contract Year 1 is: SFYear 1 = BOC,.,1 + Elye.r 1 = $834,682 + $0 SFT..'1 = $834,682 • MONTH 1 - BILL TO THE DISTRICT (FOR SERVICES PERFORMED IN MONTH 1) Assumptions: Estimated monthly portion of Variable Component = $500 Monthly Reimbursable Costs= $2,000 • MB = MFC + MVC + MR + MEI + MA where, MB = Monthly Bill MFC = Monthly portion of the Fixed Component MVC = Estimated monthly portion of Variable Component • MR = Monthly Reimbursable Costs MEI = Monthly portion of Extraordinary Items MA = Monthly adjustments MFC = (FCYCO,1)/12 • MFC = ($800,000)/12 MFC = $66,667 MVC = $500 A19-4 388444.10 022806 Doc • MR = $2,000 MEI = $0 • MA = $0 MB = MFC + MVC + MR + MEI + MA = $66,667 + $500 + $2,000 + $0 + $0 • MB = $69,167 MONTHS 2 THROUGH 12-BILL TO THE DISTRICT(FOR SERVICES PERFORMED IN MONTHS 2 THROUGH 12) Same procedure as preparation of monthly bill for Month 1. • Annual Settlement to be performed in accordance with Section 12.9 of the Service Contract. • • • • • • A19-5 388444.10 022806 DOC • CONTRACT YEAR 2 • Assumptions: CPI-U for Contract Year 0: 175 CPI-U for Contract Year 1: 180 Finished Water delivered: 4,800 acre-feet Electricity Consumption: 8,000,000 kWh Average Monthly Electricity Demand: 1,180 kW 46 Generation Charges: $0.05 per kWh Demand Charges: $450 per kW Base Operating Charge BOCYear2 FCYear2 + ESEYea.2 • Fixed Component The Operation and Maintenance Component, the Labor Component, and the Replacement Component shall be adjusted annually by the Adjustment Factor. FCYear2 = OMCYear2+ LCYear2 + RCYear 2+TCCYea�2 • Af„ = 1 + {(CPI-U Modifier) x[(CPI-U„_1 - CPI-U„_2) / CPI-U„_2]) Aft = 1 + {(CPI-U Modifier) x [(CPI-UYC,,1 - CPI-UYear o) / CPI-UYear o)) Aft = i + 1(0.9) x [(ISO - 175) / 175]} AL2 = 1.026 OMCYea'2 = OMCYear t x Aft • OMCYe% 2 = $500,000 x 1.026 OMCY.r2 = $513,000 LC,,2 = LCYear, x Af2 LCYear2 = $200,000 x 1.026 LCYear2 = $205,200 • RCYear2 = RCYear t x Afz RCYea�2 = $100,000 x 1.026 RCY.,2 = $102,600 FCYea�2 = 0 M CYea,2+ LCYea�2 + RCYea�2+TCCYea,2 • _ $513,000 + $205,200 + $102,600 + $50,000 FCYear2 = $870,800 FYrst Water Demand Adjustment Element • DAE'Yea,2 = ($151/acre-foot) * ((Finished Water Delivered),, - 5,231 acre-feet), if (Finished Water Delivered)Year1 > 5,231 acre-feet (Finished Water Delivered), ,1 = 4,800 acre-feet • (Finished Water Delivered)Yea, < 5,231 acre-feet; therefore DAEY.2 does not apply. A 19-6 388444.10 022906 DOC • Second Water Demand Adjustment Element The Second Water Demand Adjustment Element does not apply where Finished Water delivered is less than 5,231 acre-feet. • Electn'citu Savings Element ESEYea2 = ECSYear2 + EDSYea,2 Electricitiu Consumption Savings GMECYeflr2 = f(ProductionYeflr2 - ProductionMj.j (GMEC,a - GMECJ] + GMECM;a (Productionm. - Productionmi.) _ ](4,800 - 4,800 acre-feet) (9,092,300 - 8,280,000 kWh)] + 8,280,000 kWh (5,231 - 4,800 acre-feet)] • GMECYear2 = 8,280,000 kWh 0.95 x GMECYear2 = 7,866,000 kWh AECYear2 = 8,000,000 kWh AECYear2 > 0.95 x GMECYear2; therefore ECS does not apply. ECSYearz = 0 Electncitu Demand Savings • GMEDYear2 = 1,200 kW 0.95 x GMEDYea,2 = 1,140 kW AMEDYear2 = 1,180 kW > (0.95 x GMEDYear2); Therefore EDS does not apply. EDS.,2 = $0 ESEYeai2 = ECSYeai2 +EDSYeai2 • = $0 +$0 ESEyaa,2 = $0 VCYear r = DAElYea,2 + DAE2Yaa12 + ESEYea,2 • = $0 + $0 + $0 VCY.r2 = $0 • Therefore, the Base Operating Charge for Contract Year 2 is: BOCYear2 = FCYear2 + VCYear2 = $870,800 + $0 • A 19-7 388444.10 022906 DOC • BOCr,,,2 = $870,800 Extraordinary Items • No extraordinary items are anticipated in Contract Year 2. EIr.,.2 = 0 Service Fee Total Based on the above calculations, the Service Fee for Contract Year 2 is: • SF,.,2 _ BOCYe.,2 + EIYe.r2 = $870,8100 + 0 SFy...2 = $870,800 MONTH 1 - BILL TO THE DISTRICT (FOR SERVICES PERFORMED IN MONTH 1) • Assumptions: Estimated monthly portion of Variable Component = $0 MB = MFC + MVC + MR+ MEI + MA where; MFC = (FCYear2)/12 MFC = ($870,800)/12 MFC = $72,567 • MVC = $0 MR = $0 MEI = $0 • MA = $0 MB = MFC + MVC + MR + MEI + MA = $72,567 + $0 + $0 + $0 + $0 • MB = $72,567 MONTHS 2 THROUGH 12-BILL TO THE DISTRICT(FOR SERVICES PERFORMED IN MONTH 2 THROUGH 12) Same procedure as preparation of monthly bill for Month 1. • Annual Settlement to be performed in accordance with Section 12.9 of the Service Contract. • • A 19-8 388444.10 022806 DOC • APPENDIX 20 CERTAIN TRANSACTION DOCUMENTS 20.1 GENERAL The Company shall assume all rights and obligations of the San Juan Basin Authority, District or City, as applicable, in each provision indicated in the following documents: 20.2 SAN JUAN BASIN AUTHORITY RESOLUTION 95-5-1 The Company shall be responsible for the requirements of Paragraphs 1, 2, 3, 4, 5,6, 10, 11, 12, 13, 14, 15, 16, 17, 18,21, 22, 23, 24, 25, 26, and 27, notwithstanding the fact that the Company is not a party to San Juan Basin Authority Resolution 95-8-1. • 20.3 CAPISTRANO VALLEY WATER DISTRICT RESOLUTION 01-07-17-1 The Company shall be responsible for the requirements of Paragraphs 1,2, 3, 4, 5, 6, 10, 11, 12, 13, 14, 15, 16, 18, 19, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40 and 41, notwithstanding the fact that the Company is not a party to Capistrano Valley Water District Resolution 01-07-17-1. 20.4 DIVISION OF WATER RIGHTS, PERMIT NO. 21074 FOR DIVERSION AND USE OF WATER The Company shall be responsible for the requirements of Paragraphs 5, 10, 13, 15, 18, 19, 20, • 21, 24, 25, 26A, 26D and 26G, notwithstanding the fact that the Company is not a party to the Division of Water Rights Permit No. 21074 For Diversion and Use of Water. 20.5 AGREEMENT FOR ACQUISITION OF CAPACITY,CONSTRUCTION,USE,OPERATION AND MAINTENANCE OF OUTFALL FACILITIES FOR SOUTH EAST REGIONAL RECLAMATION AUTHORITY FOR AND ON BEHALF OF PROJECT COMMITTEE NO. • 5, as amended, (the "PC 5 Agreement" The Company shall be responsible for the requirements of amended Section 14 of the PC 5 Agreement as set forth in Amendment No.1,thereto, dated March 10, 1988,notwithstanding the fact that the Company is not a party to the PC 5 Agreement. • The Company shall operate the Project subject to the availability of the Chiquita Land Outfall in accordance with amended Section 16 of the PC 5 Agreement as set forth in Amendment No. 2, thereto, dated March 14, 1991, notwithstanding the fact that the Company is not a party to the PC 5 Agreement. The Company shall be responsible for the requirements of Sections 1 through 9 of Amendment No. 3,thereto,dated February 7,2002,notwithstanding the fact that the Company is not a party to the PC 5 Agreement; provided, however, that with respect to Section 7 of Amendment No. 3, the Company will only be responsible for costs relating to the Project. • A20-1 388444.10 022806 Doc • 20.6 CALIFORNIA REGIONAL WATER QUALITY CONTROL BOARD SAN DIEGO REGION, ORDER NO. 2000-13, NPDES PERMIT NO. 0107417, WASTE DISCHARGE REQUIREMENTS FOR THE SOUTH EAST REGIONAL RECLAMATION AUTHORITY, ORANGE COUNTY, DISCHARGE TO THE PACIFIC OCEAN THROUGH THE SOUTH EAST REGIONAL RECLAMATION AUTHORITY OCEAN OUTFALL The Company shall be responsible for the requirements of Order No. 2000-13, NPDES Permit No. 0107417, relating to Brine discharge into the South East Regional Reclamation Authority Ocean Outfall, notwithstanding the fact that the Company is not a party to Order No. 2000-13, NPDES Permit No. 0107417. 20.7 AGREEMENT BETWEEN THE CITYAND THE SANTA MARGARITA WATER DISTRICT REGARDING THE RIGHT TO DISPOSE OF BRINE WASTE IN THE CHIQUITA LAND OUTFALL (the "Chiquita Land Outfall Agreement") The Company shall be responsible for the requirements of Sections 1 through 4,notwithstanding the fact that the Company is not a parry to the Chiquita Land Outfall Agreement. The Company's obligations for payment of operation and maintenance costs under Section 3 of the Chiquita Land Outfall Agreement shall be limited to a total of up to $10,000 a year. Any additional costs assessed against the Company for operation and maintenance costs under Section 3 shall be paid by the District to the Company as a Change Order. • • • • • A20-2 388444.10 022806 DOC • I • APPENDIX 21 MILESTONE PAYMENT SCHEDULE • The Company shallbe entitled to monthly payments based upon the completion of the milestones set forth below. Each milestone payment represents a portion of the Fixed Design/Build Price, subject to the retainage provisions of Section 5.5 (B) of the Service Contract. It is anticipated that the Company will work toward completion of certain of the Project milestones concurrently. The satisfactory completion of a specific milestone shall be based upon the Independent Engineer's determination that the milestone has been satisfactorily achieved. The Company will be entitled to payment for completion of a milestone in accordance with the provisions of Section 5.5 of the Service Contract irrespective of whether any other milestone has been achieved. PROJECT MILESTONES PROJECT DRAWS Construction Date* $ o2j • Construction Date Plus 30 Days* $ Construction Date Plus 60 Days* $ 163, 660 Beginning of Foundation* $ 173.300- �� Beginning Well Drilling* $ 4911O 33% Completion of Well Casings $ L,90,9Z 67% Completion of Well Casings $ 94 OF 98a • Completion of Setting of Well Casings $ D 9 0 Beginning of Pipeline Work* $ 30 33% Completion of Pipeline Work $ 3sq. 9il 67% Completion of Pipeline Work $ 35 Lt,5-9 Completion of Pipeline Work $ 35 _C47 Completion of Foundation $ (�691 , 1 • Issuing PO for Iron & Manganese Filters (Engrg)** $ q3jq Issuing PO for RO Equipment (Engrg)** $ 763, 746 Beginning of Bore $ S S 5-3 50% Bore Completion $ SYs,S33 Completion of Bore $ '/�S.s 33 Beginning Creek Crossing $ 360, 0S2 • 50% Completion of Creek Crossing $ 370 6 2 Completion of Creek Crossing $ 2 6 005 Beginning of Steel Framing* $ 360,051 Completion of Steel Framing $ O I Upon Delivery of Iron & Manganese Filters $ Il b3 ,S9q Upon Delivery of Backwash Tank Steel $ 9119, 300 Upon Delivery of RO Equipment $ c?J oNS- 7 60 Days After Delivery of Iron& Manganese Filters $ SyS S33 60 Days After Delivery of Backwash Tank Steel $ .21a,4747 60 Days After Delivery of RO Equipment $ 11/o Connection into SCRA $ O 106 Completion of Strawberry Hill Pump Station $ SNS 533 Upon Test pumping of Well $ SHS S'33 Installation of Chemical Feed systems $ (�09 I 06 Completion of Well Enclosures $ A 7.1.767 Installation of SCADA @ Wells $ 71 767 Installation of SCADA @ RO Building $ SNS S33 Delivery of Chemical @ RO Plant $ S'/S, S33 Total $ ,AS 03 0 60 Note: First"Construction Date"payment includes$2,030,000 not subject to l0%retention(City Transaction Costs, Pilot Plant Costs, and Legal Fees Pre-payment) * Includes Engineering/Design Costs ** Uses PO as Milestone to Trigger Engineering/Design Costs A21-1 .10 022806 DOC • Execution Copy • SERVICE CONTRACT GUARANTY AGREEMENT from • SOUTHWEST WATER COMPANY to CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA • Dated September_, 2002 • • 9/,3/0 ?- 403208.1 /3/vZ403208.1 022806 AGMT • TABLE OF CONTENTS Page • ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.2. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 • ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR • SECTION 2.1. REPRESENTATION AND WARRANTIES OF THE GUARANTOR . . . . . . . . . . . . . 4 ARTICLE III GUARANTY COVENANTS • SECTION 3.1. GUARANTY TO THE DISTRICT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 3.2. RIGHT OF DISTRICT TO PROCEED AGAINST GUARANTOR . . . . . . . . . . . . . . . 6 SECTION 3.3. GUARANTY ABSOLUTE AND UNCONDITIONAL . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3.4. DEFENSES, SET-OFFS AND COUNTERCLAIMS . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 3.5. WAIVERS BY THE GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 • SECTION 3.6. PAYMENT OF COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.7. SUBORDINATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.8. SEPARATE OBLIGATIONS; REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.9. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 • ARTICLE IV GENERAL COVENANTS SECTION 4.1. MAINTENANCE OF CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.2. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.3. QUALIFICATION IN CALIFORNIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.4. CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.5. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 4.6. AMENDMENTS, CHANGES AND MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . 13 SECTION 4.7. LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 4.8. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1 403208.1 022806 AGMT r • ARTICLE I DEFINITIONS AND INTERPRETATION • SECTION 1.1. DEFINITIONS. For the purposes of this Service Contract Guaranty, the following words and terms shall have the respective meanings set forth as follows. Any other capitalized word or term used but not defined herein is used as defined in the Service Contract. • "Obligations"means the amounts payable by,and the covenants and agreements of, the Company pursuant to the terms of the Service Contract. 'Transaction Agreement" means any agreement entered into by the Company or the District in connection with the transactions contemplated by the Service Contract, • including the Service Contract, and any supplements thereto. SECTION 1.2. INTERPRETATION. In this Service Contract Guaranty, unless the context otherwise requires: (A) References Hereto. The terms"hereby","hereof',"herein","hereunder"and any • similar terms refer to this Service Contract Guaranty, and the term"hereafter"means after, and the term "heretofore" means before, the date of execution and delivery of this Service Contract Guaranty. (B) Gender and Plurality. Words of the masculine gender mean and include • correlative words of the feminine and neuter genders and words importing the singular number mean and include the plural number and vice versa. (C) Persons. Words importing persons include firms, companies, associations, general partnerships, limited partnerships,trusts,business trusts, corporations and other legal entities, including public bodies, as well as individuals. (D) Headings. The table of contents and any headings preceding the text of the Articles, Sections and subsections of this Service Contract Guaranty shall be solely for convenience of reference and shall not constitute a part of this Service Contract Guaranty, nor shall they affect its meaning, construction or effect. (E) Entire Agreement;Authority. This Service Contract Guaranty constitutes the entire agreement between the parties hereto with respect to the transactions contemplated by this Service Contract Guaranty. Nothing in this Service Contract Guaranty is intended to confer • on any person other than the Guarantor,the District and their permitted successors and assigns hereunder any rights or remedies under or by reason of this Service Contract Guaranty. (F)Counterparts. This Service Contract Guaranty may be executed in any number of original counterparts. All such counterparts shall constitute but one and the same Service • Contract Guaranty. (G) Applicable Law. This Service Contract Guaranty shall be governed by and construed in accordance with the applicable laws of the State of California. • 2 403208.1 022806 AGMT Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article I - Definitions and Interpretation (H) Severability. If any clause, provision, subsection, Section or Article of this Service Contract Guaranty shall be ruled invalid by any court of competent jurisdiction, the invalidity of any such clause,provisions, subsection, Section or Article shall not affect any of the remaining provisions hereof,and this Service Contract Guaranty shall be construed and enforced as if such invalid portion did not exist provided that such construction and enforcement shall not increase the Guarantor's liability beyond that expressly set forth herein. (1) Approvals. All approvals, consents and acceptances required to be given or made by any party hereto shall be at the sole discretion of the party whose approval, consent or acceptance is required. (J) Payments. All payments required to be made by the Guarantor hereunder shall be made in lawful money of the United States of America. 3 403208.1 022806 AGMT Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article II - Representations and Warranties of the Guarantor reasonably be expected to have a material and adverse effect on the validity, legality or enforceability of this Service Contract Guaranty against the Guarantor, or on the ability of the Guarantor to perform its obligations hereunder or under any such other agreement or instrument. (6) No Legal Prohibition. The Guarantor has no knowledge of any Applicable Law in effect on the date as of which this representation is being made which would prohibit the performance by the Guarantor of this Service Contract Guaranty and the transactions contemplated by this Service Contract Guaranty. (7) Consent to Agreements. The Guarantor is fully aware of the terms and conditions of the Service Contract. (8) Consideration. This Service Contract Guaranty is made in furtherance of the purposes for which the Guarantor has been organized, and the assumption by the Guarantor of its obligations hereunder will result in a material benefit to the Guarantor. 5 403208.1 022806 AGMT • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants • (7) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, moratorium,arrangement,composition with creditors or readjustment of,or other similar • proceedings against the Company or the Guarantor, or any of the property of either of them,or any allegation or contest of the validity of this Service Contract Guaranty or any other Transaction Agreement in any such proceeding (it is specifically understood, consented and agreed to that, to the extent permitted by law, this Service Contract • Guaranty shall remain and continue in full force and effect and shall be enforceable against the Guarantor to the same extent and with the same force and effect as if any such proceeding had not been instituted and as if no rejection, stay, termination, assumption or modification has occurred as a result thereof, it being the intent and • purpose of this Service Contract Guaranty that the Guarantor shall and does hereby waive all rights and benefits which might accrue to it by reason of any such proceeding); (8) except as permitted by Section 4.1 or 4.2 hereof, any sale or other transfer by the Guarantor or any Affiliate of any of the capital stock or other interest of the Guarantor • or any Affiliate in the Company now or hereafter owned, directly or indirectly, by the Guarantor or any Affiliate,or any change in composition of the interests in the Company; (9) any failure on the part of the Company for any reason to perform or comply with any agreement with the Guarantor; • (10) the failure on the part of the District to provide any notice to the Guarantor which is not required to be given to the Guarantor pursuant to this Service Contract Guaranty and to the Company as a condition to the enforcement of Obligations pursuant to the Service Contract; • (11) any failure of any party to the Transaction Agreements to mitigate damages resulting from any default by the Company or the Guarantor under any Transaction Agreement; (12) the merger or consolidation of any party to the Transaction Agreements into • or with any other person, or any sale, lease, transfer, abandonment or other disposition of any or all of the property of any of the foregoing to any person; (13) any legal disability or incapacity of any party to the Transaction Agreements; or • (14) the fact that entering into any Transaction Agreement by the Company or the Guarantor was invalid or in excess of the powers of such party. • 8 403208.1 022806 AGMT • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants Should any money due or owing under this Service Contract Guaranty not be recoverable from the Guarantor due to any of the matters specified in subparagraphs(1) through(14) above,then, in any such case, such money, together with all additional sums due hereunder, shall nevertheless be recoverable from the Guarantor as though the Guarantor were principal obligor in place of the Company pursuant to the terms of the Service Contract and not merely a guarantor and shall be paid by the Guarantor forthwith subject to the terms of this Service Contract Guaranty. Notwithstanding anything to the contrary expressed in this Service Contract Guaranty, nothing in this Service Contract Guaranty shall be deemed to amend, modify, clarify, expand or reduce the Company's rights, benefits, duties or obligations under the Service Contract. To the extent that any of the matters specified in subparagraphs (1) through (6) and (8) through(14) would provide a defense to,release,discharge or otherwise affect the Company's Obligations, the Guarantor's obligations under this Service Contract Guaranty shall be treated • the same. SECTION 3.4. DEFENSES, SET-OFFS AND COUNTERCLAIMS, Notwithstanding any provision contained herein to the contrary, the Guarantor shall be entitled to exercise or assert any and all legal or equitable rights or defenses which the Company may have under the Service Contract or under Applicable Law(other than bankruptcy or insolvency of the Company and other than any defense which the Company has expressly waived in the Service Contract or the Guarantor has expressly waived in Section 3.5 hereof or elsewhere hereunder), and the obligations of the Guarantor hereunder are subject to such counterclaims,set-offs or deductions • which the Company is permitted to assert pursuant to the Service Contract, if any. SECTION 3.5. WAIVERS BY THE GUARANTOR. The Guarantor hereby unconditionally and irrevocably waives: (1) notice from the District of its acceptance of this Service Contract Guaranty; • (2)notice of any of the events referred to in Section 3.3 hereof,except to the extent that notice is required to be given as a condition to the enforcement of Obligations; (3) to the fullest extent lawfully possible, all notices which may be required by statute, rule of law or otherwise to preserve intact any rights against the Guarantor, • except any notice to the Company required pursuant to the Service Contract or Applicable Law as a condition to the performance of any Obligation; (4) to the fullest extent lawfully possible, any statute of limitations defense based on a statute of limitations period which may be applicable to guarantors (or parties in • similar relationships) which would be shorter than the applicable statute of limitations period for the underlying claim; (5) any right to require a proceeding fust against the Company; • 9 403208.1 022806 AGMT • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants • (6) any right to require a proceeding first against any person or the security provided by or under any Transaction Agreement except to the extent such Transaction Agreement specifically requires a proceeding first against any person (except the Company) or security; (7) any requirement that the Company be joined as a party to any proceeding for the enforcement of any term of any Transaction Agreement; (8) the requirement of, or the notice of, the filing of claims by the District in the event of the receivership or bankruptcy of the Company; and • (9) all demands upon the Company or any other person and all other formalities the omission of any of which, or delay in performance of which, might, but for the provisions of this Section 3.5,by rule of law or otherwise,constitute grounds for relieving or discharging the Guarantor in whole or in part from its absolute, present, irrevocable, • unconditional and continuing obligations hereunder. SECTION3.6. PAYMENT OF COSTS AND EXPENSES. The Guarantor agrees to pay the District on demand all Fees and Costs,incurred by or on behalf of the District in successfully enforcing by Legal Proceeding observance of the covenants,agreements and obligations contained • in this Service Contract Guaranty against the Guarantor, other than the Fees and Costs that the District incurs in performing any of its obligations under the Service Contract,or other applicable Transaction Agreement where such obligations are a condition to performance by the Company of its Obligations. • SECTION3.7. SUBORDINATION OF RIGHTS. The Guarantor agrees that any right of subrogation or contribution which it may have against the Company as a result of any payment or performance hereunder is hereby fully subordinated to the rights of the District hereunder and under the Transaction Agreements and that the Guarantor shall not recover or seek to recover • any payment made by it hereunder from the Company until the Company and the Guarantor shall have fully and satisfactorily paid or performed and discharged the Obligations giving rise to a claim under this Service Contract Guaranty. SECTION3.8. SEPARATE OBLIGATIONS;REINSTATEMENT. The obligations of the • Guarantor to make any payment or to perform and discharge any other duties, agreements, covenants,undertakings or obligations hereunder shall:(1)to the extent permitted by Applicable Law,constitute separate and independent obligations of the Guarantor from its other obligations under this Service Contract Guaranty; (2)give rise to separate and independent causes of action • against the Guarantor; and(3) apply irrespective of any indulgence granted from time to time by the District. The Guarantor agrees that this Service Contract Guaranty shall be automatically reinstated if and to the extent that for any reason any payment or performance by or on behalf • 10 403208.1 022806 AGMT • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article III - Guaranty Covenants • of the Company is rescinded or must be otherwise restored by the District, whether as a result of any proceedings in bankruptcy, reorganization or similar proceeding, unless such rescission or restoration is pursuant to the terms of the Service Contract, or any applicable Transaction Agreement or the Company's enforcement of such terms under Applicable Law. • SECTION 3.9. TERM. This Service Contract Guaranty shall remain in full force and effect from the date of execution and delivery hereof until all of the Obligations of the Company have been fully paid and performed. This Service Contract Guaranty shall be effective irrespective as to when the Construction Date occurs. • • • • • • • • 11 403208.1 022806 AGMT • ARTICLE IV GENERAL COVENANTS 0 SECTION 4.1. MAINTENANCE OF CORPORATE EXISTENCE. (A) Consolidation. Merger, Sale or Transfer. The Guarantor covenants that during the term of this Service Contract Guaranty it will maintain its corporate existence, will not dissolve or otherwise dispose of all or 0 substantially all of its assets and will not consolidate with or merge into another entity or permit one or more other entities to consolidate with or merge into it unless the successor is the Guarantor; provided, however, that the Guarantor may consolidate with or merge into another entity, or permit one or more other entities to consolidate with or merge into it, or sell or 0 otherwise transfer to another entity all or substantially all of its assets as an entirety and thereafter dissolve if the successor entity(if other than the Guarantor) (a) assumes in writing all the obligations of the Guarantor hereunder and, if required by law, is duly qualified to do business in the State of California, and (b) delivers to the District an opinion of counsel to the 0 effect that its obligations under this Service Contract Guaranty are legal, valid, binding and enforceable subject to applicable bankruptcy and similar insolvency or moratorium laws. (B) Continuance of Obligations. If a consolidation, merger or sale or other transfer is made as permitted by this Section,the provisions of this Section shall continue in full r force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. No such consolidation, merger or sale or other transfer shall have the effect of releasing the initial Guarantor from its liability hereunder unless a successor entity has assumed responsibility for this Service Contract Guaranty as provided in this Section. SECTION 4.2. ASSIGNMENT. Without the prior written consent of the District, this Service Contract Guaranty may not be assigned by the Guarantor, except pursuant to Section 4.1. 0 SECTION 4.3. QUALIFICATION IN CALIFORNIA. The Guarantor agrees that, so long as this Service Contract Guaranty is in effect,if required by law, the Guarantor will be duly qualified to do business in the State of California. SECTION4.4. CONSENTTO JURISDICTION. The Guarantor irrevocably: (1) agrees 0 that any Legal Proceeding related to this Service Contract Guaranty or to any rights or relationship between the parties arising therefrom shall be solely and exclusively initiated and maintained in the State or federal courts located in Orange County,California,having appropriate jurisdiction therefor;(2) consents to the jurisdiction of such courts in any such Legal Proceeding; 0 (3) waives any objection which it may have to the laying of the jurisdiction of any such Legal Proceeding in any such court; and (4) waives its right to a trial by jury in any Legal Proceeding in any such court. 0 12 403208.1 022806 AGMT • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article IV - General Covenants • SECTION 4.5. BINDING EFFECT. This Service Contract Guaranty shall inure to the benefit of the District and its permitted successors and assigns and shall be binding upon the Guarantor and its successors and assigns. SECTION 4.6. AMENDMENTS, CHANGES AND MODIFICATIONS. This Service • Contract Guaranty may not be amended, changed or modified or terminated and none of its provisions may be waived, except with the prior written consent of the District and of the Guarantor. SECTION 4.7. LIABILITY. It is understood and agreed to by the District that • nothing contained herein shall create any obligation of or right to look to any director, officer, employee or stockholder of the Guarantor (or any Affiliate thereof) for the satisfaction of any obligations hereunder,and no judgment,order or execution with respect to or in connection with this Service Contract Guaranty shall be taken against any such director, officer, employee or • stockholder. SECTION 4.5. NOTICES. All notices, demands or written communications given pursuant to the terms of this Service Contract Guaranty shall be: (1) in writing and delivered in person; (2) transmitted by certified mail, return, receipt requested, postage prepaid or by • overnight courier utilizing the services of a nationally-recognized overnight courier service with signed verification of delivery; or (3) given by facsimile transmission, if a signed original is deposited in the United States mail within two days after transmission. Notices shall be deemed given only when actually received at the address first given below with respect to each party. • Either party may, by like notice, designate further or different addresses to which subsequent notices shall be sent. • • • • 13 403208.1 022806 AGMT • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article IV - General Covenants • Notices required to be given to the District shall be addressed as follows: Capistrano Valley Water District 32400 Paseo Adelanto San Juan, Capistrano, CA 92675 • Attention: City Clerk, with a copy to the City Manager at the same address Notices required to be given to the Guarantor shall be addressed as follows: • Southwest Water Company 225 North Barranca Avenue Suite 200 West Covina, CA 91791 Attention: Vice President, Finance • with a copy to: ECO Resources, Inc. 32400 Paseo Adelanto San Juan Capistrano, CA 92675 • Attention: Facilities Manager [SIGNATURE PAGE FOLLOWS] • • • • 14 403208.1 022806 AGMT • • Capistrano Valley Water District Service Contract Guaranty Agreement San Juan Basin Desalter Project Article IV - General Covenants • IN WITNESS WHEREOF,the Guarantor has caused this Service Contract Guaranty to be executed in its name and on its behalf by its duly authorized officer as of the date first above written. SOUTHWEST WATER COMPANY, as Guarantor Signature: • Printed Name: Title: Accepted and Agreed to by: CAPISTRANO VALLEY WATER DISTRICT, ORANGE COUNTY, CALIFORNIA Signature: • Printed Name: Title: • • • • is 403208.1 022806 AGMT