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Exhibit MSD 16V Series 2010B Preliminary Offering Statement
ThisPreliminaryOfficialStatementandtheinformationcontainedhereinaresubjecttocompletionandamendmentwithoutnotice.ThesesecuritiesmaynotbeofferedforsalenormayofferstobuybeacceptedpriortothetimetheOfficialStatementisdeliveredinfinalform.UndernocircumstancesshallthisPreliminaryOfficialStatementconstituteanoffertosellorthesolicitationofanoffertobuy,norshalltherebeanysaleofthesesecuritiesinanyjurisdictioninwhichsuchoffer,solicitationofsalewouldbeunlawfulpriortoregistrationorqualificationunderthesecuritieslawofanysuchjurisdiction.This Preliminary Official Statement is dated January 6, 2010 NEW ISSUE Ratings: Book-Entry Only Moody’s Aa2 S&P AA+ Fitch AA+ See “RATINGS” herein In the opinion of Gilmore & Bell, P.C.and White Coleman & Associates, LLC, Co-Bond Counsel, the interest on the Series 2010B Bonds is exempt from income taxation by the State of Missouri.Co-Bond counsel is not rendering any opinion with respect to the treatment of interest on the Series 2010B Bonds for federal income taxation.See “TAX MATTERS” herein. $85,000,000* The Metropolitan St.Louis Sewer District Taxable Wastewater System Revenue Bonds (Build America Bonds –Direct Pay) Series 2010B Dated: Date of Delivery Due: May 1,2039 The Taxable Wastewater System Revenue Bonds (Build America Bonds –Direct Pay), Series 2010B (the “Series 2010B Bonds”)will be issued by The Metropolitan St.Louis Sewer District (the “District”) to provide funds (i)to finance a portion of the costs of a program of capital improvements to the District’s wastewater facilities and system, (ii)to fund a debt service reserve account and (iii) to pay the costs of issuance of the Series 2010B Bonds.The Series 2010B Bonds will be secured by a pledge of certain revenues of the District as further described herein under the section captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010B BONDS.” The Series 2010B Bonds are issuable only as fully registered bonds and when issued will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company (“DTC”), New York, New York.See the section herein captioned “THE SERIES 2010B BONDS –Book-Entry Only System.”Principal of the Series 2010B Bonds is payable to the registered owners of the Series 2010B Bonds on May 1, 2039.Interest on the Series 2010B Bonds is payable semiannually on May 1 and November 1 of each year, beginning on May 1, 2010. The Series 2010B Bonds and the interest thereon are limited obligations of the District payable solely from the Pledged Revenues, as defined herein, on a parity with the District’s Series 2004A Bonds,the Series 2006C Bonds and the Series 2008A Bonds.The Series 2010B Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit of, the District or the State of Missouri (the “State”) or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the faith and credit nor the taxing power of the District, the State, or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Series 2010B Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2010B Bonds. Neither the members of the Board of Trustees of the District nor any person executing the Series 2010B Bonds shall be liable personally on the Series 2010B Bonds by reason of the issuance thereof. The Series 2010B Bonds are subject to optional and mandatory sinking fund redemption as described herein. See the section herein captioned “THE SERIES 2010B BONDS –Optional and Mandatory Redemption.” $85,000,000*____% Term Bonds due May 1, 2039, Yield _____%, CUSIP No. _________ This cover page contains information for quick reference only. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2010B Bonds are offered when, as and if issued by the District and accepted by the group of Underwriters shown below (collectively, the “Underwriters”), subject to prior placement, withdrawal or modification of the offer without notice and subject to the approval of their validity by Gilmore & Bell, P.C., St.Louis, Missouri, and White Coleman & Associates,LLC,St. Louis, Missouri, Co-Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the District by its General Counsel, and for the Underwriters by their counsel,the Hardwick Law Firm,LLC, Kansas City, Missouri, and Armstrong Teasdale LLP, St. Louis, Missouri. It is expected that the Series 2010B Bonds will be available for delivery through the facilities of DTC in New York, New York on or about January 28, 2010. B of A Merrill Lynch Siebert Brandford Shank & Co., L.L.C. The date of this Official Statement is January __,2010. __________ * Preliminary, subject to change. THE METROPOLITAN ST.LOUIS SEWER DISTRICT BOARD OF TRUSTEES John Goffstein,Chairman Robert T. Berry, Vice Chairman James H. Buford, Member Gerald T. Feldhaus, Member Eddie G. Ross Jr., Member David Visintainer,Member ADMINISTRATION Jeffrey L. Theerman, P.E., Executive Director Karl J. Tyminski, CPA, Secretary-Treasurer Randy E. Hayman, Esq., General Counsel Janice M. Zimmerman, Director of Finance Brian Hoelscher, P.E., Director of Engineering Vicki L. Taylor Edwards, Director of Human Resources Barbara Mohn, Director of Information Systems Jonathan Sprague, P.E., Director of Operations ADVISORS AND CONSULTANTS Co-Bond Counsel Gilmore & Bell, P.C.White Coleman & Associates, LLC St.Louis, Missouri St. Louis, Missouri Co-Financial Advisors to the District Public Financial Management Valdés & Moreno, Inc. Des Moines, Iowa and St.Louis, Missouri Kansas City, Missouri Underwriters’Co-Counsel Hardwick Law Firm,LLC Kansas City, Missouri Armstrong Teasdale LLP St. Louis, Missouri Independent Auditor Schmersahl Treloar & Co. St. Louis, Missouri REGARDING USE OF THIS OFFICIAL STATEMENT THE SERIES 2010B BONDS HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS ANY DOCUMENT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF THE DISTRICT AND THE TERMS OF THE OFFERING. THE SERIES 2010B BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. IN CONNECTION WITH THE OFFERING OF THE SERIES 2010B BONDS, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2010B BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. No dealer, broker, salesman or other person has been authorized by the District, the Underwriters or the FinancialAdvisors to give any information or to make any representations with respect to the Series 2010B Bonds other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2010B Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been furnished by the District and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Financial Advisors or the Underwriters.Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of fact.The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to its date. ______________________________ CAUTIONARY STATEMENTS REGARDING FORWARD- LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT ______________________________ Certain statements included or incorporated by reference in this Official Statement constitute “forward- looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States SecuritiesAct of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “anticipate,” “project,” “budget” or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSEACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIE D BY SUCH FORWARD-LOOKING STATEMENTS. NEITHER THE DISTRICT NOR ANY OTHER PARTY PLANS TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN THEIR EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES UPON WHICH SUCH STATEMENTS ARE BASED OCCUR. TABLE OF CONTENTS INTRODUCTION............................................1 Purpose of the Official Statement .....................1 The District ......................................................1 Purpose of and Authority for the Series 2010B Bonds ........................................................2 Security and Sources of Payment for the Series 2010B Bonds .............................................2 The American Recovery and Reinvestment Act of 2009 ......................................................4 Other Indebtedness ...........................................4 Continuing Disclosure Information...................4 Additional Information .....................................5 THE SERIES 2010B BONDS ..........................5 General ............................................................5 Optional and Mandatory Redemption ...............6 Effect of Notice of Redemption ........................8 Book-Entry Only System .................................8 Registration, Transfer and Exchange of Bonds Upon Discontinuance of Book-Entry Only System ....................................................11 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010B BONDS ................12 General ..........................................................12 Pledged Revenues ..........................................12 Flow of Funds ................................................15 Rate Covenant................................................18 Senior and Subordinate Bonds ........................19 PLAN OF FINANCE .....................................19 Purpose of and Authority for the Series 2010B Bonds ......................................................19 Other Indebtedness .........................................19 Capital Finance Plans of the District ...............20 Estimated Sources and Uses of Funds .............21 THE DISTRICT .............................................21 General ..........................................................21 Organization and Management .......................22 Board of Trustees ...........................................23 Administration ...............................................24 The System ....................................................25 Employees and Employee Relations ...............26 Economic Conditions in the District ...............26 Security .........................................................27 Insurance .......................................................27 THE CIRP AND THE PROJECTS .................28 General ..........................................................28 Historic Capital Improvement Expenditures ...28 Financing Plans for the CIRP .........................28 The Projects ...................................................30 FINANCIAL OPERATIONS OF THE DISTRICT .....................................................31 General ..........................................................31 Budget and Appropriation Process..................32 Finance Department .......................................32 Fund Structure ...............................................32 Basis of Accounting .......................................33 Financial Statements ......................................33 Selected Financial Data of the District ............33 Management’s Discussion and Analysis .........36 Sewer Rates and Revenues .............................38 Rate Commission and Rate Setting Process ....38 Billing and Collections...................................40 Rate Increases ................................................40 Historical and Projected Sewer Rates and Charges ...................................................41 Customer Accounts ........................................42 Largest User Charge Customers .....................43 User Charge Revenues ...................................43 Outstanding Indebtedness ..............................43 Pro Forma Statement of Pledged Revenues, Expenses and Debt Service Coverage ......44 Employee Benefits .........................................46 Other Post-Employment Benefits ...................46 Tax Limitation Amendment –Hancock Amendment.............................................47 REGULATORY REQUIREMENTS ..............47 General ..........................................................47 Regulatory Matters ........................................48 TAX MATTERS ...........................................49 Federal Income Tax Consequences to Owners of the Series 2010B Bonds .................................50 Opinion of Co-Bond Counsel Regarding the Series 2010B Bonds .......................................50 Federal Tax Status of the Series 2010B Bonds as Build America Bonds; Interest Taxable.......................................50 Other Federal Income Tax Consequences Applicable to Owners of Series 2010B Bonds......................................................50 LITIGATION ................................................51 LEGAL MATTERS .......................................55 RATINGS .....................................................55 CONTINUING DISCLOSURE......................55 UNDERWRITING ........................................56 CERTAIN RELATIONSHIPS .......................57 FINANCIAL ADVISORS .............................57 INDEPENDENT AUDITORS .......................57 MISCELLANEOUS ......................................57 APPENDIX A:Independent Auditor’s Report, Management Discussion and Analysis and Basic Financial Statements of The Metropolitan St. Louis Sewer District for the Fiscal Years ended June 30,2009 and 2008 APPENDIX B:Information Regarding the District’s Service Area APPENDIX C:Definitions and Summaries of Certain Provisions of the Bond Ordinance and the Continuing Disclosure Agreement APPENDIX D:Form of Opinion of Co-Bond Counsel 1 OFFICIAL STATEMENT $85,000,000* The Metropolitan St.Louis Sewer District Taxable Wastewater System Revenue Bonds (Build America Bonds –Direct Pay) Series 2010B INTRODUCTION The following introductory information is not a summary of this Official Statement. It is only a brief description of, and is qualified by and subject in all respects to more complete and detailed information contained elsewhere in, this Official Statement, including the cover page and appendices hereto and the documents described herein. The order and placement of materials in this Official Statement, including the Appendices hereto, are not to be deemed a determination of relevance, materiality or relative importance. This Official Statement, including the cover page and Appendices, should be considered in its entirety. The offering of the Series 2010B Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Bond Ordinance, as defined below. Purpose of the Official Statement The purpose of this Official Statement is to set forth certain information concerning The Metropolitan St.Louis Sewer District (the “District”), a body corporate, municipal corporation and political subdivision organized and existing under the laws of the State of Missouri (the “State”), and the District’s Charter (Plan), approved by the voters of The City of St.Louis, Missouri (the “City”) and St.Louis County, Missouri (the “County”) at a special election on February 9, 1954, as amended and approved by the voters of the City and the County at a special election on November 7, 2000 (collectively and as amended, the “Charter”) and the $85,000,000*principal amount of Taxable Wastewater System Revenue Bonds (Build America Bonds –Direct Pay), Series 2010B (the “Series 2010B Bonds”) to be issued by the District. See the sections herein captioned “THE DISTRICT”and “THE SERIES 2010B BONDS.” The District The District was created in 1954 to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage to serve the City and most of the more heavily populated areas of the County. When the District began operations, it took over the publicly owned wastewater and stormwater drainage facilities within its jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. The District’s service area now encompasses 525 square miles, including all 62 square miles of the City and 463 square miles (approximately 90%) of the County. The current population served by the District is approximately 1.4 million. A map of the District’s service area is included on the back cover hereof. See the sections herein captioned “THE DISTRICT,” “THE CIRP AND THE PROJECTS,” “FINANCIAL OPERATIONS OF THE DISTRICT,”and “REGULATORY REQUIREMENTS.” __________ *Preliminary, subject to change. 2 Purpose of and Authority for the Series 2010B Bonds At a special election held on August 5,2008, voters within the District approved the issuance by the District of $275,000,000 in sewer system revenue bonds (the “2008 Authorization”)to enable the District to comply with federal and state clean water requirements.The District may use the proceeds of such revenue bonds for the purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities. The District plans to use the proceeds of the Series 2010B Bonds to finance a portion of the costs of the District’s Capital Improvement and Replacement Program (the “CIRP”).A total of $53,000,000 principal amount of the 2008 Authorization have been issued, being its Wastewater System Revenue Bonds, Series 2008A issued on November 25, 2008, in the original aggregate principal amount of $30,000,000, all of which remain outstanding,and its Subordinate Wastewater System Revenue Bonds (State of Missouri -Direct Loan Program), Series 2009A (the “Series 2009A Bonds”), issued on October 21, 2009, in the original principal amount of $23,000,000, all of which remain outstanding.In addition the District expects to issue its Subordinate Wastewater System Revenue Bonds (State of Missouri –Direct Loan Program –ARRA) Series 2010A (the “Series 2010A Bonds”)in an aggregate principal amount not to exceed $7,980,700, on or about January 21, 2010.See the section herein captioned “THE CIRP AND THE PROJECTS.” The District will issue the Series 2010B Bonds pursuant to the 2008 Authorization, a Master Bond Ordinance (the “Master Bond Ordinance”) that was approved by the Board of Trustees (the “Board”) of the District on April 22, 2004, and an Ordinance expected to be approved by the Board on January 14,2010 (the “2010B Ordinance,”which together with the Master Bond Ordinance is referred to herein as the “Bond Ordinance”), to provide funds (i)to finance a portion of the costs of the CIRP (collectively, the “Projects”), (ii)to fund a debt service reserve account (the “Debt Service Reserve Account”) and (iii)to pay the costs of issuance of the Series 2010B Bonds. See the sections herein captioned “PLAN OF FINANCE”and “THE CIRP AND THE PROJECTS.” A description of the Series 2010B Bonds is contained in this Official Statement under the caption “THE SERIES 2010B BONDS.”All references to the Series 2010B Bonds are qualified in their entirety by the definitive form thereof and the provisions with respect thereto in the Bond Ordinance. See Appendix C –“DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT”for the definitions of all capitalized words used herein and not otherwise defined herein. Security and Sources of Payment for the Series 2010B Bonds General.The Series 2010B Bonds are revenue bonds secured by and payable from certain revenues of the District received from operation of its sanitary sewer system (the “System”)on a parity with three prior series of Bonds issued by the District:$175,000,000 original principal amount of its Wastewater System Revenue Bonds, Series 2004A (the “Series 2004A Bonds”), issued on May 6, 2004, and outstanding in the aggregate principal amount of $168,965,000;$60,000,000 original principal amount of its Wastewater System Revenue Bonds, Series 2006C (the “Series 2006C Bonds”),issued on November 28, 2006, and outstanding in the aggregate principal amount of $60,000,000 and $30,000,000 original principal amount of its Wastewater System Revenue Bonds, Series 2008A (the “Series 2008A Bonds”)issued on November 25, 2008, and outstanding in the aggregate principal amount of $30,000,000. (Collectively, the Series 2004A Bonds, the Series 2006C Bonds,the Series 2008A Bonds, the Series 2010B Bonds and any additional Bonds issued on a parity therewith are referred to herein as the “Senior Bonds.”)The Series 2010B Bonds are also secured by amounts in the Renewal and Extension Fund (as defined herein) and in the Debt Service Reserve Account. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010B BONDS.” 3 The Series 2010B Bonds and the interest thereon are limited obligations of the District as provided therein payable,solely from the Pledged Revenues, as defined herein, on a parity with the other Senior Bonds. The Series 2010B Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit of, the District or the State or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the faith and credit nor the taxing power of the District, the State, or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Series 2010B Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2010B Bonds. Neither the members of the Board nor any person executing the Series 2010B Bonds shall be liable personally on the Series 2010B Bonds by reason of the issuance thereof. Pledged Revenues.The Series 2010B Bonds are voter-approved revenue bonds secured by a pledge of certain revenues of the System, referred to herein as “Pledged Revenues.”Pledged Revenues means (a)Net Operating Revenues (as defined herein),(b) Investment Earnings (as defined herein),(c) Hedge Receipts and (d) all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance,but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund created in the Bond Ordinance. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010B BONDS –Pledged Revenues”and “–Flow of Funds” and “FINANCIAL OPERATIONS OF THE DISTRICT –Selected Financial Data of the District” for further discussion of the specific District revenues constituting Pledged Revenues under the Bond Ordinance. Renewal and Extension Fund and Debt Service Reserve Account.The Bond Ordinance establishes a Renewal and Extension Fund into which the District may deposit a portion of the Pledged Revenues. The Bond Ordinance also establishes a Debt Service Reserve Account for the Senior Bonds. The Debt Service Reserve Account will be funded in part from proceeds of the Series 2010B Bonds in the amount of $___________, which,together with funds already on deposit in the Debt Service Reserve Account,will equal the Debt Service Reserve Requirement for the Senior Bonds. Whenever for any reason the amount in the Payments Account established under the Bond Ordinance is insufficient to pay all interest or Principal falling due on the Senior Bonds, including the Series 2010B Bonds, within the next seven days (or, in the case of Senior Bonds bearing interest at a Variable Rate, the next Business Day) the District will make up any deficiency by transfers first from the Renewal and Extension Fund and second from the funds and accounts of the District relating to Subordinate Bonds (as defined below) which are not Subordinate SRF Bonds (as defined below). Whenever, on the date such interest or Principal is due on the Senior Bonds, including the Series 2010B Bonds, there are insufficient moneys in the Payments Account available to make such payment, the District shall, without further instructions, apply so much as may be needed of the moneys in the Debt Service Reserve Account to prevent default in the payment of such interest or Principal, with priority to interest payments. See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010B BONDS –Debt Service Reserve Account.” The Bond Ordinance authorizes the District to issue additional Bonds thereunder which may be either “Senior Bonds”or “Subordinate Bonds,”subject to certain requirements of the Bond Ordinance. The Bond Ordinance defines “Senior Bonds”as Bonds which may have a right to payment and to be secured by a lien on a parity with the Series 2004A Bonds, the Series 2006C Bonds, the Series 2008A Bonds,the Series 2010B Bonds and any additional Bonds issued on a parity therewith (except with respect to any Credit Facility which may be available only to one or more series of Senior Bonds) with respect to the Pledged Revenues. The Bond Ordinance defines “Subordinate Bonds”as Bonds, 4 including Subordinate SRF Bonds (defined in the Bond Ordinance as SRF Bonds which are Subordinate Bonds),which may have a right to payment from the Pledged Revenues and be secured by a lien on the Pledged Revenues expressly junior and subordinate to the Senior Bonds. The Series 2010B Bonds and any other Senior Bonds or Subordinate Bonds issued by the District previously or in the future under the Master Bond Ordinance are referred to herein collectively as the “Bonds.”See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT”in Appendix C hereto for a discussion of the requirements that must be satisfied under the Bond Ordinance prior to the issuance of additional Bonds thereunder. The American Recovery and Reinvestment Act of 2009 The American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) authorizes the District to issue taxable bonds known as “Build America Bonds” to finance capital expenditures for which it could otherwise issue tax-exempt bonds and to elect to receive a subsidy payment from the federal government equal to 35% of the amount of each interest payment on such taxable bonds (the “Interest Subsidy Payments”). The Series 2010B Bonds are being issued as Build America Bonds under the Internal Revenue Code of 1986, as amended (the “Code”).The available subsidy for the Series 2010B Bonds will be paid to the District; no holders of Series 2010B Bonds will be entitled to a tax credit. The receipt of the Interest Subsidy Payments by the District is subject to certain requirements, including the filing of a form with the Internal Revenue Service prior to each interest payment date. The Interest Subsidy Payments are not full faith and credit obligations of the United States.Pursuant to the Bond Ordinance, the Interest Subsidy Payments will be deposited into the Sinking Fund.The District is obligated to make all payments of principal or Redemption Price of and interest on the Series 2010B Bonds whether or not it receives Interest Subsidy Payments pursuant to the Recovery Act. Other Indebtedness The District has previously issued eight series of bonds which are payable from revenues of the System for the purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities.Prior to the issuance of the Series 2010B Bonds, the aggregate principal amount of Senior Bonds outstanding is $258,965,000.In addition to the three series of outstanding Senior Bonds, the District has issued five additional series of bonds payable from wastewater system revenues (“SRF Bonds”) that were purchased by the State Environmental Improvement and Energy Resources Authority of the State of Missouri (the “Authority”) through the Missouri State Revolving Fund Program (the “SRF Program”) of the Authority and the Missouri Department of Natural Resources (“DNR”).The District also issued its Series 2009A Bonds in the aggregate principal amount of $23,000,000 in connection with a direct loan from DNR in October 2009.The SRF Bonds and the Series 2009A Bonds were issued as Subordinate Bonds under the Master Bond Ordinance and the applicable Series Ordinances.The District expects to issue another series of Subordinate Bonds under the Recovery Act in an aggregate principal amount not to exceed $7,980,700, which is expected to close on or about January 21, 2010.See the section herein captioned “PLAN OF FINANCE.” Continuing Disclosure Information At the time of issuance of the Series 2010B Bonds, the District will enter into a Disclosure Dissemination Agent Agreement dated as of January 1,2010 (the “Continuing Disclosure Agreement”) with Digital Assurance Certification, L.L.C. (“DAC”), under which the District will designate DAC as Dissemination Agent. Pursuant to the Continuing Disclosure Agreement, the District will covenant to provide certain financial and operating information with respect to the District on an on-going basis and notice of certain events in accordance with Rule 15c2-12 promulgated by the United States Securities and 5 Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2-12”). These covenants have been made in order to assist the Underwriters (defined herein)in complying with Rule 15c2-12. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT”in Appendix C hereto. Additional Information Appendix A to this Official Statement contains the Independent Auditor’s Report, Management Discussion and Analysis and Basic Financial Statements of the District for the Fiscal Years ended June 30,2009 and 2008.Appendix B to this Official Statement contains certain information regarding the service area of the District.Appendix C to this Official Statement includes definitions of certain capitalized terms used in this Official Statement and summaries of certain provisions of the Bond Ordinance and the Continuing Disclosure Agreement.Appendix D to this Official Statement contains the proposed form of the opinion which is anticipated to be rendered by Co-Bond Counsel at the time of delivery of the Series 2010B Bonds. Brief descriptions of the Series 2010B Bonds, the Bond Ordinance, and the District are included in this Official Statement. Such descriptions, information and summaries provided herein do not purport to be comprehensive or definitive. All references herein to any documents are qualified by the terms of such documents in their entirety. Until the issuance and delivery of the Series 2010B Bonds, copies of the documents described herein may be obtained from Merrill Lynch, Pierce, Fenner &Smith Incorporated, as representative of the Underwriters of the Series 2010B Bonds. After delivery of the Series 2010B Bonds, copies of such documents will be available for inspection at the corporate trust office of The Bank of New York Mellon Trust Company, N.A., in St.Louis, Missouri, as the Paying Agent under the Bond Ordinance (the “Paying Agent”). THE SERIES 2010B BONDS General The Bond Ordinance authorizes the issuance of Bonds thereunder from time to time in one or more series. The Bond Ordinance further authorizes the execution, issuance and delivery of a series of Bonds thereunder to be designated as “The Metropolitan St.Louis Sewer District Taxable Wastewater System Revenue Bonds (Build America Bonds –Direct Pay)Series 2010B” in the aggregate principal amount of $85,000,000*,which series of Bonds shall be executed, issued and delivered under, and secured by, the Bond Ordinance.Additional Senior Bonds and Subordinate Bonds may also be issued from time to time as provided in, and subject to the limitations set forth in,the Bond Ordinance. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT”in Appendix C hereto. The Series 2010B Bonds shall be issued in fully registered form in the denomination of $5,000 each or integral multiples thereof and shall be dated the date of delivery thereof. Each Series 2010B Bond shall be numbered in a convenient manner, established by The Bank of New York Mellon Trust Company, N.A., in St.Louis, Missouri (the “Bond Registrar”)and shown on the Bond Register.The _________ *Preliminary, subject to change. 6 Series 2010B Bonds shall bear interest at the rate per annum set forth on the cover hereof, computed on the basis of a 360-day year consisting of twelve 30-day months, payable on May 1, 2010,and semiannually thereafter on each May 1 and November 1 of each year and shall mature on May 1, 2039, and in the principal amount as set forth on the cover hereof, unless earlier called for redemption. So long as any of the Series 2010B Bonds are in book-entry form, the Principal, redemption premium, if any, and interest on such Series 2010B Bonds are payable by check or draft mailed, or wire transfer, to Cede & Co. as Registered Owner thereof and will be redistributed by DTC and the Participants as described below under “Book-Entry Only System.” Optional and Mandatory Redemption Optional Redemption of the Series 2010B Bonds.[__The Series 2010B Bonds are subject to redemption prior to maturity at the option of the District on or after May 1, 20___, in whole or in part at any time,at a redemption price equal to 100% of the Principal amount thereof, plus accrued interest thereon to the redemption date.__] OR [__The Series 2010B Bonds are subject to redemption prior to maturity by written direction of the District, in whole or in part, and if in part in authorized denominations, at a redemption price equal to the Make-Whole Redemption Price. The “Make-Whole Redemption Price” is the greater of (i) 100% of the principal amount of the Series 2010B Bonds to be redeemed or (ii) the sum of the present value of the remaining scheduled payments of principal and interest to the maturity date of the Series 2010B Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the Series 2010B Bonds are to be redeemed, discounted to the date on which the Series 2010B Bonds are to be redeemed on a semi-annual basis,assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (as defined below) plus __ basis points, plus, in each case, accrued and unpaid interest on the Series 2010B Bonds to be redeemed on the redemption date. The “Treasury Rate” is, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption date (excluding inflation indexed securities) (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to the maturity date of the Series 2010B Bonds to be redeemed; provided, however, that if the period from the redemption date to such maturity date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. For purposes of this calculation, a “Business Day” means any day other than a Saturday, Sunday or holiday on which the Paying Agent or Bond Registrar is scheduled in the normal course of its operations to be open to the public for conduct of its banking operations. The redemption price will be determined by an independent accounting firm, investment banking firm or financial advisor retained by the District at the District’s expense to calculate such redemption price (the “Calculation Agent”). The determination by the Calculation Agent of the redemption price shall be conclusive and binding on the Paying Agent, the District and the owners of the Series 2010B Bonds.__] Extraordinary Optional Redemption of the Series 2010B Bonds. The Series 2010B Bonds are subject to redemption prior to maturity at the option of the District, in whole or in part upon the occurrence of an Extraordinary Event (defined herein), at a redemption price equal to the greater of: (i)100% of the principal amount of the Series 2010B Bonds to be redeemed; or 7 (ii)the sum of the present value of the remaining scheduled payments of principal and interest to the maturity date of such Series 2010B Bonds to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which such Series 2010B Bonds are to be redeemed, discounted to the date on which such Series 2010B Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (described above) plus 100 basis points; plus, in each case, accrued interest on such Series 2010B Bonds to be redeemed to the redemption date. An “Extraordinary Event”means the modification, amendment or interpretation of Section 54AA or 6431 of the Internal Revenue Code of 1986, as amended (the “Code”) (as such Sections were added by Section 1531 of the Recovery Act, pertaining to “Build America Bonds”) in a manner pursuant to which the Interest Subsidy Payments from the United States Treasury is reduced or eliminated. Mandatory Sinking Fund Redemption of the Series 2010B Bonds. The Series 2010B Bonds are subject to mandatory sinking fund redemption prior to maturity on May 1 in each of the years set forth below, at 100% of the principal amount thereof plus accrued interest to the redemption date, without premium: Series 2010B Bonds Maturing May 1, 2039* Year Principal Amount* 2035 2036 2037 2038 2039** $ * Preliminary, subject to change **Final Maturity The District shall redeem such an aggregate Principal amount of the Series 2010B Bonds at a redemption price equal to the Principal amount thereof plus the interest due thereon to the mandatory redemption date. Selection of Bonds to be Redeemed; Redemption Among Series.If less than all of the Bonds of like maturity of any series shall be called for redemption, the particular Bonds, or portions of Bonds, to be redeemed shall be selected by the Paying Agent in such equitable manner as the Paying Agent may determine. The portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the Principal amount of $5,000 or an integral multiple thereof, and, in selecting portions of such Bonds for redemption, the District shall treat each such Bond as representing that number of Bonds which is obtained by dividing the Principal of such Bond to be redeemed in part by $5,000. Subject to the redemption provisions of any Series Ordinance, the District in its discretion may redeem the Bonds of any series, or a portion of the Bonds of any such series, before it redeems the Bonds of any other series. Within any particular series, any redemption of Bonds shall be effected in the manner provided in the Master Bond Ordinance and in any Series Ordinance. Notice of Redemption.Unless waived by any registered owner of Bonds to be redeemed and except as may be otherwise provided in a Series Ordinance, official notice of any such redemption shall be given by the Bond Registrar on behalf of the District by mailing a copy of an official redemption notice by first class mail, at least 30 days and not more than 60 days prior to the date fixed for redemption 8 to the registered owner of the Bond or Bonds to be redeemed at the address shown on the Bond Register or at such other address as is furnished in writing by such registered owner to the Bond Registrar. All official notices of redemption shall be dated, shall contain the complete official name of the Bond issue, and shall state: (1) the redemption date; (2) the redemption price; (3) the interest rate and maturity date of the Bonds being redeemed; (4) if less than all the Outstanding Bonds are to be redeemed, the Bond numbers, and, when part of the Bonds evidenced by one Bond certificate are being redeemed, the respective Principal amounts of such Bonds to be redeemed; (5) that on the redemption date the redemption price will become due and payable upon each such Bond or portion thereof called for redemption and that interest thereon shall cease to accrue from and after such date; and (6) the place where such Bonds are to be surrendered for payment of the redemption price (which place of payment shall be the principal payment office of the Paying Agent or at such other office designated by the Paying Agent for such purpose) and the name, address, and telephone number of a person or persons at the Paying Agent who may be contacted with respect to the redemption. Any notice of redemption of any Bonds may specify that the redemption is contingent upon the deposit of moneys with the Paying Agent in an amount sufficient to pay the redemption price (which price shall include the redemption premium, if any) of all the Bonds or portions of Bonds which are to be redeemed on that date. Prior to any redemption date, the District shall deposit with the Paying Agent an amount of money sufficient to pay the redemption price of all the Bonds or portions of Bonds which are to be redeemed on that date. For so long as DTC is effecting book-entry transfers of the Bonds, the Bond Registrar shall provide the notices specified in the Bond Ordinance to DTC. It is expected that DTC shall, in turn, notify its participants and that the participants, in turn, will notify or cause to be notified the Beneficial Owners. Any failure on the part of DTC or a participant, or failure on the part of a nominee of a Beneficial Owner of a Bond (having been mailed notice from the Bond Registrar, a participant or otherwise) to notify the Beneficial Owner of the Bond so affected, shall not affect the validity of the redemption of such Bond. Any defect in any notice of redemption shall not affect the validity of proceedings for redemption of the Bonds. Effect of Notice of Redemption Official notice of redemption having been given in the manner and under the conditions provided in the Bond Ordinance and moneys for payment of the redemption price being held by the Paying Agent as provided in the Bond Ordinance, the Bonds or portions of Bonds called for redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price provided for redemption of such Bonds or portions of Bonds on such date, and from and after such date interest on the Bonds or portions of Bonds called for redemption shall cease to accrue, such Bonds or portions of Bonds shall cease to be entitled to any lien, benefit, or security under the Bond Ordinance, and the owners of such Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Upon surrender for partial redemption of any Bond, there shall be prepared for and delivered to the registered owner a new Bond or Bonds of the same series, maturity, and interest rate in the amount of the unpaid Principal. Book-Entry Only System The Bonds are available in book-entry only form and beneficial ownership interests therein for the Bonds may be purchased in the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Bonds will not receive certificates representing their interests in the Bonds. 9 The following information concerning The Depository Trust Company (“DTC”), New York, New York and DTC’s book-entry system has been obtained from sources the District believes to be reliable. However, the District takes no responsibility as to the accuracy or completeness thereof and neither the Indirect Participants nor the Beneficial Owners should rely on the following information with respect to such matters but should instead confirm the same with DTC or the Direct Participants, as the case may be. There can be no assurance that DTC will abide by its procedures or that such procedures will not be changed from time to time. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully registered Bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Bond will be issued for each maturity of each Series of the Bonds, each in the aggregate principal amount of such maturity of the Bonds and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization”within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation”within the meaning of the New York Uniform Commercial Code, and a “clearing agency”registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (the “Beneficial Owner”) is in turn to be recorded on the Direct Participants’ and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration 10 in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. NEITHER THE DISTRICT NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH DIRECT PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE FOR THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS, OR THE BENEFICIAL OWNERS. Redemption notices shall be sent to DTC. If less than all of the Bonds of a Series are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such Series to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds and redemption proceeds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Paying Agent or the District on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Direct Participant and not of DTC, the Paying Agent or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest and redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Paying Agent or the District, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct Participants and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered. The Direct Participants holding a majority position in the Series 2010B Bonds may determine to discontinue the system of book-entry transfers through DTC (or a successor securities depository). In such event, the Bonds are to be printed and delivered to DTC. 11 THE DISTRICT, THE BOND REGISTRAR AND THE PAYING AGENT WILL HAVE NO RESPONSIBILITY OR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATION BOOKS OF THE BOND REGISTRAR AS BEING A REGISTERED OWNER WITH RESPECT TO: (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT; (2) THE PAYMENT OF ANY AMOUNT DUE BY DTC TO ANY DIRECT PARTICIPANT OR BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (3) THE DELIVERY OF ANY NOTICE BY DTC TO ANY DIRECT PARTICIPANT OR BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED TO BE GIVEN TO REGISTERED OWNERS UNDER THE TERMS OF THE ORDINANCE; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS REGISTERED OWNER. The District, the Bond Registrar and the Paying Agent cannot and do not give any assurances that DTC will distribute payments on the Bonds made to DTC or its nominee as the registered owner or any redemption or other notices, to the Participants, or that the Participants or others will distribute such payments or notices to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Official Statement. Registration, Transfer and Exchange of Bonds Upon Discontinuance of Book-Entry Only System The District shall cause the Bond Registrar to keep the Bond Register for the registration and transfer of the Bonds as provided in the Bond Ordinance. The Bonds shall be registered as to Principal and interest on the Bond Register upon presentation thereof to the Bond Registrar which shall make notation of such registration thereon; provided that the District reserves the right to issue coupon Bonds payable to bearer whenever to do so would not result in any adverse federal tax consequences. Bonds may be transferred by surrender for transfer at the principal corporate trust office of the Bond Registrar or at such other office designated by the Bond Registrar for such purpose, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or the registered owner’s attorney duly authorized in writing. The District shall cause to be executed and the Bond Registrar shall authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds of the same series, maturity, interest rate, aggregate Principal amount, and tenor, of any authorized denomination or denominations, and bearing numbers not then outstanding. Bonds may be exchanged at the principal corporate trust office of the Bond Registrar or at such other office designated by the Bond Registrar for such purpose, for a like aggregate Principal amount of Bonds of other authorized denominations of the same series, maturity, and interest rate, and bearing numbers not then outstanding. The District shall cause to be executed and the Bond Registrar shall authenticate and deliver Bonds which the Bondholder making the exchange is entitled to receive. The Bond Registrar shall not be required to transfer or exchange any Bond after notice calling such Bond for redemption has been given or during the period of 15 days (whether or not a Business Day for the Bond Registrar, but excluding the date of giving such notice of redemption and including such 15th day) immediately preceding the giving of such notice of redemption. In any exchange or registration of transfer of any Bond, the owner of the Bond shall not be required to pay any charge or fee; provided, however, if and to whatever extent any tax or governmental 12 charge is at any time imposed on any such exchange or transfer, the District or the Bond Registrar may require payment of a sum sufficient for such tax or charge.In the event any Bondholder fails to provide a correct taxpayer identification number to the Bond Registrar, the Bond Registrar may impose a charge against such Bondholder sufficient to pay any governmental charge required to be paid as a result of such failure. In compliance with Section 3406 of the Internal Revenue Code, such amount may be deducted by the Paying Agent from amounts otherwise payable to such Bondholder hereunder or under the Bonds. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010B BONDS General The Series 2010B Bonds are revenue bonds secured by and payable from Pledged Revenues on a parity with the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and any other Senior Bonds issued under the terms of the Master Bond Ordinance. The Senior Bonds are also secured by amounts on deposit in the Renewal and Extension Fund and the Debt Service Reserve Account. The Series 2010B Bonds and the interest thereon are limited obligations of the District as provided therein payable solely from the Pledged Revenues. The Series 2010B Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit of, the District or the State or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the faith and credit nor the taxing power of the District, the State, or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Senior Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Senior Bonds or the Subordinate Bonds.Neither the members of the Board nor any person executing the Series 2010B Bonds shall be liable personally on the Series 2010B Bonds by reason of the issuance thereof. Pledged Revenues Pursuant to the Master Bond Ordinance, the District has pledged all Pledged Revenues to the payment of the Principal of, premium, if any, and interest on all Bonds issued thereunder. Such pledge is for the equal and proportionate benefit and security of the Series 2004A Bonds, the Series 2006C Bonds, the Series 2008A Bonds,the Series 2010B Bonds and any other Senior Bonds issued under the terms of the Master Bond Ordinance regardless of the time or times of their issuance or maturity. In the Master Bond Ordinance, the District covenants that it will not issue obligations of any kind or nature payable from, or with a lien on, the Pledged Revenues or any part thereof having a prior lien over or, except as permitted in the Master Bond Ordinance for the issuance of Senior Bonds, on a parity with the Series 2010B Bonds. Notwithstanding the foregoing, the Master Bond Ordinance permits the issuance of Subordinate Bonds secured by the Pledged Revenues on a subordinate basis to the Series 2004A Bonds, the Series 2006C Bonds,the Series 2008A Bonds,the Series 2010B Bonds, and any other Senior Bonds issued in the future. “Pledged Revenues”means (a) Net Operating Revenues of the System, (b) Investment Earnings (defined in the Bond Ordinance as all interest received on and profits derived from investments of moneys in all funds and accounts of the District other than investments derived from or with respect to (i)stormwater revenues, as described below, (ii) all funds and accounts established in connection with SRF Bonds and (iii) obligations issued by the District on behalf of its subdistricts), (c) Hedge Receipts and (d) all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant 13 to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund created in the Bond Ordinance. The Bond Ordinance defines the “System”as the sanitary sewer system of the District, as it now exists and as it may be added to, extended, improved and equipped, either from the proceeds of the Bonds or from any other sources at any time, including, without limitation, (a) all sanitary sewers, all combined sewers, all sanitary and combined sewer pumping stations, all wastewater treatment plants, and all equipment used in connection therewith, all facilities for the collection, treatment and disposal of sewage and wastewater, including industrial wastes, and (b) all other facilities or property of any nature or description, real or personal, tangible or intangible, owned or used by the District in the collection, treatment and disposal of wastewater. The Bond Ordinance defines “Net Operating Revenues”as all Operating Revenues (as defined in the Bond Ordinance), after provision for payment of all Expenses of Operation and Maintenance (as defined in the Bond Ordinance). The Bond Ordinance defines “Operating Revenues”as all income and revenue of any nature derived from the operation of the System, including periodic wastewater billings, service charges, other charges for wastewater service and the availability thereof (other than any special assessment proceeds), connection or tap fees (whether accounted for as revenues or as contributed capital), net proceeds from business interruption insurance, the principal of gifts, bequests, contributions, grants and donations available to pay debt service of Bonds, and any amounts deposited in escrow in connection with the acquisition, construction, remodeling, renovation and equipping of facilities to be applied during the period of determination to pay interest on Bonds. The Bond Ordinance expressly excludes the following from the definition of Operating Revenues: (1) any profits or losses on the early extinguishment of debt or on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and local, state or federal grants or other moneys received for the payment of Expenses of Operation and Maintenance, (2) local, state, or federal grants, loans (including Government Loans), capital improvement contract payments, or other moneys received for capital improvements to the System, (3) Investment Earnings, (4) any stormwater charges (referred to herein as the “Stormwater Service Charges”) and (5) any property tax revenues.Although revenues from the Stormwater Service Charge are not included in Operating Revenues and thus not available for payment of debt service on any Bonds issued under the Bond Ordinance, including the Series 2010B Bonds, such revenues are accounted for and included in the amount of “Operating Revenues” identified in the Independent Auditor’s Report and Financial Statements included as Appendix A to this Official Statement. The District engaged its independent accountants to perform certain agreed-upon procedures in connection with the schedule of Pledged Revenues, as shown below, and prepare a Report on Agreed- Upon Procedures, dated November 19,2009. The schedule of Pledged Revenues was prepared by the District to show what Pledged Revenues would have been available historically to pay debt service on the Bonds. The District’s independent accountants performed certain procedures to compare (1)the District’s total operating revenues, nonoperating revenues and operating expenses and (2)revenues, not included in Pledged Revenues, such as Stormwater Revenues, property tax revenues, capital grant revenues and certain interest income, all as reported in the District’s audited financial statements for the years ended June 30,2009, 2008,2007,2006 and 2005, with the Pledged Revenues schedule provided by the District to the independent accountants.The independent accountants’report concluded that all amounts presented on the schedule provided by the District were agreed to either the audited financial statements of the District or other financial information provided by the District. The schedule below was attached to the Agreed-Upon Procedures Report. SCHEDULE OF PLEDGED REVENUESFor theyears ended June 30, 2005 through2009(In thousands)2005120061200712008220092Operating RevenuesSewer service charge, net $180,732 $ 199,471$193,556$203,675 $ 204,947Licenses, permits and other fees 6,549 5,210 6,031 4,346 3,475Other4788731,3769611,550Total Operating Revenues $187,759$205,554$200,963$208,981$209,973Nonoperating RevenuesProperty taxes levied by theDistrict for debt service andconstructionInvestment Income 4,357 6,13513,50213,278 10,280Recovery of doubtful Clean WaterImprovement Surcharge accounts -----43Total Nonoperating Revenues 4,3576,13513,50213,28210,283Total Pledged Revenues $192,116$211,690$214,465$222,263$220,256Operating ExpensesPumping and treatment $35,514 $38,316 $37,848 $37,103 $37,520Collection system maintenance 25,225 27,79227,71825,669 27,601Engineering 6,851 8,737 8,864 4,875 11,518General and administrative 37,047 37,05639,19933,183 31,798Water backup claims -- -- -- 6,198 5,716Other13,29420,00924,46030,27319,985Total Operating Expenses $117,931$131,910$138,090$137,302$134,137Nonoperating ExpensesNonrecurring projects and studies 4,292 3,375 4,000 1,017 4,779Clean Water Capital ImprovementSurcharge Fund5,6679515----Total NonoperatingExpenses 9,959 3,4704,0151,0174,779Total Expenses $127,890$135,380$142,104$138,319$138,916Net Pledged Revenue $64,226$76,310$ 72,361$83,944$81,340Annual Debt Service $10,677 $15,927 $19,243$24,330 $29,408Debt Service Coverage Ratio 6.02x 4.79x 3.76x 3.45x 2.77xSource: The District12005 to 2007 operating expenses include both wastewater and stormwater expenses22008 and 2009 operating expenses have been recast to report wastewater expenses solely. Stormwater expenses have been removed 14 15 Flow of Funds Bond Ordinance Funds and Accounts.The Bond Ordinance establishes or ratifies the establishment of the following funds and accounts and provides that the moneys deposited in such funds and accounts shall be held by Bank of America, N.A., St.Louis, Missouri, as the depository (the “Depository”) for the account of the District, in trust for the purposes set forth in the Bond Ordinance: (1)Metropolitan St.Louis Sewer District Wastewater Revenue Fund (the “Revenue Fund”), (2)Metropolitan St.Louis Sewer District Wastewater Sinking Fund (the “Sinking Fund”), and within such Sinking Fund, a Payments Account and a Debt Service Reserve Account, (3)Metropolitan St.Louis Sewer District Wastewater Renewal and Extension Fund (the “Renewal and Extension Fund”), (4)Metropolitan St.Louis Sewer District Wastewater Rebate Fund (the “Rebate Fund”), and within such Rebate Fund a Series 2010B Rebate Account, and (5)Metropolitan St.Louis Sewer District Wastewater Project Fund (the “Project Fund”), and within such Project Fund a Series 2010B Project Account and a Series 2010B Costs of Issuance Account. Deposits to and Uses of Moneys in the Revenue Fund.The Bond Ordinance requires that the District deposit all Operating Revenues into the Revenue Fund from time to time as and when received. The Bond Ordinance also requires that the District apply moneys in the Revenue Fund, prior to the occurrence and continuation of an Event of Default under the Bond Ordinance, in the following order of priority: (1)to pay Expenses of Operation and Maintenance, (2)to deposit into the Sinking Fund the amounts required by the Bond Ordinance, as described below under the heading captioned “Deposits to and Uses of Money in the Sinking Fund,” (3)to deposit into the Rebate Fund the amounts required by Bond Ordinance, (4)to make Replenishment Payments (as defined in the Bond Ordinance) to the Debt Service Reserve Account and to pay to any Credit Facility Provider any amounts due under any Credit Facility Agreement, including Additional Interest, (5)to pay any amounts due any Reserve Account Credit Facility Provider pursuant to a Reserve Account Credit Facility Agreement, (6)to deposit the amounts required to be deposited into the funds and accounts created by any Series Ordinance authorizing the issuance of Subordinate Bonds, for the purpose of paying Principal of (whether at maturity, upon mandatory redemption or as otherwise required by a Series Ordinance relating to Subordinate SRF Bonds) and interest on Subordinate Bonds, making Hedge Payments under Subordinate Hedge Agreements, and accumulating reserves for such payments, 16 (7)to make Accumulation Payments (as defined in the Bond Ordinance) to the Debt Service Reserve Account in accordance with the Bond Ordinance, and (8)to pay any amounts required to be paid with respect to any Other System Obligations. In addition to, and after, the deposits described above, the District may from time to time deposit into the Renewal and Extension Fund any moneys and securities held in the Revenue Fund in excess of 45 days’ estimated Expenses of Operation and Maintenance. If at any time the amounts in any account of the Sinking Fund are less than the amounts required by the Bond Ordinance, and there are not on deposit in the Renewal and Extension Fund available moneys sufficient to cure any such deficiency, as described herein under the subsection captioned “Deposits to and Uses of Moneys in the Renewal and Extension Fund,”then the District shall withdraw from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds and deposit in such account of the Sinking Fund, as the case may be, the amount necessary (or all the moneys in such funds and accounts, if less than the amount required) to make up such deficiency. Deposits to and Uses of Moneys in the Sinking Fund.After the District deposits all Operating Revenues into the Revenue Fund and applies such moneys to pay Expenses of Operation and Maintenance, then the Bond Ordinance provides for deposits to and uses of moneys in the accounts and subaccounts in the Sinking Fund as follows: Payments Account –General.Sufficient moneys shall be paid in periodic installments from the Revenue Fund into the Payments Account for the purpose of paying the Principal of and interest (excluding Additional Interest) on the Senior Bonds as they become due and payable and for the purpose of making Hedge Payments under Senior Hedge Agreements. Amounts held in the Payments Account shall be used solely to pay interest (excluding Additional Interest) and Principal of the Senior Bonds as the same become due and payable (whether at maturity or upon redemption) and to pay Hedge Payments under Senior Hedge Agreements when due. As of the date of this Official Statement, there are no Senior Hedge Agreements in effect. Interest.Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Interest Payment Date for Senior Bonds (or, in the case of Senior Bonds bearing interest at a Variable Rate, on or before the Business Day preceding each Interest Payment Date), the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment and, in the case of Senior SRF Bonds, anticipated investment earnings on reserve funds held by a bond trustee relating to such Senior SRF Bonds, is not less than the interest (excluding Additional Interest) coming due on such Senior Bonds on such Interest Payment Date. The District shall also deposit and continue to deposit all Hedge Receipts under Senior Hedge Agreements in the Payments Account from time to time as and when received. Principal.Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Principal Maturity Date for Senior Bonds, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than the Principal coming due on such Senior Bonds on such Principal Maturity Date. 17 Hedge Payments.On or before the 30th day preceding each payment date for Hedge Payments under Senior Hedge Agreements, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than such Hedge Payments coming due on such payment date. Application of Moneys in Payments Account.No further payments need be made into the Payments Account whenever the amount available in the Payments Account, if added to the amount then in the Debt Service Reserve Account (without taking into account any amount available to be drawn on any Reserve Account Credit Facility), is sufficient to retire all Senior Bonds then Outstanding and to pay all unpaid interest accrued and to accrue prior to such retirement. No moneys in the Payments Account shall be used or applied to the optional purchase or redemption of Senior Bonds prior to maturity unless: (i) provision shall have been made for the payment of all the Senior Bonds; or (ii) such moneys are applied to the purchase and cancellation of Senior Bonds which are subject to mandatory redemption on the next mandatory redemption date, which falls due within 12 months, such Senior Bonds are purchased at a price not more than would be required for mandatory redemption, and such Senior Bonds are cancelled upon purchase; or (iii) such moneys are applied to the purchase and cancellation of Senior Bonds at a price less than the amount of Principal which would be payable on such Senior Bonds, together with interest accrued through the date of purchase, and such Senior Bonds are cancelled upon purchase; or (iv) such moneys are in excess of the then required balance of the Payments Account and are applied to redeem a part of the Senior Bonds Outstanding on the next succeeding redemption date for which the required notice of redemption may be given. Deposits to and Uses of Moneys in the Debt Service Reserve Account Upon the issuance of the Series 2010B Bonds, the District shall deposit into the Debt Service Reserve Account from the proceeds of the Series 2010B Bonds the amount of $________. The Bond Ordinance requires that the District deposit into the Debt Service Reserve Account the amounts specified in Series Ordinances with respect to Senior Bonds. Notwithstanding the foregoing, there shall be no deposit into the Debt Service Reserve Account with respect to any SRF Bonds nor shall the Debt Service Reserve Account secure any SRF Bonds. Whenever for any reason the amount in the Payments Account is insufficient to pay all interest or Principal becoming due on the Senior Bonds within the next seven days (or, in the case of Senior Bonds bearing interest at a Variable Rate, on the next Business Day), the District shall make up any deficiency by transfers first from the Renewal and Extension Fund and second from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds. Whenever, on the date that such interest or Principal is due, there are insufficient moneys in the Payments Account available to make such payment, the District shall, without further instructions, apply so much as may be needed of the moneys in the Debt Service Reserve Account to prevent default in the payment of such interest or Principal, with priority to interest payments. Whenever by reason of any such application or otherwise (other than required Accumulation Payments, as required in the Bond Ordinance) the amount remaining to the credit of the Debt Service Reserve Account is less than the amount then required to be in the Debt Service Reserve Account, such deficiency shall be remedied by monthly deposits (“Replenishment Payments”) from the Revenue Fund, to the extent funds are available in the Revenue Fund for such purpose after all required transfers set forth above have been made. The District may elect to satisfy in whole or in part the Debt Service Reserve Requirement by means of a Reserve Account Credit Facility, subject to certain requirements as set forth in the Bond Ordinance. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT”in Appendix C hereto. 18 Deposits to and Uses of Moneys in the Renewal and Extension Fund.All sums accumulated and retained in the Renewal and Extension Fund shall be used first to prevent default in the payment of interest on or Principal of the Senior Bonds when due and then shall be applied by the District from time to time,as and when the District shall determine,to the following purposes and, prior to the occurrence and continuation of an Event of Default, in the order of priority determined by the District in its sole discretion: (a) for the purposes for which moneys held in the Revenue Fund may be applied pursuant to the Bond Ordinance and as described above, (b) to pay any amounts which may then be due and owing under any Hedge Agreement (including termination payments, fees, expenses, and indemnity payments), (c) to pay any governmental charges and assessments against the System or any part thereof which may then be due and owing, (d) to make acquisitions, betterments, extensions, repairs, or replacements or other capital improvements (including the purchase of equipment) to the System deemed necessary by the District (including payments under contracts with vendors, suppliers, and contractors for the foregoing purposes), (e) to acquire Senior Bonds by redemption or by purchase in the open market at a price not exceeding the callable price as provided and in accordance with the terms and conditions of the Bond Ordinance, which Senior Bonds may be any of the Senior Bonds, prior to their respective maturities, and when so used for such purposes the moneys shall be withdrawn from the Renewal and Extension Fund and deposited into the Payments Account for the Senior Bonds to be so redeemed or purchased, and (f) for any other purpose of the District. Rate Covenant The Bond Ordinance provides that the District shall continuously own, control, operate, and maintain the System in an efficient and economical manner and on a revenue producing basis and shall at all times prescribe, fix, maintain, and collect rates, fees, and other charges for the services, facilities, and commodities furnished by the System fully sufficient at all times to: (1)provide for 100% of the Expenses of Operation and Maintenance and for the accumulation in the Revenue Fund of a reasonable reserve therefor; and (2)produce Net Operating Revenues in each Fiscal Year which, together with Investment Earnings: (a)will equal at least 125% of the Debt Service Requirement on all Senior Bonds then Outstanding for the year of computation and 115% of the Debt Service Requirement on all Bonds then Outstanding for the year of computation; (b)will enable the District to make all required payments, if any, into the Debt Service Reserve Account and the Rebate Fund and to any Credit Facility Provider, any Reserve Account Credit Facility Provider, and any Qualified Hedge Provider; (c)will enable the District to accumulate an amount to be held in the Renewal and Extension Fund which, in the judgment of the District, is adequate to meet the costs of major renewals, replacements, repairs, additions, betterments, and improvements to the System, necessary to keep the same in good operating condition or as is required by any governmental agency having jurisdiction over the System; and (d)will remedy all deficiencies in required payments into any of the funds and accounts established under the Bond Ordinance from prior Fiscal Years. 19 If the District fails to prescribe, fix, maintain, and collect rates, fees, and other charges, or to revise such rates, fees, and other charges, in accordance with these provisions of the Bond Ordinance, the owners of not less than 25% in aggregate Principal amount of the Bonds then Outstanding, without regard to whether any Event of Default shall have occurred, may institute and prosecute in any court of competent jurisdiction an appropriate action to compel the District to prescribe, fix, maintain, or collect such rates, fees, and other charges, or to revise such rates, fees, and other charges, in accordance with the requirements of the Bond Ordinance. Senior and Subordinate Bonds Upon satisfaction of certain conditions, the Bond Ordinance permits the District, for specified purposes, to issue additional Senior Bonds without express limit as to principal amount, which will be equally and ratably secured on a parity basis with the Series 2004A Bonds, the Series 2006C Bonds, the Series 2008A Bonds and the Series 2010B Bonds under the Bond Ordinance.The Debt Service Requirement, as defined in the Bond Ordinance, which is used in the calculation of the additional bonds test, allows the District to take into account the anticipated receipt of Interest Subsidy Payments to arrive at a net debt service figure with respect to the Bonds issued as “Build America Bonds.”The District may issue additional Senior Bonds in the future to finance part of the cost of capital improvements identified in the CIRP.See the section herein captioned “PLAN OF FINANCE –Capital Finance Plans of the District.”The Bond Ordinance also permits the District to issue Subordinate Bonds which would be secured by a lien on the Pledged Revenues that would be junior and subordinate to the Series 2010B Bonds and any other Senior Bonds. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT”in Appendix C hereto. PLAN OF FINANCE Purpose of and Authority for the Series 2010B Bonds At a special election held on August 5,2008, voters within the District approved the issuance by the District of $275,000,000 in sewer system revenue bonds to enable the District to comply with federal and state clean water requirements. The District may use the proceeds of such revenue bonds for the purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities. The District plans to use the proceeds of the Series 2010B Bonds to finance a portion of the costs of the CIRP. See the section herein captioned “THE CIRP AND THE PROJECTS.” The District will issue the Series 2010B Bonds pursuant to the 2008 Authorization and the Bond Ordinance to provide funds (i)to finance a portion of the costs of the CIRP (collectively, the “Projects”), (ii)to fund the Debt Service Reserve Account, and (iii)to pay the costs of issuance of the Series 2010B Bonds. See the sections herein captioned “THE CIRP AND THE PROJECTS.” Other Indebtedness The District has previously issued three series of Senior Bonds which are payable from the Pledged Revenues: (1)$175,000,000 original principal amount of its Wastewater System Revenue Bonds, Series 2004A (the “Series 2004A Bonds”), issued on May 6, 2004, and outstanding in the aggregate principal amount of $168,965,000; (2) $60,000,000 original principal amount of its Wastewater System Revenue Bonds, Series 2006C (the “Series 2006C Bonds”), issued on November 28, 2006, and outstanding in the aggregate principal amount of $60,000,000;and (3) $30,000,000 original principal amount of its Wastewater System Revenue Bonds, Series 2008A (the “Series 2008A Bonds”) issued on 20 November 25, 2008, and outstanding in the aggregate principal amount of $30,000,000. It has also issued six series of Subordinate Bonds:(1) its Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program), Series 2004B (the “Series 2004B SRF Bonds”) currently outstanding in the aggregate principal amount of $139,965,000; (2) its Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program), Series 2005A (the “Series 2005A SRF Bonds”) currently outstanding in the aggregate principal amount of $5,955,000; (3) its Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program), Series 2006A (the “Series 2006A SRF Bonds”) currently outstanding in the aggregate principal amount of $40,480,000; (4) its Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program), Series 2006B (the “Series 2006B SRF Bonds”) currently outstanding in the aggregate principal amount of $13,575,000;(5)its Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program),Series 2008B (the “Series 2008B SRF Bonds”)currently outstanding in the aggregate principal amount of $40,000,000;and (6) its Subordinate Wastewater System Revenue Bonds (State of Missouri Direct Loan Program) Series 2009A currently outstanding in the aggregate principal amount of $23,000,000. The Series 2004B SRF Bonds, the Series 2005A SRF Bonds, the Series 2006A SRF Bonds,the Series 2006B SRF Bonds and the Series 2008B SRF Bonds have been purchased by the Authority through the SRF Program.The District expects to issue its Series 2010A Bonds in an aggregate principal amount not to exceed $7,980,700 on or about January 21, 2010. Capital Finance Plans of the District The District’s CIRP identifies an estimated $4 billion to $6 billion in capital improvement needs for wastewater system improvements which are to be financed over the next several decades.The Board has approved a resolution that identified proposed expenditures by the District for capital improvements through the District’s Fiscal Year ending June 30, 2012,on a portion of the projects that are included in the CIRP. The District estimates that the cost of the projects identified in the CIRP for the period from FY 2010 through FY 2012 will be approximately $480 million.For a detailed discussion of the CIRP, including those Projects to be financed with the proceeds of the Series 2010B Bonds, the other projects that the District anticipates will be financed with proceeds of future financings under the Bond Ordinance, and projects to be financed by the District with current revenues on a “pay-as-you-go” basis, see the section herein captioned “THE CIRP AND THE PROJECTS.” The Series 2010B Bonds constitute the third series of Bonds being issued from the $275,000,000 principal amount of sewer system revenue bonds approved in the 2008 Authorization.Prior to the issuance of the Series 2010B Bonds, the aggregate principal amount of Bonds issued under the 2008 Authorization is $53,000,000.At a special election held February 3, 2004, the voters approved the issuance of $500,000,000 of System revenue bonds (the “2004 Authorization”), all of which have been issued in furtherance of the CIRP. [Remainder of page intentionally left blank] 21 Estimated Sources and Uses of Funds The following table summarizes the anticipated sources and uses of funds in connection with the issuance of the Series 2010B Bonds: Sources of Funds Par amount of Series 2010B Bonds $85,000,000.00* Plus original issue premium Total Uses of Funds Deposit to Series 2010B Project Account Deposit to Debt Service Reserve Account Deposit to the Series 2010B Costs of Issuance Account (to pay costs of issuance of the Series 2010B Bonds, including underwriters’ discount) Total THE DISTRICT General The District is organized pursuant to Article VI, Section 30 of the Missouri Constitution which empowers the people of St.Louis County, Missouri (the “County”) and The City of St.Louis, Missouri (the “City”) “to establish a metropolitan district for functional administration of services common to the area included therein.” The District is the only special district in the State established pursuant to that section of the Missouri Constitution. The Charter (Plan) of The Metropolitan St.Louis Sewer District, approved in 1954 by voters in the City and that portion of the County included in the District at that time (as subsequently amended by the voters of the City and County at a special election on November 7, 2000, the “Charter”), established the District. The District was created to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage to serve the City and most of the more heavily populated areas of the County. Before the District’s creation, the City, various municipalities in the County and private sewer companies provided sewer service that primarily included only collecting and transporting sewage from small geographic areas to nearby rivers and streams with little or no treatment. Most of the municipalities or private sewer companies serving the area did not have the jurisdictional authority or financial resources needed to eliminate health hazards from untreated sewage. When the District began operations in 1956 it took over the publicly-owned wastewater and stormwater drainage facilities within its jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. In 1977, voters approved the District’s annexation of a 270 square mile area of the lower Missouri River and lower Meramec River watersheds in the County. The District purchased the Fee Fee Trunk Sewer Company and the Missouri Bottoms Sewer Company in 1978. The District has since acquired other investor-owned or municipally operated systems. __________ * Preliminary, subject to change. 22 The District operates the fourth largest wastewater treatment system in the United States.The District’s service area now encompasses 525 square miles including all 62 square miles of the City and 463 square miles (approximately 90%) of the County, including 92 municipalities. Only the extreme western parts of the County are not served by the District. The District provides sanitary sewer collection and treatment and stormwater management to a population of approximately 1.4 million. As of July 1, 2009, the District served approximately 472,393 accounts, including approximately 388,791 single-family residences,approximately 51,441 multi-family apartments and condos,and approximately 32,161 commercial/industrial businesses, which figures include approximately 46,000 stormwater only accounts. For further description of the District’s service area, see the service area map located on the back cover of this Official Statement. For certain economic and demographic information regarding the City and the County, see Appendix B to this Official Statement. The Charter describes the District as “a body corporate, a municipal corporation and a political subdivision of the state.” Following a detailed planning process, in November 2000,a number of proposed amendments to the Charter encompassing a variety of subjects were placed on the ballot by the District’s Board. The amendments were proposed by a number of groups in order to update the District’s procedures and improve its operations. Voters approved all four amendments by wide margins. The amendments provided additional flexibility and structure to several aspects of District operations, including (1) establishment of an independent 15-member Rate Commission to review adjustments to the District’s wastewater and stormwater charges before the Board acts on them; (2) authorization for the District to issue revenue bonds on a District-wide basis and lowering the margin required for passage of both revenue and general obligation bonds to be consistent with the Missouri Constitution; (3) requiring a mandatory rotation of outside auditors every five years and the appointment of an internal auditor; (4)requiring a periodic independent management audit; and (5) permitting the investment of District funds in the same manner as authorized by the Missouri Constitution for the investment of State funds. Other amendments to the Charter include (1) limiting the term on Trustee and a three-member civil service commission (the “Civil Service Commission”) appointments to two terms (eight years), (2) requiring the publication of Board vacancies, and (3)requiring the Board to make a written report to the Mayor and Board of Alderman of the City and to the County Executive and County Council on an annual basis. The Charter requires the District to adopt a continuing five-year strategic and operating plan on an annual basis. The strategic and operating plan states the District’s objectives for the succeeding five years and includes objective targets by which to measure the District’s performance in meeting these objectives. The District is subject to the provisions of the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., commonly referred to as the Clean Water Act, the stated objective of which is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. The District is also subject to the Missouri Clean Water Law, Sections 644.006 through 644.141, Revised Statutes of Missouri, as amended,and other laws and regulations. The regulatory requirements are administered by the United States Environmental Protection Agency through the Missouri Department of Natural Resources. See the section herein captioned “REGULATORY REQUIREMENTS.” Organization and Management General.The Charter established the Board as the governing body of the District. The Board is composed of six-members, with three members appointed by the Mayor of the City and three members appointed by the St.Louis County Executive. No more than two trustees from each area can be of the same political affiliation. According to the Charter, the Board enacts District ordinances, determines policies, and appoints the Executive Director, the Secretary-Treasurer and the Internal Auditor. The 23 Executive Director appoints all other District officials. Among its duties, the Board makes all appropriations, approves contracts for improvements, and engages an accounting firm to perform the annual independent audit of the District. Each member of the Board chairs one of the Board’s standing committees:Audit, Customer Relations, Finance, Intergovernmental Relations, Personnel and MBE/WBE and Program Management. Administration of district-wide operations is by the executive staff under the direct supervision of the Executive Director. The Civil Service Commission serves in an advisory position regarding personnel administration and civil service matters, and hears appeals of disciplinary actions. The 15-member Rate Commission, an advisory body established pursuant to the amendments to the Charter adopted on November 7, 2000 (the “Rate Commission”)makes recommendations to the Board regarding all proposed changes in wastewater rates, stormwater rates and tax rates or regarding changes in structure to the foregoing. See the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT – Rate Commission and Rate Setting Process.” District Initiatives.Earlier this decade the District instituted an in-depth review of District policies and practices. Based on this review, the Board implemented a process of measuring the District’s effectiveness in several key areas and made a number of policy initiatives which are still in force today. Among the above-mentioned policy decisions made by the Board was the institution of a revised code of ethics for Board members and District employees concerning conflicts of interest. The policy prohibits any activities that could be construed as a conflict between personnel and District needs, and makes individuals responsible for reporting any potential conflicts. These new standards brought the District’s ethics policy in-line with that of other public agencies. The Board instituted “zero-based budgeting” in the development of the District’s annual budget. This budgeting process breaks the District’s budget into two distinct sections: (i)a base budget representing the cost to run basic operations, and (ii)an incremental budget representing initiatives that are tied directly to the District’s Strategic Business and Operating Plan. Both sections undergo multiple reviews to ensure that planned expenditures are justified and appropriate for the supported business activity. For the incremental budget, an expenditure cannot be justified solely by a like expenditure in a previous year; the expenditure has to clearly support a business objective from the Strategic Business and Operating Plan. The use of zero-based budgeting has played a strong part in helping to keep key areas of the District’s budget at or below the rate of annual inflation. See the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT –Management’s Discussion and Analysis” for further discussion. Board of Trustees The current members of the Board are as follows: Name Current Term Expires John Goffstein, Chairman March 15, 2013 Dr. Robert T. Berry, Vice Chairman March 14, 2012 James H. Buford, Member March 15, 2010 Gerald T. Feldhaus, Member March 14, 2010 Eddie G. Ross, Jr., Member March 14, 2013 David Visintainer, Member March 15, 2012 Set forth below is certain biographical information on the members of the Board. 24 John Goffstein, Chairman (St.Louis City).Mr. Goffstein has served on the Board since his initial appointment on December 19, 2005. He is a principal member of the law firm Bartley Goffstein, LLC, which specializes in employment and labor matters for both the public and private sectors. Robert. T. Berry,Vice Chairman (St. Louis County).Mr. Berry retired as vice president and general manager of the St. Louis office of Burns &McDonnell, an engineering company.Mr. Berry has served on the Board since April 2008. James H. Buford (St.Louis City).Mr. Buford is the Executive Director of the Urban League and has served on the Board since July 10, 2006. Gerald T. Feldhaus (St. Louis County).Mr.Feldhaus is executive secretary-treasurer of the St. Louis Building and Construction Trades Council and has served on the Board since April 2008. Eddie G. Ross, Jr. (St. Louis County).Mr. Ross is director of field operations for Environmental Operations Inc. and has served on the Board since March 2009. David Visintainer (St. Louis City).Mr. Visintainer retired as the St. Louis City public utilities director and water commissioner in 2007 and has served on the Board since May 2009. Administration Management of the District is provided by a management team that reports to the Board, including an Executive Director, Assistant Executive Director, Secretary-Treasurer, Internal Auditor, General Counsel, and Directors of Finance, Engineering, Human Relations, Operations and Information Systems. Set forth below is certain biographical information regarding selected members of the executive management staff of the District: Jeffrey L. Theerman, P.E., Executive Director.Mr. Theerman has been employed by the District for more than 21 years, and has served as Executive Director since June 10, 2004. Mr. Theerman previously served as Acting Executive Director beginning in October 2003. During his tenure with the District, he has also served in various senior level management capacities within wastewater operations. Before joining the District, Mr. Theerman served for four years as an environmental protection engineer with the Illinois Environmental Protection Agency. Mr. Theerman earned a B.S. in Civil Engineering from the University of Missouri-Rolla and a M.S. in Civil Engineering from Southern Illinois University- Edwardsville. Karl J. Tyminski, CPA, Secretary-Treasurer. Mr. Tyminski has served as the Secretary-Treasurer of the District for more than 19 years.Before becoming Secretary-Treasurer, he served as the Director of Internal Audit of the District.Before joining the District, Mr. T yminski held various financial and accounting related positions with Anheuser-Busch Companies, Chase-Lincoln Bank and Deloitte & Touche. Mr. Tyminski earned a B.S. in Accounting from the State University of New York at Albany and an M.S. in Management Science from the Stevens Institute of Technology. Randy E. Hayman, Esq., General Counsel.Mr. Hayman has served as General Counsel to the District for more than seven years. Prior to joining the District, Mr. Hayman was in private practice with various law firms and also served as an Assistant Attorney General with the Missouri Attorney General’s office. Mr. Hayman earned a B.A.degree from the University of Michigan and a Juris Doctorate from the Georgetown University Law Center. 25 Janice M. Zimmerman, Director of Finance.Ms. Zimmerman has served as the Director of Finance of the District for more than seven years.Before joining the District, Ms. Zimmerman spent 12 years in the banking and savings and loan industries and nine years in public education finance. Ms. Zimmerman has a B.S. in Business from Eastern Illinois University and a Masters of Finance degree from Saint Louis University. Brian Hoelscher, P.E., Director of Engineering.Mr. Hoelscher has served as the District’s Director of Engineering for approximately five years.Before being promoted to his current position, Mr. Hoelscher held several other positions in the District’s engineering department. Mr. Hoelscher has a B.S.C.E. from Washington University in St. Louis, and has been designated a Professional Engineer in Missouri and Illinois. Vicki L. Taylor Edwards, Director of Human Resources.Ms. Edwards has served as the Director of Human Resources at the District for more than eight years. Before her promotion to her current position, Ms. Edwards held several other positions within the human resources department.Before joining the District, she was with Mercantile Bank for seventeen years, also in human resources. Ms. Edwards received her B.A. from Lindenwood University in Human Resources Management. Barbara Mohn, Director of Information Systems.Ms. Mohn was recently named the District’s Director of Information Systems, and has 21 years of experience in the information technology field primarily in the telecommunications and financial services industries. Her most recent position was IT Director –Program Management for General Electric Commercial Distribution Company.Before that, she held positions at Deutsche Financial Services, CIBER Consulting and AT&T. Ms. Mohn has a B.S. in Business Administration from Southeast Missouri University and an MBA from the University of Central Florida. Jonathon Sprague, P.E., Director of Operations.Mr. Sprague is the Director of Operations for the District. He joined the District in May 2005 as Assistant Director of Operations with more than 11 years of experience in public utilities management. Mr. Sprague has a B.S. in Electrical Engineering from the University of Akron and an M.B.A. from the College of William and Mary. The System The District owns and operates the System, which consists of sanitary, stormwater and combined collection sewers, pumping stations, and wastewater treatment facilities in its service area. The District provides sewer collection, pumping and treatment services within five watersheds located within the District’s service area including the Mississippi River watershed, the Missouri River watershed and the Meramec River watershed. In addition, the District provides a variety of other services, including sanitary sewer maintenance, stormwater sewer maintenance, floodwater control, monitoring of industrial waste, issuance of pretreatment discharge permits, engineering design and specification, construction of sewer lines, plan review and approvals, issuance of connection permits, public education and customer service. Collection and Trunk Sewers.The District owns and maintains approximately 9,650 miles of collection and trunk sewers, ranging in size from six inches to 29 feet in diameter. They are classified as one of three types: sanitary, storm or combined. Sanitary sewers accommodate household and industrial waste. Storm sewers carry rainwater and surface water runoff. Combined sewers carry both types of waste. The System currently includes approximately 4,741 miles of sanitary sewers, approximately 2,980 miles of stormwater sewers and approximately 1,928 miles of combined sewers that handle both wastewater and stormwater flows. Maintenance of the System is controlled and conducted out of three regional facilities. 26 Pumping Stations.The District owns and maintains 260 sanitary and stormwater pumping stations which move the flow of wastewater through the wastewater system and utilizes seven treatment facilities treating more than 364 million gallons of wastewater every day. Wastewater Treatment Facilities.The District currently owns and operates seven wastewater treatment facilities. These facilities treated an average flow of 330 million gallons of wastewater per day (“MGD”) in Fiscal Year 2008. The Bissell Point and Lemay wastewater treatment plants are the District’s two largest plants. Both of these plants serve the Mississippi River watershed.The Coldwater Creek and Missouri River wastewater treatment plants service the Missouri River watershed. The remaining wastewater treatment plants serve the Meramec River Basin. As part of the CIRP, the District constructed a new wastewater treatment plant, a collection system to support the new treatment plant, including a tunnel system and pump stations, and an educational visitors center, referred to herein as the “Lower Meramec Project,”to serve the wastewater treatment requirements of portions of its service area. The Lower Meramec Project,which cost approximately $231 million, is the largest project currently under construction by the District. The Lower Meramec Project replaces the District’s existing Meramec and Baumgartner Lagoon treatment plants. With an ultimate maximum capacity of 56 MGD, the plant is capable of receiving and treating an average daily wastewater flow rate of 15 MGD. The new facility conveys treated water into the Mississippi River instead of the more environmentally sensitive Meramec River. See the sections herein captioned “THE CIRP AND THE PROJECTS –The Projects”and “REGULATORY REQUIREMENTS Regulatory Matters.” Employees and Employee Relations The District has 981 budgeted positions of which 943 are currently filled. Approximately 45%of the District’s employees within the Operations Department are represented by one of six unions: American Federation of State, County and Municipal Employees; Bricklayers; International Association of Machinists; International Brotherhood of Electrical Workers; Operating Engineers; and Service Employees International.The District had one labor dispute in 1977. For the past 30 years, the District has had no record of any labor dispute or work stoppage and considers its employee relations to be excellent. The District entered into labor agreements in the spring of 2007 which extend through the spring of 2010. The District also retains private companies and consultants, from time to time, to supplement and expand its existing staffing resources. Economic Conditions in the District Generally, the District’s major revenue sources do not fluctuate with the local and national economies as much as local governments that depend on sales or income taxes for their major sources of revenue. The District uses several measures to forecast economic development in the District. Such factors are listed below for Fiscal Years 2007 through 2009: [Remainder of page intentionally left blank.] 27 2007 2008 2009 Sewer Plan Reviews: Number of Plans Approved 584 754 564 Number of Miles of Sewers 51 45 28 Sewer Construction Permits: Number of Permits Issued 1,742 3,048 2,449 Number of Miles of Sewers 48 23 21 Customer Connections: Number of Connection Permits Issued 782 1,182 844 Connection Fee Revenue $3,268,526 $1,834,515 $1,106,569 Value of Sewers Dedicated to the District by Developers $21,100,000 $44,867,000 $26,303,000 Over the years, the St.Louis economy has undergone a transformation from reliance on traditional manufacturing industries to those industries based on advanced technology and service. The St.Louis area is a center for health care, banking, finance, transportation, tourism, and education and has a strong and diverse manufacturing economy. For more information on economic and demographic trends in the City and the County, see Appendix B hereto. Security The System is subject to safety and security inspections on a continuing basis by the District. All treatment plants are maintained as secure facilities with fences, locked gates and electronic surveillance equipment. The District does not represent that any existing or additional safety or security measures will be adequate in the event that terrorist activities are directed at the System. Further, damage to components to the System could have a material adverse impact on the District’s expenditures for repairs to the System. Insurance The District maintains third-party commercial insurance coverage for various risks while self- insuring for other risks and liabilities. Present commercial insurance coverage is maintained for property, boiler and machinery, excess flood,combined liability, excess liability, excess workers’ compensation, public official performance bond, public entity fiduciary liability, crime, major facility pollution liability and sewer backup (main truck line and overcharged line). Such policies contain liability limits, deductions and retentions that management of the District believes to be customary for similar enterprises. Total premiums for third-party insurance coverage for Fiscal Year 2009 were $3,392,008, an approximately 4.0%decrease from Fiscal Year 2008. In addition, the District has established a risk management program and self-insures a portion of the risk related to officers’, directors’ and general liability; its obligation to provide workers’ compensation and medical and hospitalization benefits to its employees; and water backup claims to its customers. The District purchases re-insurance to cover the remaining risk on such items. The estimated liabilities for payment of incurred (both reported and unreported) but unpaid claims relating to these matters are included in the District’s financial statements as a component of current deposits and accrued expenses. As of June 30,2009 and 2008, these liabilities amounted to $2,246,526 and $5,056,208, respectively. The District obtains periodic funding valuations from the third-party administrators managing the self-insurance programs and adjusts the charges as required to maintain the appropriate 28 level of estimated claims liability. For more information regarding the District’s self-insurance program, see Note 10 to the audited financial statements of the District contained in Appendix A to this Official Statement. THE CIRP AND THE PROJECTS General The District has developed a Capital Improvement and Replacement Program (the “CIRP”) which identifies proposed expenditures by the District for capital improvements to the District’s sewer facilities over the next several decades, with an estimated cost of between $4 billion and $6 billion. The general objectives of the CIRP are to meet federal and state requirements and District policy regarding water pollution control, to provide satisfactory level of service to users of the District’s sewer system, including reduction of basement back-up, and to continue the District’s program to rehabilitate its infrastructure system. The CIRP addresses the District’s infrastructure capital improvement projects involving the repair, replacement and upgrade of sanitary and combined sanitary and stormwater sewers. The Projects to be financed with the proceeds of the Series 2010B Bonds constitute a portion of the infrastructure projects identified in the CIRP and generally consist of improvements to the collection system to reduce basement backup problems and potential sewer overflows. Historic Capital Improvement Expenditures Before 2004, the District financed substantially all of the capital improvements to its facilities from available revenues on a “pay-as-you-go” basis. Since 2004 the District has paid for more than $1.4 billion in capital improvements through a combination of debt financing and pay-as-you-go financing. Since the District began implementation of the CIRP in 2004,the District has completed project improvements,in the following categories: •Increasing wastewater treatment capacity • Finishing construction of a new wastewater treatment plant • Improving infrastructure to reduced combined sewer overflows • Improving infrastructure to reduce sanitary sewer overflows. Financing Plans for the CIRP There are two primary funding sources for financing the capital improvements identified in the CIRP: (1) debt, including Bonds issued under the Bond Ordinance;and (2) available Operating Revenues on a “pay-as-you-go” basis.The District will use the proceeds of previously issued Bonds, the Series 2010B Bonds, and any Bonds issued by the District in the future under the Bond Ordinance to finance the infrastructure projects identified in the CIRP,and the 2004 Authorization and the 2008 Authorization in the aggregate principal amounts of $500,000,000 and $275,000,000,respectively. Major projects constructed with proceeds of the 2004 Authorization were the Lower Meramec Treatment Plant, $177,000,000; Coldwater Creek Treatment Plant Improvements, $61,000,000; Missouri River Plant Rehab and Improvements, $52,000,000; Grand Glaize Plant Improvements, $35,000,000; Other Treatment Plant Improvements, $24,000,000; CSO/SSO Collection System Improvements $80,000,000; and the Lemay Plant Improvements, $40,000,000. The following table sets forth the existing and anticipated major funding sources for the CIRP for Fiscal Years 2004 through 2010. In addition, the District has had and anticipates that it will have certain grant proceeds and interest earnings available to finance the costs of the CIRP. ACTUAL AND PROJECTED MAJOR FUNDING SOURCES FOR THE CIRP Fiscal Year Ending June 30 Description 2004 2005 2006 2007 2008 2009 2010 Debt Financing(1) Series 2004A Bonds $175,000,000 Series 2004B SRF Bonds 161,280,000 Series 2005A SRF Bonds $6,800,000 Series 2006A SRF Bonds $42,715,000 Series 2006B SRF Bonds $14,205,000 Series 2006C Bonds 60,000,000 Series 2008A Bonds $30,000,000 Series 2008B SRF Bonds 40,000,000 Subordinate Series 2009A Bonds Subordinate Series 2010A Bonds Series 2010B Bonds $23,000,000 7,980,700 85,000,000 System Revenues(2)2,398,227 5,370,512 13,937,211 125,394,050 $78,772,276 74,892,000 Total $338,678,227 $12,170,512 $56,652,211 $199,599,050 $78,772,276 $144,892,000 $115,980,700 ________________ Source: The District. (1)This category includes proceeds the District expects to receive in connection with issuance of the Bonds and future additional Bonds under the Bond Ordinance. (2)Does not include revenues from the District’s Stormwater Service Charge. In addition, the District issued $23,000,000 subordinate bonds in connection with direct loan from DNR in October 2009.In addition, the District expects to issue its Series 2010A Bonds in an aggregate principal amount not to exceed $7,980,700 on or about January 21, 2010.29 30 The following table sets forth the District’s historic capital improvement expenditures for improvements to its wastewater system facilities for Fiscal Years 2004 through 2009, including expenditures funded both by Bond proceeds and on a “pay-as-you-go” basis: Fiscal Year Ending June 30 Capital Improvement Expenditures 2004 $88,923,498 2005 140,402,733 2006 2007 2008 2009 133,592,404 139,447,160 148,772,276 74,892,000 Total $726,030,071 ___________________ Source: The District. The Projects The District anticipates that it will construct approximately $480 million in additional capital improvement projects identified in the CIRP for FY 2010 through FY 2012. The District anticipates that CIRP improvements constructed in FY 2010 through FY 2012 will be funded from the 2008 Authorization of $275,000,000 and the remaining balance on a “pay-as-you-go” basis.See “FINANCIAL OPERATIONS OF THE DISTRICT –Pro Forma Statement of Pledged Revenues, Expenses and Debt Service Coverage” for additional discussion of the projected revenue and projected revenue requirements. The District anticipates that the following Projects of the CIRP will be financed with the proceeds of the Series 2010B Bonds, pay-as-you go revenues of the System and future financings under the Bond Ordinance: Project Estimated Cost Creve Coeur Creek Sanitary Trunk Sewer Relief Phase II $12,000,000 Lemay WWTP Outfall 11,300,000 Infrastructure Repairs 10,000,000 Missouri River WWTP Secondary Treatment 9,600,000 Coldwater Sanitary Relief Section A, Phase II 8,400,000 Bissell WWTP Disinfection Facilities 6,000,000 Argonne Sanitary Relief Phase I 5,000,000 Webster Groves Trunk E Sanitary Rehabilitation and I/I 5,000,000 Upper Maline Trunk Sanitary Relief Phase III 4,745,000 Creve Coeur Creek Sanitary Relieve Phase I 2,800,000 Fillmore Combined Sewer System Improvement Phase II 2,770,000 Lilac Ridge Service Area Sewer Rehabilitation 2,700,000 Old Mill Creek Sewer Rehabilitation Phase IA 2,500,000 Harlem-Baden Relief Phase IV 2,400,000 FF-08 Fee Fee Creek Sanitary Relief 2,265,000 Paddock Creek Sanitary Relief 2,000,000 CSO Interceptor & Outfall Modifications Phase III 1,765,000 Bennington Place Sanitary Relief Phase II 1,500,000 31 Fee Fee-Alan Shepard I Sanitary Relief Phase IV 1,490,000 Coldwater Creek Wet Weather Storage Facility Tank 1,200,000 Castle Sanitary Relief 1,150,000 Creve Coeur Creek Sanitary Trunk Sewer Relief Phase III 1,120,000 McKelvey/R.R. to Adie Sanitary Relief Phase III 1,000,000 Northland Lateral Sanitary Relief 900,000 Wharf Street Pump Station Replacement 796,000 Lower Meramec River WWTP Phase II 750,000 Blower Modifications Phase I 750,000 Lemay Scada Equipment Replacement and Upgrade 750,000 Old Gravois Road Bridge Force Main Relocation 650,000 CSO –Edgewood L-174 and Ladue Forest 1-125 510,000 Upper Maline Trunk Sanitary Relief Phase IV 500,000 I-70 and Bermuda Sanitary Sewer Relocation 450,000 Bissell Point WWTP Chimney Repairs Phase II 400,000 Dellwood Sanitary Relief 400,000 Bissell Point WWTP Chimney Repairs 150,000 Total all Eligible Projects $105,711,000 Total financed from Series 2010B Bonds $85,000,000 * Of these total funds for capital projects in FY 2010 approximately $55 million is earmarked to help eliminate sanitary sewer overflows; $22 million for treatment plant upgrade and renovation projects; $15 million for general system renewal projects; $7 million for the reduction of combined sewer overflows and $7 million for disinfection projects to improve water quality. Planned CIRP improvements in FY 2011 and FY 2012 are expected to be approximately $374 million, including • Infrastructure improvements to reduce combined sewer overflows • Infrastructure improvements to reduce sanitary sewer overflows •Secondary expansion of Missouri River Treatment Plant • Lemay Plant improvements • Collection systems renewal and replacement activity • Disinfection projects at Coldwater, Bissell, Lower Meramec and Lemay plants designed to improve water quality • Upgrade and integration of Enterprise System • Planning and Capacity, Management, Operation and Maintenance activity Other CIRP projects scheduled in FY 2011 through FY 2012 are expected to be financed with the remainder of the 2008 Authorization and other funds of the District.The District intends to issue approximately $78 million of Subordinate SRF Bonds in 2011 and $51 million of additional Senior Bonds in 2012. FINANCIAL OPERATIONS OF THE DISTRICT General The District is supported by various taxes and user charges imposed on taxpayers and users of its facilities within its boundaries. The District has the power, subject to voter approval, to issue general obligation bonds, District-wide revenue bonds, sub-district revenue bonds, or special assessment bonds. __________ *Preliminary, subject to change. 32 The Executive Director is responsible for preparing the annual budget of the District and is responsible for drawing warrants to meet the financial obligations of the District. The Executive Director appoints the Director of Finance, who is responsible for assisting the Executive Director in preparing the annual budget, maintaining the accounting records of the District, and certifying that all warrants are proper and valid under the District’s Charter. The Secretary-Treasurer is appointed by the Board and is responsible for custody of the funds of the District and investing the funds of the District pursuant to the Charter of the District and State law. Budget and Appropriation Process The Executive Director of the District is responsible for preparing the District’s annual budget. Not later than the fifteenth day of March in each year, the Executive Director must submit to the Board a budget for the ensuing year. The Charter requires that the Board adopt the budget no later than June 30. In the event that the Board does not pass a new budget by June 30, the prior year’s budget continues in force until the Board adopts a new budget. The proposed budget is available for public inspection and the District conducts public hearings on the proposed budget prior to its adoption. On or before the thirtieth day of June in each Fiscal Year the Board shall determine the amount of taxes that will be required during the next succeeding Fiscal Year to pay the principal of and interest on general obligation bonds issued and certain costs of operations, maintenance, construction and improvements. The budget provides a complete financial plan for the budget year for all District funds. In no event can the total amount of expenditures for the budget year from any fund exceed the estimated revenues to be actually received plus any unencumbered balance or less any deficit estimated for the beginning of the budget year. Finance Department The Finance Department is enhancing its efforts to substantially reduce its portfolio of accounts receivable, using a combination of internal collection efforts, liens and service shut-off. In addition, a portion of the District’s billing and past-due collections has been outsourced to several outside vendors. These agencies will focus on collecting overdue sewer bills from ratepayers. This outsourcing initiative will also bring new information systems technology to the District. In 2008, the Government Finance Officers Association of the United States and Canada honored the District for excellence in budgeting, financial accounting and full disclosure. For the 19th consecutive year, the District earned the Distinguished Budget Presentation Award, the highest form of recognition in government budgeting. For the 20th consecutive year, the District also received the Certificate of Achievement for Excellence in Financial Reporting, the highest recognition in governmental accounting and financial reporting. Fund Structure General Fund.The General Fund was established to provide for the ordinary operations of the District. Since 1978, all operation and maintenance has been funded out of the General Fund. The General Fund receives revenues from ad valorem property taxes levied on all property, real and personal, within the District’s boundaries based on assessed valuations established by the City and County assessors. Tax rates vary by subdistrict and purpose, and are levied in accordance with the Charter of the District.The District discontinued levying real and personal property taxes after Fiscal Year 2008 as a result of the impervious stormwater charge which it began collecting in March 2008. Currently, a main source of income for the General Fund is a wastewater user charge. The General Fund also receives miscellaneous income from a number of sources, and reimbursement of engineering services provides 33 other non-operating funds.Revenues from the operation of the City of Arnold wastewater treatment plant and other contract wastewater treatment plants are also deposited in the General Fund. The District’s Operating Funds consist of the Wastewater Revenue Fund and the Stormwater Revenue Fund. Wastewater user charge revenues are deposited into the Wastewater Revenue Fund and revenues from the District’s Stormwater Service Charge are deposited into the Stormwater Revenue Fund. The District also maintains an Emergency Fund. This fund is intended to be used for emergency repairs and replacements in the event that no other funds are readily available. District policy requires that a minimum balance of $4 million be maintained in the Emergency Fund. As of October 31,2009, the Emergency Fund had a balance of $4,751,004. Basis of Accounting The accounts of the District are maintained on the full accrual basis and are reported as a single enterprise. Separate accounting records are maintained for certain subdistricts and to account for restricted resources; however, interorganizational transactions and balances are eliminated for reporting purposes. Financial Statements The accounts of the District are audited annually by an independent firm of certified public accountants. The accounting firm of Schmersahl Treloar & Co.began serving the District as auditor in 2009. The District has a mandatory five-year replacement policy for its auditors.Hoschschild Bloom & Company, LLP served as the District’s auditor from 2007 to 2009. The District’s audited financial statements for the Fiscal Years ended June 30,2009 and 2008 are attached hereto as Appendix A. Selected Financial Data of the District The District follows Governmental Accounting Standards Board Statement No. 33, “Accounting Reporting for Non-Exchange Transactions,” which establishes accounting and financial standards for non-exchange transactions involving financial or capital resources. During 2005, the District adopted Governmental Accounting Standards Board Statement No. 40, “Deposit and Investment Risk Disclosures, an Amendment of GASB Statement No. 3,” the adoption of which modified certain financial statement disclosure requirements. The new standard enhances the deposit and investment risk disclosures by updating the previous custodial credit risk disclosure requirements and addressing other common risks, including concentrations of credit risk, interest rate risk, and foreign currency risk. The implementation of Statement No. 40 had no effect on financial statement amounts. Governmental Accounting Standards Board Statement No. 43, “Financial Reporting for Post- employment Benefit Plans Other Than Pension Plans” and Governmental Accounting Standards Board Statement No. 45, “Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pension Plans” establish accounting and financial reporting standards for post-employment benefits other than pensions. As part of a total compensation package, many governments offer post- employment benefit plans other than pensions such as health care, life insurance and so forth. Statement No. 43 establishes uniform financial reporting standards for other post-employment benefit (“OPEB”) plans and applies to OPEB trust funds included in the financial reports of plan sponsors or employers, as well as in stand-alone financial reports. Statement No. 45 establishes standards for the measurement, recognition and display of OPEB expenses and expenditures and related liabilities and assets, note disclosure, and, if applicable, required supplementary information in the financial reports of state and local government employers. Statement No. 43 became effective for the District for the Fiscal Year ending June 30, 2007, and Statement No. 45 became effective for the District for the Fiscal Year ending 34 June 30,2008. See “FINANCIAL OPERATIONS OF THE DISTRICT –Other Post Employment Benefits”for additional discussion of the District’s OPEB liabilities. The following table illustrates the financial result of operations of the District for the Fiscal Years ended June 30,2009, 2008 and 2007. Revenues from the Stormwater Service Charge are included in these figures but are not included in Pledged Revenues and, therefore, are not available to pay debt service on the Bonds issued under the Master Bond Ordinance, including the Series 2010B Bonds. The following financial information is intended to provide historical information on the financial health of the District. [Remainder of page intentionally left blank.] 35 THE METROPOLITAN ST.LOUIS SEWER DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS ($000) 2009 2008 2007 Operating Revenues: Sewer service charges, net $254,378 $221,780 $ 198,993 Provision doubtful service charge accounts (9,678)(5,162)(4,194) Licenses, permits and other fees 3,475 4,346 6,031 Other 1,550 961 1,376 Total Operating Revenues $ 249,725 $ 221,925 $ 202,206 Nonoperating Revenues: Property taxes levied by District $2,129 $ 27,512 $ 24,401 Investment income 13,116 17,477 16,946 Other 215 529 878 Total Nonoperating Revenues $15,460 $ 45,518 $ 42,225 Total Revenues $265,185 $267,443 $244,431 Operating Expenses: Pumping and treatment $44,746 $ 44,531 $ 37,848 Collection system maintenance 32,918 30,807 27,718 Engineering 13,736 9,973 8,864 General and administrative Water backup claims 37,922 6,817 39,827 7,439 35,592 3,608 Depreciation 47,370 54,934 45,721 Other 23,834 32,212 24,460 Total Operating Expenses $207,343 $ 219,723 $ 183,811 Nonoperating Expenses: Total Nonoperating Expenses $16,020 $ 6,017 $4,111 Total Expenses $223,363 $225,740 $187,922 Income before Capital Contributions $41,822 $ 41,703 $59,687 Capital Contributions $26,944 $45,610 $ 21,132 Change in Net Assets $68,816 $87,313 $ 80,819 Net Assets Beginning of Year $2,144,497 $ 2,057,184 $ 1,976,365 Net Assets End of Year $2,213,313 $ 2,144,497 $ 2,057,184 Annual Debt Service $29,408 $24,330 $19,243 _________________ Source: The District. 36 Management’s Discussion and Analysis The following Management’s Discussion and Analysis is excerpted from the financial statements of the District for the Fiscal Years ended June 30,2009 and 2008.For the full discussion (which discussion is unaudited as noted therein), see the financial statements of the District for the Fiscal Years ended June 30,2009 and 2008,included in Appendix A to this Official Statement. General.The management of the District has provided this discussion and analysis to be used in combination with the District’s financial statements for the Fiscal Years ended June 30,2009 and 2008, which are included in Appendix A to this Official Statement. This narrative is intended to provide the reader with more insight into management’s knowledge of the transactions, events and conditions reflected in the accompanying financial statements and the fiscal policies that govern the District’s operations. Financial Highlights. The District placed $98.4 million of capital assets into service during FY 2009. This continued high level of expansion and updating of the District’s plant and system is related to the regulatory required CIRP. Collection and pumping plant $54.4 million Treatment and disposal plant and equipment $35.2 million General plant and equipment $8.8 million In addition to these capital asset additions, the District has also shown an increase of $143.1 million in construction in progress due to the large capital improvement and replacement program currently underway. Cash and cash equivalents balances decreased by $36.9 million. This can be partially attributed to the significant capital expenditures reflected by the increase in net capital assets.Investment balances were increased by $20.4 million displaying a shift of assets from cash and cash equivalents to investments. Both total revenues and expenses remained in line with prior year amounts causing similar results of $41.8 million in 2009 compared to $41.7 million in 2008 for income before capital contributions. The District had a stormwater rate increase in January 2009 from 12 cents to 14 cents per hundred square feet of impervious area. This is expected to generate a total of $36.8 million to date for funding of stormwater projects. Financial Analysis.The District’s financial condition improved over the prior year, as evidenced by the increase in total net assets of $68.8 million or 3.2% over the prior year. This change is due to an increase in total assets of $129.9 million countered by an increase in liabilities of $61.1 million.Income before contributions was $41.8 million, while the District continues capacity expansion and updating of the District’s plan and system.Plans for maintaining the District’s ability to meet future spending needs are discussed in greater detail in the section of the MD&A entitled “Decisions Impacting the Future” included in Appendix A to this Official Statement. 37 Current, restricted and other assets decreased $61.9 million,while capital assets increased by $191.8 million. The increase in capital assets can be attributed to an increase in construction in progress of $143.1 million,and construction of a collection and pumping plant of $22.9 million, treatment and disposal plant and general plant and equipment of $5.5 million. The decrease in current, restricted and other assets is mostly attributable to the net decrease in cash equivalents of $36.9 million as a result of increased spending in capital improvement and replacement program. The change in total liabilities breaks down to increase in current liabilities of $5.9 million and an increase in non current liabilities of $55.2 million. The increase in noncurrent liabilities is due to a substantial increase in bonds and notes payable. The District issued new long-term debt in the amount of $74.1 million during the 2009 Fiscal Year. Current liabilities are up due to increases in contracts and accounts payable and current portion of bonds and notes payable of $2.7 million and $4.9 million respectively. These are partially offset by a decrease in the balance of deposits and accrued expenses and retainage payable of $1.4 million and $0.3 million. Net assets increased $68.8 million or $18.5 million less than in the prior year. While total revenues were slightly lower compared to the prior year, this was offset by the reduction of net expenses. Total revenues decreased $2.3 million due to offsetting changes in operating and nonoperating revenues. In December 2007, the District levied its final property tax. This loss in revenue has been partially offset by a newly implemented stormwater rate charge. As a result, property tax revenues decreased $25.4 million. The provision for doubtful sewer service charge accounts increased $4.5 million while investment income was decreased by $4.4 million.There was an increase in sewer services charges of $32.6 million following a sanitary rate increase and a stormwater rate change in 2008. Total expenses ended the year down $2.3 million compared to 2008 due to offsetting balances in operating and nonoperating expenses. Total operating expenses for 2009 were reduced $12.4 million due overwhelmingly to a decrease in other operating expenses. Other operating expenses decreased by $8.4 million, mostly due to extensive watershed facility planning that took place in 2008 and was not continued in 2009. Depreciation expense was decreased by $7.5 million and general and administrative costs reduced by $1.9 million. Nonoperating expenses experienced increases in the costs of net loss on sale of utility plant, nonrecurring projects as well as interest expense totaling $10 million. There were also increases in engineering costs and collection system maintenance expenses of $7.9 million and $2.1 million, respectively. Cash and cash equivalents ended the year $6.5 million in cash and cash equivalents or $36.9 million lower than the prior year. Cash outflows from capital and related financing activities were $168.2 million or $1.7 million more than in the previous year. Cash flows from operating activities were a positive $89.1 million,which is a $38.8 million increase to 2008. Cash flow from investing activities dropped to $40.1 million or a $80.3 million decrease to the previous year. This change is due in part to the District purchasing $432.6 million in investments compared to $359.1 million in proceeds from sale and maturity of investments. In 2008 the District was able to close the year with positive cash flows from investing due to only $266 million in purchases against $370.8 million from the sale and maturity of investments.The initial investments of over $70 million in bond proceeds drove this change.Cash flows from noncapital financing activities were reduced by $25.4 million in 2009 due to the District suspending the collection of various taxes. Total capital assets,net of depreciation,increased $191.9 million over the prior year. Construction in progress increased $143.1 million due to the large capital improvement and replacement program currently underway.Collection and pumping along with treatment and disposal increased $22.9 million and $20.3 million respectively. These increases can also be attributed to the high level of 38 expansion and updating of the District’s plan and system. Land remained unchanged in 2009, but general plant and equipment had additions of $5.5 million net of depreciation. The District ended Fiscal Year 2009 with $499.2 million in long-term debt outstanding, consisting mainly of revenue bonds.The District had two bond additions and a capital lease in such year (Series 2008A, SRF 2008B and Oracle/Blue Heron) resulting in the substantial increase in long-term debt. Sewer Rates and Revenues The primary source of funding for the operation and maintenance of the District’s sewerage and drainage system is a user charge that is projected to average $29.76 per month for a single-family residence in Fiscal Year 2010. The District’s charges for residential wastewater service are tied to the amount of measured water usage during a winter quarter. For residential properties without water meters, the charges are based on housing attributes (such as the number of rooms, baths, and toilets) that correlate to water usage. That methodology is the same billing methodology used by the City of St.Louis Water Division for its non-metered properties. Multi-family residential and commercial and industrial rates are proportionate to the single-family charge and are based on water consumption and the strength of the discharge. The District has other sources of revenue. Real and personal property taxes were levied by the District in an amount of almost $2.129 million in Fiscal Year 2009 to service subdistrict indebtedness, fund subdistrict construction and/or to fund part of the District’s stormwater operating expenses.The District discontinued levying real and personally property taxes after Fiscal Year 2008 as a result of the impervious stormwater charge which it began collecting in March 2008.The District also receives some federal, state, and local grants to help defray the cost of constructing sewage treatment and drainage facilities and improvements. The District also charges fees for plan review, permits, construction inspection of new system development, and special discharges. The District charges a uniform connection fee in all service areas. The District may issue general obligation bonds and revenue bonds to finance the cost of improvements and extensions to the sewer system. The District also may issue, on behalf of each of its subdistricts, general obligation bonds or revenue bonds. The issuance of general obligation bonds, payable from a general tax levy on all taxable property within the District or a subdistrict, requires the approval of either a four-sevenths or two-thirds majority of the voters voting at an election held in the District or subdistrict, as the case may be. General obligation bonds outstanding cannot exceed five percent of the assessed valuation of the area benefited. Subdistricts may also issue revenue bonds, payable from user charges after a similar procedure, but require only a simple majority vote. Rate Commission and Rate Setting Process General.The District’s Rate Commission reviews and makes recommendations to the Board regarding all proposed changes in wastewater rates, stormwater rates and tax rates or change in the structure of any of the foregoing. Upon receipt of a rate change notice from the District pursuant to the Charter, the Rate Commission recommends changes in rates to the Board that will be necessary to pay interest and principal falling due on bonds issued to finance assets of the District, the costs of operation and maintenance and such amounts as may be required to cover emergencies and anticipated delinquencies. 39 Membership. The Rate Commission consists of one representative from each of fifteen organizations within the District, each of which have been identified and designated by the Board as a “Rate Commission Representative Organization.” The organizations selected by the Board are diverse and represent residential customers, commercial and industrial customers, environmental interests, labor interests, community and neighborhood organizations and nonprofit organizations. The current Rate Commission Representative Organizations are as follows: ACORN Missouri Industrial Energy Consumers Home Builders Association of Greater St.Louis St.Louis County Municipal League Engineers Club of St.Louis League of Women Voters of St.Louis Human Development Corporation of Metro St.Louis Missouri Botanical Garden Associated General Contractors of St.Louis Cooperating Schools Districts Regional Chamber & Growth Association West County Chamber of Commerce St.Louis Council of Construction Consumers St. Philip’s Lutheran Church Greater St. Louis Labor Council The Rate Commission has reviewed and recommended all rate increases that were approved by the Board since August 2003. The District anticipates increasing rates in the future to finance additional capital improvement projects constructed under the CIRP. Such rate increases are subject to further review and approval by the Board and the Rate Commission in accordance with established procedures. Rate Setting Process.Pursuant to the Charter, whenever the District proposes or recommends a change in rates, it shall give written notice (“Rate Change Notice”) to the Board and the Rate Commission. Upon receipt of a Rate Change Notice and after review of same, the Rate Commission shall cause at least one public hearing to be held on the record regarding the proposed rate change. The Rate Commission shall issue its rate recommendation report (“Rate Commission Report”) to the Board and to the public no later than 120 days after receipt of a Rate Change Notice. If the Board accepts the Rate Commission Report or if the Board is deemed to have accepted a Rate Commission Report as set forth in the Charter, the Board enacts an ordinance consistent with the Rate Commission Report. The Board may reject, or fail to accept, the Rate Commission Report only upon a finding that such report does not conform to the requirements of the Charter. No ordinance to effect a change in rates shall be introduced for adoption under the Charter prior to the earlier of 45 days after receipt of the Rate Commission Report or 45 days after the date on which the Rate Commission Report is due. Pursuant to the Charter, any change in a rate recommended to the Board by the Rate Commission must be accompanied by a statement of the Rate Commission that the proposed rate change and all portions thereof: (1)is consistent with constitutional, statutory or common law as amended from time to time; (2)enhances the District’s ability to provide adequate sewer and drainage systems and facilities, or related services; 40 (3)is consistent with and not in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District; (4)does not impair the ability of the District to comply with applicable Federal or State laws or regulations as amended from time to time; and (5)imposes a fair and reasonable burden on all classes of ratepayers. Billing and Collections The District bills residential and commercial customers monthly for sewer service charges. As described below, sewer bills are calculated upon several different bases, including the amount of water used each quarter, the winter-quarter usage only or, when water meters are not in use, the structure of the building.For customers whose bills are based upon water usage,the District purchases data from the three water agencies serving the metropolitan area: the St.Louis City Water Division, Missouri-American Water Company and Kirkwood Water. In the City of St.Louis, most single-family homes and smaller multi-unit buildings are not equipped with water meters. There are also a small number of properties in the County that use well water. When no water meter reading is available, the District calculates the bill based on the attributes of the structure, including the number of rooms, toilets, baths and separate showers. Single-family residential properties that have water meters are billed based on the winter quarter water usage. The winter quarter is defined as the 3-month water meter reading taken in February, March or April. With each July sewer bill the service charges are calculated on a 91-day prorated amount using the previous winter quarter water meter reading. The monthly usage remains the same until the following July, when the process is repeated. For single-family customers who have limited income, the District offers a Low-Income Assistance program. For eligible customers, the monthly sewer bill is reduced by 50% each month. Commercial and multi-unit properties are billed based on the amount of water used each quarter or, in a few cases, each month. The District’s bill is based on one-third of the prior quarter’s reading and remains the same amount for three months. The process is repeated for the next three months. In the case of commercial properties, there is an additional compliance charge on each month’s bill and the bill may include a surcharge for difficult to treat industrial waste or there may be a reduction factor, based on water used in processing and not entering the sewer system. Multi-unit property owners also have the option of being billed on the winter quarter reading or on each quarter reading. In 2004, the District implemented a new billing system using the same billing parameters described above; under the new system, bills are issued on a daily basis. Rate Increases Pursuant to the rate review and setting procedures discussed under the caption “Rate Commission and Rate Setting Process”above, the District submitted to the Rate Commission a request to increase wastewater user charge rates and to institute an impervious-based stormwater rate structure.A Combined Wastewater and Stormwater Rate Change Proposal (the “Rate Change Proposal”) was first presented to the Rate Commission on March 2, 2007. The Rate Commission initiated proceedings to provide for the submission of written testimony, technical conferences, discovery procedures, a public hearing and post-hearing briefs. On January 18,2008, the Rate Commission received from the District the 41 Rate Change Proposal. The Proposed Rate Change also includes an adjustment to the stormwater rates to lessen the short-term impact of the transition to an impervious-based stormwater rate structure. Effective in March 2008, the District approved a new stormwater fee with a variable charge based on each customer’s impervious area.The stormwater impervious area based revenue was proposed to fund a basic level of stormwater service throughout the District’s entire service area. Basic services include pipes and structure repair, inlet cleaning, removal of creek obstructions, concrete channel clean and repair and creek inspections. The specific revenues and expenses also incorporated the transition from property tax and wastewater rate revenues to an independent stormwater revenue source for an enhanced level of stormwater services.The revenues derived from such Stormwater Service Charge are not included in the Pledged Revenues under the Bond Ordinance and are not available for the payment of debt service on any Bonds issued under the Bond Ordinance, including the Series 2010B Bonds. Historical and Projected Sewer Rates and Charges The following table sets forth the wastewater sewer user charge rates in effect on June 30,2008, and 2009,and subsequent rate increases for the Fiscal Years commencing July 1, 2010 through 2012. In October 2007, the Board approved a five-year series of rate increases beginning December 1, 2007.Prior to the December 1, 2007 increase, such rates had remained unchanged since August 1,2003. Effective Effective Effective Effective Type of Monthly Charge July 1, 2008 FY 2009 July 1, 2009 FY 2010(a) July 1, 2010 FY2011(a) July 1, 2011 FY 2012(a) Base Charge -$/Bill Billing & Collection Charge $ 2.30 $ 2.40 $ 2.55 $2.65 System Availability Charge 8.40 8.50 8.85 9.20 Total Base (Residential) Service Charge $10.70 $10.90 $11.40 $11.85 Compliance Charge -$/Bill (a)$27.40 $29.65 $30.85 $31.95 Total Nonresidential Service Charge $38.10 $ 40.55 $ 42.25 $43.80 Volume Charge Metered -$/Ccf $ 1.88 $ 1.92 $ 2.02 $2.11 Unmetered -$/Bill Each Room 1.23 1.25 1.32 1.38 Each Water Closet 4.59 4.69 4.93 5.15 Each Bath 3.83 3.91 4.11 4.30 Each Separate Shower 3.83 3.91 4.11 4.30 Extra Strength Surcharges -$/ton (b) Suspended Solids over 300 mg/l $218.90 $218.90 $222.62 $231.35 Biological Oxygen Demand: (BOD’s) over 300 mg/l $529.56 $551.52 $596.72 $620.14 Chemical Oxygen Demand: (COD’s) over 600 mg/l $264.78 $275.76 $298.36 $310.07 _________________________ (a)Reflects recommended rates approved by the Rate Commission,and enacted by the Board pursuant to Ordinance No. 12905. (b)Applicable only to nonresidential customers. Key:Ccf –Hundred Cubic Feet. mg/l –milligram per liter. Source: The District. 42 The Rate Change Proposal is for a term of five years,or until 2012.The Rate Commission Report states that the record of proceedings supports a finding that the requested District’s $661 million CIRP would allow the District to meet the near-term capital improvements needs until 2012. The Rate Commission further believed that the proceedings supported a finding that an additional rate change proposal and/or the issuance of debt would be required prior to 2012 to fund any compliance required by settlement or court order in the proceedings captioned United States of America and the State of Missouri v. The Metropolitan St. Louis Sewer District.See “LITIGATION” herein. Customer Accounts The District imposes a user charge on all customers that use its system of sewers, treatment plants and other facilities. The number of customers per category of accounts is as follows: The Metropolitan St.Louis Sewer District Number of Customers by Type Last Ten Fiscal Years Fiscal Year Ending June 30 Single- Family Residential Multi- Family Residential Commercial/ Industrial Total Accounts 2000 351,367 45,348 25,918 422,633 2001 352,656 45,074 25,779 423,509 2002 353,166 44,581 25,664 423,411 2003 353,935 44,632 25,672 424,239 2004 356,069 45,969 25,806 427,844 2005 360,104 44,506 25,758 430,368 2006 362,043 44,700 25,700 432,443 2007 362,569 44,875 25,647 433,091 20081 391,181 54,862 32,336 478,379 20091 388,791 51,441 32,161 472,393 _________________ Source: The District. 1 Due to the implementation of the impervious charge, approximately 46,000 stormwater only accounts are billed each month. [Remainder of page intentionally left blank.] 43 Largest User Charge Customers The following table lists the District’s ten largest wastewater user charge customers for the Fiscal Year ended June 30,2009. Customer User Charges Percent of Total Anheuser-Busch Companies, Inc.$7,565,613 3.09% Mallinckrodt, Inc.1,161,840 0.47 Washington University 1,112,168 0.45 The City of St. Louis 1,038,359 0.42 Chrysler Corporation*699,271 0.29 Boeing Co.662,578 0.27 Sigma-Aldrich 532,352 0.22 BJC Health System 527,376 0.22 Zoological Gardens 510,699 0.21 Sensient Colors, Inc.486,380 0.20 Total:$14,296,636 5.83 % ___________________________________ Source: The District. * Chrysler Corporation closed its St. Louis plant effective October 31, 2009. User Charge Revenues The following table shows the amount of wastewater user charge revenues which were billed and collected by the District for the Fiscal Years ended June 30, 2005 through June 30,2009: Collections as a Fiscal Wastewater Wastewater % of Wastewater Year Charges Billed Charges Collected Charges Billed 2005 $176,372,150 $172,569,955 97.84% 2006 197,604,224 189,709,994 96.92 2007 193,056,700 189,249,138 98.03 2008 203,634,800 195,441,462 95.98 2009 183,512,398 177,872,543 96.93 __________________________ Source: The District. Outstanding Indebtedness Direct Bonded Indebtedness.As of the date of this Official Statement, the District has no outstanding general obligation indebtedness on either a District-wide or subdistrict basis. 44 Other Outstanding Debt.The District ended Fiscal Year 2009 with approximately $499.2 million in long-term debt outstanding. The increase of approximately $61.9 million from the prior fiscal year is due to the issuance of two additional series of bonds and a capital lease. The following table summarizes the outstanding long-term debt for the District at the end of Fiscal Year 2009 and Fiscal Year 2008: Total Long-Term Debt Outstanding (000s)2009 2008 Revenue Bonds: Series 2004A $168,965 $170,485 Series 2004B 136,795 143,563 Series 2005A 5,955 6,240 Series 2006A 40,480 42,515 Series 2006B 13,565 14,205 Series 2006C 60,000 60,000 Series 2008A Series 2008B 30,000 39,128 West Watson and Nanell Loan Agreement 100 130 Ozark and Tablerock Loan Agreement 68 81 Energy Loan Program 48 58 Oracle/Blue Heron Loan Agreement 4,130 ______ $499,234 $437,277 __________________________ Source: The District. Pro Forma Statement of Pledged Revenues, Expenses and Debt Service Coverage The following table shows pro forma statements showing projected wastewater revenues and revenue requirements for the District during the next three fiscal years. [Remainder of page intentionally left blank.] 45 COMPARISON OF PROJECTED REVENUE UNDER EXISTING RATES AND PROJECTED REVENUE REQUIREMENTS COMPARISON OF PROJECTED REVENUE UNDER EXISTING RATES AND PROJECTED REVENUE REQUIREMENTS 2010 2011 2012 Revenue Under Existing Rates (a)$207,247,400 $207,898,700 $208,551,900 Additional Revenue Required: 2009 (increase of 0.0%)0 0 0 2010 (increase of 2.4%)5,065,100 5,081,000 5,097,000 2011 (increase of 4.7%)10,053,700 10,085,300 2012 (increase of 4.3%)9,684,300 Total Additional Revenue 5,065,100 15,134,700 24,866,600 Total Service Charge 212,312,500 223,033,400 233,418,500 Other Operating Revenue 7,281,500 7,326,600 7,372,900 Connection Fee Revenue 2,150,000 2,150,000 2,150,000 Interest Income-Reserve Fund 1,489,600 1,578,100 1,732,500 Interest Income-Operations 41,100 40,900 40,400 Interest Income-Arnold 669,500 650,700 631,000 Subtotal Other Revenue 11,631,700 11,746,300 11,926,800 Total Revenue 223,944,200 234,779,700 245,345,300 Operation and Maintenance Expense 126,354,600 130,409,900 134,726,700 Stormwater Program Support (b)4,403,000 ______________________________ Net Revenue 93,186,600 104,369,800 110,618,600 Debt Service(c) Existing Senior Revenue Bonds 13,729,700 14,351,800 14,476,400 Proposed Senior Revenue Bonds(d)2,207,600 3,784,300 10,664,800 Total Subordinate Payments(e)19,360,200 22,359,800 23,474,800 ___________________________ Total Projected Debt Service 35,297,500 40,495,900 48,616,000 Routine Annual Improvements 3,577,200 3,702,600 3,832,200 Cash Financing of Major Improvements 53,400,000 60,200,000 58,200,000 Additions to Operating Reserve 901,000 0 0 Net Annual Balance(f)10,900 (28,700)(29,600) Beginning of Year Balance (g)2,050,200 2,061,100 2,032,400 End of Year Balance (g)$2,061,100 $2,032,400 $2,002,800 (a)Existing wastewater rates effective January 1, 2009. (b)Transitional support of the stormwater program during conversion of tax based to user charge based revenues. (c)Reflects actual and projected debt service as estimated by the District. (d)Includes estimated debt service on the 2010B Bonds taking into account Interest Subsidy Pa yments. (e)Debt service on SRF Bonds are net of the State's interest subsidy and includes SRF program fees. (f)Negative balances indicate need to drawdown available fund balance. (g)Does not include funds set aside for a minimum operating reserve equal to 60 days of operating expenses. 46 Employee Benefits The District currently maintains a noncontributory single employer defined benefit plan (the “Pension Plan”)providing retirement benefits as well as death and disability benefits to all full-time District employees. A Pension Committee (consisting of two members of the District’s Board of Trustees, two elected employee members and four members of the District’s management staff) administers the Pension Plan. The Pension Plan is exempt from the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and, as such, is not subject to ERISA’s reporting requirements. As a noncontributory plan, the District’s employees do not contribute to the Pension Plan. Ordinances establishing the Pension Plan provide for actuarially determined annual contributions, paid solely by the District, that are sufficient to pay benefits when due. Contributions of $7,425,602 and $7,673,240, excluding certain professional fees paid by the District, were made to the Pension Plan during the Pension Plan’s Fiscal Years ended December 31,2009 and 2008, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at January 1, 2008 and 2007, respectively, and for 2007 consisted of (a) $5,617,087 normal cost plus (b) $1,520,811 amortization of the actuarial accrued assets in excess of the actuarial accrued liability and prior changes (c)multiplied by an inflation factor of 1.075.The District provides certain professional fees, office space, utilities, and other services to the Pension Plan at no cost. Other costs of administering the Pension Plan are financed from plan net assets. For more information regarding the District’s Pension Plan, see Note 8 to the audited financial statements of the District contained in Appendix A to this Official Statement. The District also offers its employees a deferred compensation plan (the “Deferred Compensation Plan”) created in accordance with Internal Revenue Code Section 457. The Deferred Compensation Plan, available to all District employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until separation from service, or in special approved circumstances due to financial hardship as defined by the Pension Plan. Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries. As a result, the assets and liabilities of the Deferred Compensation Plan are not included in the District’s financial statements. For more information regarding the District’s Deferred Compensation Plan, see Note 9 to the audited financial statements of the District contained in Appendix A to this Official Statement. Other Post-Employment Benefits The District pays the monthly group health insurance premium for the individual until the retiree becomes eligible for Medicare. During Fiscal Years 2009 and 2008, expenses of $1.744 million and 1.710 million, respectively, were recognized for post-retirement health care premiums as those premiums were paid. The District’s net current OPEB obligation at June 30,2009 and 2008,respectively,were $1,014,700 and $466,900. It is estimated that for the Fiscal Year ending June 30, 2008, the District’s unfunded accrued liability will be approximately $21,938,000 assuming a 4.50% return on investment. The significant reduction in accrued liability resulted from a change in benefits offered to existing and future retirees age 65 and over.For more information regarding the District’s OPEB plans, see Note 10 to the audited financial statements of the District contained in Appendix A to this Official Statement. Also see the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT –Selected Financial Data of the District.” 47 Tax Limitation Amendment –Hancock Amendment An amendment to the Missouri Constitution (the “Hancock Amendment”) limits the rate of increase and the total amount of taxes on property which may be imposed in any year, and the limit may not be exceeded without voter approval. Provisions are included in the amendment for rolling back tax rates to produce an amount of revenues equal to that of the previous year if the definition of the tax base is changed or if property is reassessed. The tax levy on the assessed valuation of new construction is exempt from this limitation. The Hancock Amendment also requires a political subdivision of the State to seek voter approval in order to increase any “tax, license or fee” over existing rates. A Missouri court has held that the District’s current wastewater user charge structure does not constitute a “tax, license or fee” for purposes of the Hancock Amendment’s voter approval requirements. The Hancock Amendment does not prohibit an increase in the District’s wastewater user charges to pay debt service on the Bonds because voters in the District approved the issuance of the Series 2010B Bonds at the August 2008 election, including increases in the District’s wastewater user charges sufficient to pay debt service on the Bonds. REGULATORY REQUIREMENTS General The District is subject to the provisions of the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., commonly referred to as the “Clean Water Act,”the stated objective of which is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. The District is also subject to the Missouri Clean Water Law, Sections 644.006 through 644.141, Revised Statutes of Missouri, as amended, and other laws and regulations. The regulatory requirements are administered by the United States Environmental Protection Agency (“EPA”) through DNR.The District is currently not subject to the Federal Safe Drinking Water Act, as amended, 42 U.S.C. 300f et seq.,which is also administered by the EPA. The Clean Water Act imposes several permit and regulatory requirements on wastewater treatment systems. Public sewage treatment plant owners and operators such as the District are required to provide secondary treatment as established by federal regulation for all wastewater discharge from treatment plants into waters of the United States. Under the Clean Water Act, states also establish water quality standards, classifying water body uses, and pollutant control criteria to protect those uses. All sewage system discharges require National Pollutant Discharge Elimination System (“NPDES”) permits specifying the permissible pollutant levels in wastewater effluent discharged from the plants. In addition to secondary treatment requirements for publicly-owned treatment plants, all discharges from plants and combined sewer overflows (“CSO”)may be subject to additional stringent controls (which are then incorporated into NPDES permits) if such discharges are required to achieve the water quality standards established by the state pursuant to federal regulations. Under state law, the State also requires treatment plants to obtain state surface water discharge permits, which, in the discretion of EPA and DNR, may be issued jointly with the NPDES permit. Major wastewater treatment systems also must adopt and enforce pretreatment regulations for industries and other non-domestic sources discharging into sewers. Treatment plants are also subject to Clean Water Act and state regulations governing sludge use and disposal. 48 The Clean Water Act is enforced by EPA through administrative orders and procedures. Violations may be the basis for federal lawsuits brought on EPA’s behalf by the U.S. Depar tment of Justice or by private citizens. Regulatory Matters State of Missouri ex rel. William L. Webster, et al. v. The Metropolitan St.Louis Sewer District. In this action,the State sought to enforce compliance by the District with respect to certain alleged past and continuing violations of the Clean Water Act, the Missouri Clean Water Law §§ 644.006, et seq., RSMo, and Missouri State Operating Permits issued to various sewage treatment facilities and other facilities owned and operated by the District. An Amended Consent Judgment was entered by the circuit court on January 20, 1989. A Satisfaction of Judgment and Termination of Continuing Jurisdiction Over Modified Consent Judgment was filed by the Missouri Attorney General on December 13, 2002. In addition, on or about July 29, 2002, the District entered into a Settlement Agreement with DNR, the Missouri Clean Water Commission (the “Commission”), and the Missouri Attorney General regarding the District’s Baumgartner Sewage Treatment Facility.The purpose of the Settlement Agreement was for the District to achieve and maintain compliance with its Missouri State Operating Permit effluent limitations at Baumgartner.The District took the Baumgartner lagoon offline in 2006.The parties agreed that the District would complete closure of the Baumgartner lagoon pursuant to Federal regulations within 24 months of taking the Baumgartner lagoon offline in late 2006. Since May 31, 2003, the District has been subject to a moratorium on further sewer connects to Baumgartner if it is unable to meet identified effluent limits set forth in the Settlement Agreement.The July 29, 2002 Settlement Agreement was modified on January 3, 2007. In compliance with the Modification to the July 29, 2002 Settlement Agreement the Baumgartner Lagoon was taken offline on March 1, 2007. The lagoon was properly closed and inspected by DNR representatives on November 13, 2008. A Satisfaction of Judgment regarding the Amended Consent Judgment was filed by the Attorney General’s office on March 5, 2009. US and State of Missouri v. Metropolitan St. Louis Sewer District; In the US District Court for the Eastern District of Missouri. A lawsuit was filed by the Department of Justice on behalf of the EPA for various alleged violations of the Clean Water Act. The District has been the subject of several investigatory actions by EPA over the past several years.For several years negotiations have been ongoing with EPA and the DNR regarding both the combined system and the sanitary system of the sewer collection system.The Missouri Coalition for the Environment (“MCE”) gave Notice of Intent to Sue the District under the citizen suit provisions of the Clean Water Act. EPA and DNR then brought the suit on June 11, 2007, and MCE moved to intervene on August 13, 2007. Intervention was granted on August 29, 2007. The District filed its answer to the complaint filed by US and Missouri on September 21, 2007, including in its response filing counterclaims against the State of Missouri. Concurrently with the answer and counterclaims, the District filed a motion to dismiss all claims and penalties that occurred before July 11, 2002, as barred by the applicable statue of limitations. Following a responsive pleading filed by the U.S. Department of Justice and a reply by the District, on October 4, 2007, the Court granted the District’s motion to dismiss, thus barring from this litigation all of plaintiffs’ claims for civil penalties attributable to any and all of the District’s alleged violations of the Clean Water Act that occurred before June 11, 2002. A group of companies called the MIEC filed a Motion to Intervene. This motion was denied on September 12, 2008. Further, the original judge in this matter, and the subsequently assigned judge, have either been recused or rejected by a party from presiding over this case. The current judge is Carol E. Jackson, Chief United States District Judge. The suit is based on violations of the Clean Water Act as a result of overflows in the combined and sanitary sewer systems causing pollutants to reach waters of the United States. There are other counts involving violations of permit conditions. Also, the suit alleges that the District does not have an approved Long-Term Control Program (“LTCP”) for the combined 49 system. The District has been working on these issues for several decades. The District has asked voters to approve bonds and rate increases to rehabilitate and maintain the collection system. The District finished this year’s process required by its Charter to increase rates which will continue to fund the improvements sought by EPA and DNR. On October 14, 2008, the MIEC appealed the denial of the Motion to Intervene. That appeal was denied by the Eighth Circuit Court of Appeals on June 22, 2009. In addition, the State of Missouri filed an appeal of the September 12, 2008 ruling which disallowed the State’s claim of sovereign immunity as to the counterclaims made by the District. On August 3, 2009, this decision was upheld by the Eighth Circuit Court of Appeals. The parties have been in mediation over the past year.The parties have signed a non-disclosure agreement regarding the progress of the mediation.A Stay on Litigation is in place until January 31, 2010.The District submitted its LTCP on August 31, 2009,it is currently under review. Unilateral Administrative Order (“UAO”) issued by the US EPA Region VII.Proceedings under Section 309(a)(3) of the Clean Water Act, 33 U.S.C. §1319(a)(3); filed on April 30, 2007 (the “Amended Order”), and amended on May 22, 2007 (the “Second Amended Order”), Docket No. CWA- 07-2007-0042, has been amended for a second time on July 18, 2008. This is a Unilateral Administrative Order (“UAO”) issued by the United States Environmental Protection Agency Region VII requiring that the District: (1) provide notice to EPA of the District’s intent to comply with the Amended Order; (2) post signs according to the instructions and schedule contained in the UAO; (3) forward notices to customers and post a notice on the District’s website as described in the UAO; and (4) provide notice to EPA and DNR of all known discharges from construction Sanitary Sewer System Overflows (“SSOs”) on a quarterly basis, beginning in August 2007. The District is complying with the UAO. EPA has been notified of the District’s intent to comply with the Amended Order, subject to the District’s legal authority and capabilities. The notices have been forwarded to customers and a copy posted on the District’s website. Signs have been posted as instructed. The District has notified EPA and DNR of all known discharges from construction SSOs since May 2007.The Second Amended Order required additional information, signs, and adjusted the non-constructed SSO sign inspection schedule as well as requested electronic raw data. The District has sent such information to EPA and complied with all requests subject to the District’s legal authority and capabilities and continues to do so. TAX MATTERS The following is a summary of the material Federal and State of Missouri income tax consequences of holding and disposing of the Series 2010B Bonds. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all aspects of Federal income taxation that may be relevant to investors in light of their personal investment circumstances or describe the tax consequences to certain types of owners subject to special treatment under the Federal income tax laws (for example, dealers in securities or other persons who do not hold the Series 2010B Bonds as a capital asset, tax- exempt organizations, individual retirement accounts and other tax deferred accounts, and foreign taxpayers), and, except for the income tax laws of the State of Missouri, does not discuss the consequences to an owner under any state, local or foreign tax laws. The summary does not deal with the tax treatment of persons who purchase the Series 2010B Bonds in the secondary market at a premium or a discount. Prospective investors are advised to consult their own tax advisors regarding Federal, state, local and other tax considerations of holding and disposing of the Series 2010B Bonds. 50 Federal Income Tax Consequences to Owners of the Series 2010B Bonds TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, OWNERS OF THE SERIES 2010B BONDS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS OFFICIAL STATEMENT RELATING TO THE SERIES 2010B BONDS IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY OWNERS OF THE SERIES 2010B BONDS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THOSE OWNERS UNDER THE INTERNAL REVENUE CODE; (B) THE DISCUSSION OF FEDERAL TAX ISSUES IN THIS OFFICIAL STATEMENT RELATING TO THE SERIES 2010B BONDS WAS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THOSE SERIES 2010B BONDS; AND (C) OWNERS OF THE SERIES 2010B BONDS SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISOR BASED ON THEIR PARTICULAR CIRCUMSTANCES. Opinion of Co-Bond Counsel Regarding the Series 2010B Bonds Missouri Tax Exemption. The stated interest on the Series 2010B Bonds is exempt from income taxation by the State of Missouri. Federal Tax Status of the Series 2010B Bonds as Build America Bonds; Interest Taxable Election. The District will elect to treat the Series 2010B Bonds as qualified “Build America Bonds” under Section 54AA of the Code and will elect to receive a direct payment from the U.S. Treasury equal to a portion of the interest payable on the Series 2010B Bonds (“Build America Bonds - Direct Pay”). Series 2010B Bond Interest Taxable. The interest on the Series 2010B Bonds will be included in gross income for Federal income tax purposes in accordance with the owner’s normal method of accounting. No Opinion. Co-Bond Counsel is not rendering any opinion to owners of the Series 2010B Bonds regarding the qualification of the Series 2010B Bonds as Build America Bonds –Direct Pay or the treatment of interest on the Series 2010B Bonds for federal income taxation. Purchasers of Series 2010B Bonds should consult their tax advisors as to the applicability of these tax consequences and other federal income tax consequences of the purchase,ownership and disposition of the Series 2010B Bonds, including the possible application of state, local, foreign and other tax laws. Other Federal Income Tax Consequences Applicable to Owners of Series 2010B Bonds Series 2010B Bonds Purchased with Original Issue Discount.For Federal income tax purposes, original issue discount (“OID”)is the excess of the stated redemption price at maturity of a Series 2010B Bond over its “issue price,” defined as the first price at which a substantial amount of the Series 2010B Bonds of that maturity have been sold (ignoring sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers). If the OID on a Series 2010B Bond is more than a de minimis amount (generally ¼% of 1% of the stated redemption price at maturity of the Series 2010B Bond multiplied by the number of complete years to its maturity date), then that Series 2010B Bond will be treated as issued with OID (a “Taxable OID Bond”). The amount of OID that accrues to an owner of a Taxable OID Bond during any accrual period generally equals (i) the issue price of that Taxable OID Bond, plus the amount of OID accrued in all prior accrual periods, multiplied by (ii) the yield to maturity on that Taxable OID Bond (determined on the basis of 51 compounding at the close of each accrual period and properly adjusted for the length of the accrual period), minus (iii) any interest payable on that Taxable OID Bond during that accrual period. The amount of OID accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be included in gross income for Federal income tax purposes, and will increase the owner’s tax basis in that Taxable OID Bond. Prospective investors should consult their own tax advisors concerning the calculation and accrual of OID. Series 2010B Bonds Purchased at a Premium. If a Series 2010B Bond is purchased at a price that exceeds the stated redemption price of the Series 2010B Bond at maturity, the excess of the purchase price over the stated redemption price at maturity constitutes premium on the Series 2010B Bond, and that Series 2010B Bond is referred to in this discussion as a “Taxable Premium Bond.” Under Section 171 of the Code, the purchaser of a Taxable Premium Bond may elect to amortize the premium over the term of the Taxable Premium Bond using constant yield principles, based on the purchaser’s yield to maturity. An owner of a Taxable Premium Bond amortizes bond premium by offsetting the qualified stated interest allocable to an accrual period with the bond premium allocable to that accrual period. This offset occurs when the owner takes the qualified stated interest into income under the owner’s regular method of accounting. If the premium allocable to an accrual period exceeds the qualified stated interest for that period, the excess is treated by the owner as a deduction under Section 171(a)(1) of the Code. As premium is amortized, the owner’s basis in the Taxable Premium Bond will be reduced by the amount of amortizable premium properly allocable to the owner. Prospective investors should consult their own tax advisors concerning the calculation and accrual of bond premium. Sale or Exchange. Upon the sale, exchange or retirement (including redemption) of a Bond, an owner of the Bond generally will recognize gain or loss in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale, exchange or retirement of the Bond (other than in respect of accrued and unpaid interest) and the owner’s adjusted tax basis in the Bond. To the extent the Series 2010B Bonds are held as a capital asset, the gain or loss will be capital gain or loss and will be long-term capital gain or loss if the Bond has been held for more than 12 months at the time of sale, exchange or retirement. Information Reporting and Backup Withholding. In general, information reporting requirements will apply to certain payments of principal, interest and premium paid on the Series 2010B Bonds, and to the proceeds paid on the sale of Series 2010B Bonds, other than certain exempt recipients (such as corporations and foreign entities). A backup withholding tax will apply to these payments if the owner fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. The amount of any backup withholding from a payment to an owner will be allowed as a credit against the owner’s Federal income tax liability. LITIGATION Except as described in the “REGULATORY REQUIREMENTS –Regulatory Matters” above and in this Section, to the knowledge of the District there is no legal action, suit, proceeding, inquiry or investigation at law or in equity before or by any court, public board or body for which the District has been served with process or official notice or threatened against or affecting the District or any reasonable basis therefor, wherein an unfavorable decision, ruling or finding would adversely affect the transaction contemplated by this Official Statement or the validity of the Series 2010B Bonds, the Bond Ordinance, or any agreement or instrument to which the District is a party and which is used or contemplated for use in the transactions contemplated by this Official Statement, and no member, employee or agent of the District has been served with any legal process regarding such litigation or other proceeding. 52 William Zweig et al.v.The Metropolitan St. Louis Sewer District was filed on July 18, 2008 in the Circuit Court for St. Louis County. The lawsuit, as amended, contends that the District Ordinances No. 12560 and No. 12789, which enacted increases in the District’s stormwater user charge based on the amount of impervious area on the customer’s property, are unconstitutional. The lawsuit claims the ordinances violate the so-called Hancock Amendment, Mo. Const. art. X, §22(a), because the stormwater user charge is in reality a tax that requires voter approval.The District’s Board of Trustees passed the ordinances in December 2007 and December 2008, respectively, without submitting them to the voters. The District contends the stormwater user charge is not a tax and, thus, not subject to voter approval. The original plaintiff, William Zweig, is a District stormwater customer residing in Chesterfield, Missouri, who seeks to represent a class of all District stormwater customers. In July 2009, two more plaintiff class representatives, David Milberg and Mark Kurz, were added to the lawsuit. The lawsuit seeks (1) a declaration that the stormwater user charge is unconstitutional, (2) a refund of all stormwater user charges collected, and (3) payment of the plaintiffs’ costs, including attorneys’ fees. On August 27, 2008,the District’s answer and affirmative defenses to the original petition were filed, and on August 6, 2009,the District’s answer and affirmative defenses to the second amended petition were filed. Since the case was filed, the parties have engaged in extensive discovery, including depositions of the original plaintiff and several District witnesses. Discovery is continuing, including depositions of the new plaintiffs and expert witness discovery. Plaintiffs’ motion for class certification was filed in May 2009, but has not been fully briefed and has not been argued to the court. A motion to intervene was filed in February 2009 on behalf of a number of putative class members who allege they are not adequately represented by the plaintiffs. The plaintiffs and the District both oppose the motion to intervene. The pace of the case has been significantly slowed due to the retirement of the judge originally assigned to the case, the assignment and subsequent recusal of a replacement judge, and then the recusal of all the judges in the St. Louis County Circuit Court, presumably because they are all putative class members as District customers. In August 2009, the Missouri Supreme Court assigned a judge from Lincoln County to hear the case.Although no trial date set has been set,it is anticipated that the case will go to trial in Spring 2010.The District is vigorously defending the lawsuit.The District’s position is that its stormwater user charge is a fee, not a tax. The District has collected approximately $46,000,000 to date from the stormwater user charge, and is continuing to collect approximately $3,000,000 each month, which would be subject to plaintiffs’ request for a refund should the ordinances be declared unconstitutional.The District has significant legal and factual arguments in opposition to any refund, but the District cannot predict with any certainty at this time whether, or in what amount,the District may be required to make a refund should the ordinances be declared unconstitutional.In addition, if plaintiffs’ were to prevail and the ordinances were found unconstitutional, plaintiffs would be entitled to their attorneys’ fees and costs under the Hancock Amendment (Mo. Const. art. X, §23). While the District cannot estimate these fees and costs with certainty, the amount sought could be in excess of $1,000,000. Litigation Regarding District Operations and Activities.The District is a defendant in a number of suits arising out of its operations and activities. To the best knowledge of the District’s General Counsel, no litigation is pending or threatened which, in the opinion of the District’s General Counsel, if decided adversely to the District, would be likely to result, either individually or in the aggregate, in final judgments against the District which would materially adversely affect its ability to meet debt service payments on the Series 2010B Bonds when due, or its obligations under the Bond Ordinance, or materially adversely affect its financial condition. 53 Four cases have been filed with arising out of the flash flooding of the River Des Peres in the aftermath of heavy rains from Hurricane Ike on September 14, 2008.They are as follows: 1.Angela Holland v. The Metropolitan St. Louis Sewer District. On November 25, 2008, Plaintiff Angela Holland filed this action against the District in the Circuit Court of St. Louis County for wrongful death and property damage. The initial petition alleged that the District was liable for the wrongful death of Louise Bryant who was swept away by the flood waters and drowned while trying to save her car. The petition alleged that the District was liable because (1) it failed to construct adequate stormwater facilities along the River Des Peres, such as levees, retaining walls, and water detention basins; and (2) it failed to forecast and warn plaintiff and her decedent about the potential dangers of flash flooding on September 14, 2008. The petition further alleged that the District’s sovereign immunity was waived under the circumstances of the case under the “dangerous condition” waiver of sovereign immunity contained in RSMo. §537.600. On February 23, 2009, the District moved to strike certain allegations of the petition and to make the petition more definite and certain. As grounds for the motion to strike, the District argued that the allegations failed to state a claim against the District arising out of the alleged dangerous condition of public property and that the District had no private duty to plaintiff or plaintiff’s decedent to construct stormwater facilities along the River Des Peres or to warn plaintiff or plaintiff’s decedent of potential flash flooding of the River Des Peres on September 14, 2008. The plaintiff filed a first amended petition on April 13, 2009 containing two counts. Count I purports to state a claim for negligence and a dangerous condition of public property, alleging basically the same grounds for liability as in the initial petition but omitting claims of liability arising out of the District’s alleged failure to forecast and warn of the flooding on the River Des Peres. Count II purports to state a claim for inverse condemnation and damage to Louise Bryant’s residence on Wilson Avenue in University City, Missouri. The first amended petition seeks damages for Ms. Bryant’s wrongful death and residential property damage as a result of the River Des Peres flooding.The District answered the first amended petition on May 4, 2009, denying liability and raising affirmative defenses. A case management conference is scheduled for February 9, 2010. 2.Frederick Eppenberger, et al. vs. The Metropolitan St. Louis Sewer District.On December 17, 2008, plaintiffs Frederick Eppenberger, Maxine Smith and William Bain, as individuals and as putative class representatives filed this action against the District in the Circuit Court of St. Louis County for property damages. The initial Eppenberger petition alleged that the District was liable for the property damage to their homes and personal property caused by the flash flooding of the River Des Peres.The Eppenberger petition alleged that the District was liable because (1) it failed to construct adequate stormwater facilities along the River Des Peres, such as levees, retaining walls, and water detention basins; and (2) it failed to forecast and warn plaintiffs and the plaintiff class about the potential dangers of flash flooding on September 14, 2008. The petition further alleged that the River Des Peres was owned by and under the exclusive control of the District; that it was in a dangerous condition for which the District was responsible; and that plaintiffs’ damages resulted from the dangerous condition of the River Des Peres. On February 23, 2009, the District moved to dismiss the petition for failure to state a claim and, alternatively, to strike certain allegations. The District moved to dismiss on grounds that plaintiffs failed to plead essential facts establishing a waiver of the District’s sovereign immunit y. As grounds for the motion to strike, the District argued that the allegations failed to state a claim against the District arising out of the alleged dangerous condition of the public property and that the District had no private duty to 54 plaintiffs or the plaintiff class to construct stormwater facilities along River Des Peres or to warn plaintiffs or the plaintiff class of potential flash flooding of the River Des Peres. In response to the District’s motion, plaintiffs filed their first amended petition on April 13, 2009. The first amended petition sounded in two counts. Count I purports to state a claim for negligence and a dangerous condition of public property, alleging basically the same grounds for liability as in the initial petition but omitting claims of liability arising out of the District’s alleged failure to forecast and warn of the flooding on the River Des Peres. Count II purports to state a claim for inverse condemnation and damage to the homes and personal property of plaintiffs and the plaintiff class. The first amended petition seeks monetary relief for plaintiffs and the plaintiff class to compensate them for flood damage to their property.The District answered the first amended petition on May 4, 2009, denying liability and raising affirmative defenses. The parties have exchanged written discovery requests and responses and have produced documents. At present, there is no discovery deadline for this matter. However, a case management conference was held on September 15, 2009 and plaintiffs’’ counsel indicated an intent to file their motion for class certification on or before January 25, 2010, the date of the next scheduled case management conference. 3.Peggy Sausville v. The Metropolitan St. Louis Sewer District. On April 1,2009, plaintiff Peggy Sausville filed this against the District in the Circuit Court of the City of St. Louis for property damages. The case arises out of the same facts and circumstances as the Holland and Eppenberger lawsuits and the allegations of the petition mirror the initial Holland petition. Plaintiff Sausville alleges that she sustained damages to her home and personal property as a result of the flooding on September 14, 2008. The petition sounds in two Counts. Count I purports to state a claim for negligence, nuisance and a dangerous condition of public property, alleging basically that the District was liable because (1) it failed to construct adequate stormwater facilities along the River Des Peres, such as levees, retaining walls, and water detention basins; and (2) it failed to forecast and warn plaintiff about the potential dangers of flash flooding on September 14, 2008. Count II purports to state a claim for inverse condemnation and damage to plaintiff’s home and personal property caus ed by the flash flooding of the River Des Peres. On April 21, 2009, the District moved to dismiss and transfer venue to the Circuit Court of St. Louis County. The motion was briefed, argued and remains under submission by the Court. On August 31, 2009,the District answered the petition, without waiver of its venue objection. The District’s answer denied liability and raised affirmative defenses.A jury trial is scheduled for February 1, 2010. 4.William & Louise Gaddy v. The Metropolitan St. Louis Sewer District. On August 7, 2009, plaintiffs William and Louise Gaddy, husband and wife, filed this action against the District in the Circuit Court of St. Louis County for property damages. This litigation is similar to the Holland, Eppenberger and Sausville cases and mirrors the pleadings in those cases. However, plaintiffs allege damages as a result of the flooding of Maline Creek on September 14, 2008 (upstream of the River Des Peres). Plaintiffs alleged they sustained damage to their homes and personal property on September 14, 2008 as a result of the flooding of Maline Creek. Plaintiffs allege that the District is liable for flood damage to their homes and personal property because (1) it failed to construct adequate stormwater facilities along the River Des Peres, such as levees, retaining walls, and water detention basins; and (2) it failed to forecast and warn plaintiffs and the plaintiff class about the potential dangers of flash flooding on September 14, 2008. The petition further 55 alleged that the Maline Creek was owned by and under the exclusive control of the District; that it was in a dangerous condition for which the District was responsible; and that plaintiffs’ damages resulted from the dangerous condition of the Maline Creek. LEGAL MATTERS Certain legal matters incident to the authorization, issuance, sale and delivery of the Series 2010B Bonds are subject to the approval of Gilmore & Bell, P.C., St.Louis, Missouri, and White Coleman & Associates,LLC,St. Louis, Missouri, Co-Bond Counsel, whose approving legal opinions will be delivered with the Series 2010B Bonds in substantially the form of Appendix D hereto. Certain other legal matters will be passed on for the District by its General Counsel, and for the Underwriters by their co-counsel,the Hardwick Law Firm, LLC,Kansas City, Missouri, and Armstrong Teasdale LLP, St. Louis, Missouri The various legal opinions to be delivered concurrently with the delivery of the Series 2010B Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of parties to such transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. RATINGS Moody’s Investors Service, Standard & Poor’s and Fitch Ratings (the “Rating Agencies”) have assigned the Series 2010B Bonds their respective underlying ratings as shown on the cover page based on each Rating Agency’s respective evaluation of the creditworthiness of the District. Such ratings reflect only the views of the Rating Agencies at the time such ratings are given, and the Underwriters and the District make no representation as to the appropriateness of such ratings. An explanation of the significance of such ratings may be obtained only from the Rating Agencies. The District has furnished the Rating Agencies with certain information and materials relating to the Series 2010B Bonds and the District that have not been included in this Official Statement. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies and assumptions by the rating agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing such rating, circumstances so warrant. Neither the District nor the Underwriters have undertaken any responsibility to bring to the attention of the holders of the Series 2010B Bonds any proposed revision or withdrawal of a rating of the Series 2010B Bonds or to oppose any such proposed revision or withdrawal. Any revision or withdrawal of a rating could have an adverse effect on the market price and marketability of the Series 2010B Bonds. CONTINUING DISCLOSURE Pursuant to a Disclosure Dissemination Agent Agreement dated as of January 1,2010 (the “Continuing Disclosure Agreement”) between the District and Digital Assurance Certification, L.L.C. (“DAC”), under which the District has designated DAC as Dissemination Agent, the District has covenanted for the benefit of the holders and beneficial owners of the Series 2010B Bonds to provide, or cause to be provided, certain financial information and operating data relating to the District to certain 56 parties by not later than 180 days following the end of the District’s Fiscal Year (the “Annual Report”), commencing with the report for the Fiscal Year ending June 30, 2010, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Dissemination Agent on behalf of the District with the Municipal Securities Rulemaking Board (“MSRB”)pursuant to Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2-12”). The notices of material events will be filed by the Dissemination Agent on behalf of the District with the MSRB. These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12. The specific nature of the information to be contained in the Annual Report and in the notices of material events is summarized in “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT”in Appendix C hereto. The District has never defaulted on any of its continuing disclosure obligations under Rule 15c2- 12. The Dissemination Agent has only the duties specifically set forth in the Continuing Disclosure Agreement. The Dissemination Agent’s obligation to deliver the information at the times and with the contents described in the Continuing Disclosure Agreement is limited to the extent that the District has provided such information to the Dissemination Agent as required by the Continuing Disclosure Agreement. The Dissemination Agent has no duty with respect to the content of any disclosures or notice made pursuant to the terms of the Continuing Disclosure Agreement. The Dissemination Agent has no duty or obligation to review or verify any information in the Annual Report, the District’s audited financial statements, a Notice Event (as defined in the Continuing Disclosure Agreement), or any other information, disclosures or notices provided to it by the District and shall not be deemed to be acting in any fiduciary capacity for the District, the holders of the Series 2010B Bonds or any other party. The Dissemination Agent has no responsibility for the District’s failure to report to the Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the District has complied with the Continuing Disclosure Agreement. The Dissemination Agent may conclusively rely upon certifications of the District at all times. UNDERWRITING The Series 2010B Bonds are being purchased for reoffering by the group of underwriters shown on the cover page hereof (collectively, the “Underwriters”), for whom Merrill Lynch,Pierce, Fenner & Smith Incorporated acts as representative, pursuant to a Purchase Contract between the District and the Underwriters. The Purchase Contract provides that the Underwriters shall purchase all, but not less than all, of the Series 2010B Bonds at a price of $___________(which is equal to the aggregate principal amount of the Series 2010B Bonds, plus original issue premium in the amount of $________,less an underwriting discount in the amount of $___________). The Underwriters may offer and sell the Series 2010B Bonds to certain dealers (including dealers depositing the Series 2010B Bonds into investment trusts) and others at prices lower than the public offering price stated on the cover page hereof. The initial public offering price may be changed from time to time by the Underwriters. 57 CERTAIN RELATIONSHIPS Gilmore & Bell, P.C.and White Coleman & Associates, LLC,Co-Bond Counsel, have represented certain of the Underwriters in transactions unrelated to the issuance of the Series 2010B Bonds, but are not representing any of the Underwriters in connection with the issuance of the Series 2010B Bonds. The Hardwick Law Firm,LLC,Co-Underwriters’Counsel, has represented the District as co- bond counsel in prior transactions. Merrill Lynch, Pierce, Fenner & Smith Incorporated,representative of the Underwriters for this transaction, and Bank of America, N.A., which is the District’s depository under the Bond Ordinance, are both wholly-owned subsidiaries of Bank of America Corporation.BofA Merrill Lynch is the marketing name for Merrill Lynch, Pierce, Fenner & Smith Incorporated. FINANCIAL ADVISORS Public Financial Management, Des Moines, Iowa,and St. Louis, Missouri, and Valdés & Moreno, Inc., Kansas City, Missouri, have served as Co-Financial Advisors to the District in connection with the Series 2010B Bonds, relative to a plan of financing and relative to drafting certain portions of this Official Statement for the sale of the Series 2010B Bonds. The Co-Financial Advisors have participated in the compilation and editing of this Official Statement. The Co-Financial Advisors have not, however, independently verified the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the District for the purpose of determining the accuracy or completeness of any of the information contained herein. The Co-Financial Advisors have relied on the diligence and accuracy of the District which has certified that this Official Statement contains no material misstatement or omission of information. INDEPENDENT AUDITORS The Independent Auditor’s Report and Financial Statements of the District for the Fiscal Year ended June 30,2009, included in Appendix A of this Official Statement, have been audited by Schmersahl Treloar & Co., independent auditors, as stated in their report also appearing in Appendix A. MISCELLANEOUS The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents, and reference is made to all such documents for full and complete statements of all matters of fact relating to the Series 2010B Bonds, the security for the payment of the Series 2010B Bonds and the rights of the owners thereof. During the period of the offering, copies of drafts of such documents may be examined at the offices of the Underwriters; following delivery of the Series 2010B Bonds, copies of such documents may be examined at the corporate trust office of the Paying Agent in St.Louis, Missouri. The information contained in this Official Statement has been compiled from official and other sources deemed to be reliable, and while not guaranteed as to completeness or accuracy, is believed to be correct as of this date. 58 It is anticipated that CUSIP identification numbers will be printed on the Series 2010B Bonds, but neither the failure to print such numbers on any Series 2010B Bonds nor any error in printing of such numbers will constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Series 2010B Bonds. The attached appendices are integral parts of this Official Statement and must be read together with all of the foregoing statements. The closing documents will include a certificate by the proper official of the District that, to the best of his knowledge and belief at the time of the acceptance of the delivery of the Series 2010B Bonds, this Official Statement and any information furnished by the District supplementary thereto did not and do not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made in light of the circumstances under which they were made, not misleading in any material respect. Any statement made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the information presented herein since the date hereof. This Official Statement is not to be construed as a contract or agreement between the District, the Paying Agent, or the Underwriters and the purchasers or Owners of any Series 2010B Bonds. [Remainder of page intentionally left blank.] 59 This Official Statement has been authorized and approved by the District, deemed final pursuant to a separate certificate, and duly executed and delivered on its behalf by the officials signing below. THE METROPOLITAN ST.LOUIS SEWER DISTRICT By: Chair of the Board of Trustees By: Executive Director By: Secretary-Treasurer THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX A INDEPENDENT AUDITOR’S REPORT AND FINANCIAL STATEMENTS OF THE METROPOLITAN ST.LOUIS SEWER DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2009 THE METROPOLITAN ST. LOUIS SEWER DISTRICT INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2009 THE METROPOLITAN ST. LOUIS SEWER DISTRICT CONTENTS Page INDEPENDENT AUDITORS' REPORT 1 - 2 MANAGEMENT'S DISCUSSION AND ANALYSIS 3 - 12 FINANCIAL STATEMENTS Statements of Net Assets 13 - 14 Statements of Revenues, Expenses, and Changes in Plan Net Assets 15 Statements of Cash Flows 16 - 17 Notes to Financial Statements 18 - 47 C L ' EL Certified Public Accountants Independent Auditors' Report To the Board of Trustees of the Metropolitan St. Louis Sewer District We have audited the accompanying financial statements of the Metropolitan St. Louis Sewer District (the "District") as of andfor the year ended June 30, 2009, as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the District as of and for the year ended June 30, 2008, were audited by other auditors whose report dated November 12, 2008, expressed an unqualified opinion on these financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and th.e standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the District as of June 30, 2009, and the respective changes in financial position and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 6, 2009, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. (314) 966-2727 • fax (314) 966-6464 • 3660 S. Geyer Rd., Suite 200 • St. Louis, MO 63127 • e-mail: stcpa©stcpa.com The management's discussion and analysis on pages 3 through 12 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. November 6, 2009 St. Louis, Missouri 2 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 The annual report of The Metropolitan St. Louis Sewer District (the "District") includes the independent auditors' report, management's discussion and analysis ("MD&A"), and the financial statements accompanied by notes essential to the user's understanding of the financial statements. Management of the District has provided this MD&A to be used in combination with the District's financial statements. This narrative is intended to provide the reader with more insight into management's knowledge of the transactions, events, and conditions reflected in the accompanying financial statements and the fiscal policies that govern the District's operations. 2009 Financial Highlights ➢ The District placed $98.4 million of capital assets into service during fiscal year 2009. This continued high level of expansion and updating of the District's plant and system is related to the regulatory required Capital Improvement and Replacement Program (CIRP). o Collection and pumping plant $54.4 million o Treatment and disposal plant and equipment $35.2 million o General Plant and Equipment $ 8.8 million ➢ In addition to these capital asset additions, the District has also shown an increase of $143.1 million in construction in progress due to the large capital improvement and replacement program currently underway. ➢ Cash and cash equivalents balances decreased by $36.9 million. This can be partially attributed to the significant capital expenditures reflected by the increase in net capital assets. Investment balances were also increased by $20.4 million displaying a shift of assets from cash and cash equivalents to investments. ➢ Both total revenues and expenses remained in line with prior year amounts causing similar results of $41.8 million in 2009 compared to $41.7 million in 2008 for income before capital contributions. ➢ The District had a stoiiiiwater rate increase in January 2009 from 120 to 14¢ per hundred square feet of impervious area. This is expected to generate a total of $36.8 million to date for funding of stormwater projects. 2008 Financial Highlights ➢ The District placed $95.7 million of capital assets into service during fiscal year 2008. This continued high level of expansion and updating of the District's plant and system is related to the regulatory required Capital Improvement and Replacement Program (CIRP). o Collection and pumping plant $ 79.9 million o Treatment and disposal plant and equipment $ 11.7 million o General plant and equipment $ 3.8 million o Land $ 0.3 million ➢ Cash and cash equivalents balances increased by $28.2 million, while investment balances decreased by $93.3 million from fiscal year 2007 to fiscal year 2008. The overall decrease is due to the significant capital expenditures reflected by the increase in net capital assets and no new long- term debt. 3 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 ➢ Total revenues increased $23.0 million as a result of a wastewater rate increase effective January 1, 2008 and the stounwater rate change effective March 1, 2008. ➢ Total expenses increased S37.8 million compared to the prior year. Depreciation expense increased $9.2 million and all other expenses increased $28.6 million. Required Financial Statements The financial statements presented by the management of the District include the Statements of Net Assets; Statements of Revenues, Expenses, and Changes in Net Assets; and Statements of Cash Flows. These statements are prepared using the accrual basis of accounting. This method of accounting recognizes revenues at the time they are earned and expenses when the related liability occurs. As a result of using this method of accounting, the District's performance over the time period being reported is more easily determinable. The Statements of Net Assets provide a report of the District's current, restricted, and other noncurrent assets such as cash, investments, receivables, and property. Also, the Statements of Net Assets provide a summary of the District's current, restricted, and noncurrent liabilities, including contracts and accounts payable, deposits and accrued expenses, and bond and notes payable. The final section of the Statements of Net Assets, the net assets section, contains earnings retained for use by the District. Increases or decreases in the net assets section maybe indicative of an improving or declining financial position. This statement provides the basis for computing rate of return, evaluating the capital structure of the District, and assessing the liquidity and financial flexibility of the District. The Statements of Revenues, Expenses, and Changes in Net Assets summarizes all of the year's revenues and expenses. This statement indicates how successful the District was at maintaining expenses below the level of revenues earned. The Statements of Cash Flows account for the net change in cash and cash equivalents by summarizing cash receipts and cash disbursements resulting from operating activities, noncapital financing activities, capital and related financing activities, and investing activities. This statement assists the user in determining the sources of cash coming into the District, the items for which cash was expended, and the beginning and ending cash balance. Financial Analysis The District's financial position improved over prior year, as evidenced by the increase in net assets of $68.8 million. Income before contributions was $41.8 million, while the District continues capacity expansion and updating of the District's plant and system. Plans for maintaining the District's ability to meet future spending needs are discussed in greater detail in the section of the MD&A entitled "Decisions Impacting the Future". 4 THE METROPOLITAN ST. LOUIS SEWER DIST CT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 Condensed Financial Statements and Analysis The Metropolitan St. Louis Sewer District Condensed Statements of Net Assets (000s) Assets: Current, Restricted, and Other Assets Capital Assets (net of accumulated depreciation) Total Assets Increase (Decrease) 2009 2008 2009-2008 $ 469,124 $ 531,030 Increase (Decrease) 2007 2008-2007 $ 566,700 2,318,292 2,126,442 191,850 2,004,792 2,787,416 2,657,472 129,944 2,571,492 Liabilities: Current Liabilities 82,961 77,031 Noncurrent Liabilities 491,142 435,944 Total Liabilities 574,103 512,975 Net Assets: Invested in capital assets, net of related debt Restricted Unrestricted 67,751 446,557 85,980 514,308 (1,333) 1,852,182 1,722,857 129,325 1,692,934 29;923 94,769 97,422 (2,653) 85,447 11,975 266,362 324,218 (57,856) 278,803 45415 Total Net Assets $2,213,313 $2,144,497 2009 Analysis 68,816 $2,057,184 $ 87,313 Total net assets increased S68.8 million, or 3.2%, over prior year. This change is due to an increase in total assets of $129.9 million countered by an increase in liabilities of $61.1 million. Current, restricted, and other assets decreased by $61.9 million, while capital assets increased by $191.8 million. The increase in capital assets can be attributed to an increase in construction in progress of $143.1 million, collection and pumping plant of $22.9 million, treatment and disposal plant and equipment of $20.3 million, and general plant and equipment of $5.5 million. The decrease in current, restricted, and other assets is mostly attributable to the net decrease in cash equivalents of $36.9 million as a result of increased spending in the capital improvement and replacement program. The change in total liabilities breaks down to an increase in current liabilities of $5.9 million and an increase in noncurrent liabilities of $55.2 million. The increase in noncurrent liabilities is due to a substantial increase in bonds and notes payable. The District did issue new long-term debt in the amount of $74.1 million during the 2009 fiscal year. Current liabilities are up due to increases in contracts and accounts payable and current portion of bonds and notes payable of $2.7 million and $4.9 million respectively. These were partially offset by a decrease in the balance of deposits and accrued expenses and retainage payable of $1.4 million and $0.3 million. 5 THE METROPOLITAN ST. LOUIS SEWER DIST CT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 2008 Analysis Total net assets increased $87.3 million, or 4.2%, over prior year. This change is due to an increase in total assets of $86.0 million and a decrease in liabilities of $1.3 million. Net capital assets increased by $121.6 million, while current, restricted, and other assets decreased by $35.7 million. The increase in capital assets can be attributed to an increase in construction in progress of $83.9 million, collection and pumping plant of $79.8 million, treatment and disposal plant and equipment of $6.0 million, general plant and equipment of ($0.7) million, land of $0.1 million, and an offsetting increase in accumulated depreciation of $47.5 million. The decrease in current, restricted, and other assets is mostly attributable to the net decrease in cash equivalents and investments of $62.9 million as a result of spending in the capital improvement and replacement program. Additionally, the decline in investment balances led to a decrease in accrued investment income of $1.5 million. The weakening in those assets is somewhat offset by a combined increase of $11.5 million in billed and unbilled sewer service charge receivables as a result of rate increases in January and March 2008. The change in total liabilities breaks down to a decrease in noncurrent liabilities of $10.6 million and an increase in current liabilities of $9.3 million. The decrease in noncurrent liabilities is the result of a decline in bonds and notes payable. The District did not issue any new long-term debt during the 2008 fiscal year. Current liabilities are up due to increases in contracts and accounts payable, deposits and accrued expenses, current portion of bonds and notes payable, and retainage payable of $3.3 million, $1.6 million, $2.4 million, and $2.0 million, respectively. 6 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 The Metropolitan St. Louis Sewer District Statements of Revenues, Expenses, and Changes in Net Assets (000s) Operating Revenues: Sewer service charges Recovery of (provision for) doubtful sewer service charge accounts Licenses, permits, and other fees Other Total operating revenues Nonoperating Revenues: Property taxes levied by the District Investment income Rent and other income Total nonoperating revenues Total revenues ncrease Increase (Decrease) (Decrease) 2009 2008 2009-2008 2007 2008-2007 $ 254,378 $ 221,780 $ 32,598 $ 198,993 $ 22,787 (9,678) (5,162) (4,516) (4,194) (968) 3,475 4,346 (871) 6,031 (1,685) 1,550 961 589 1,376 (415) 249,725 221,925. 27,800 202,206 19,719 2,129 27,512 (25,383) 13,116 17,477 ( 4,361) 215 529 (314) 15,460 45,518 (30,058) 265,185 267,443 (2,258) 24,401 16,946 878 42,225 3,293 244,431 23,012 Operating Expenses: Pumping and treatment 44,746 44,531 215 37,848 6,683 Collection system maintenance 32,918 30,807 2,111 27,718 3,089 Engineering 13,736 9,973 3,763 8,864 1,109 General and administrative 37,922 39,827 (1,905) 35,592 4,235' Water backup claims 6,817 7,439 (622) 3,608 3,831 Depreciation 47,370 54,934 (7,564) 45,721 9;213 Other 23,834 32,212 (8,378) 24,460 7,752 Total operating expenses 207,343 219,723 (12,380) 183,811 35,912 Nonoperating Expenses: Capital improvement surcharge refund -- -- 15 Net loss on disposal and sale of capital assets 2,162 686 1,476 97 589 Nonrecurring projects and studies 4,779 1,017 3,762 3,999 (2,982) Interest expense 9,079 4,314 4,765 -- 4,314 Total nonoperating expenses 16,020 6,017 10,003 4,111 1,906 Total expenses 223,363 225,740 (2,377) 187,922 37,818 Income before Capital Contributions 41,822 41,703 119 56,509 (14,806)' Capital Contributions 26,994 45,610 (18,616) 24,310 21,300` Change in Net Assets 68,816 87,313 (18,497) 80,819 6,494 Net Assets -Beginning of Year 2,144,497 2,057,184 87,313 1,976,365 80,819 Net Assets -End of Year $ 2,213,313 $ 2,144,497 $ 68,816 $ 2,057,184 $ 87,313 7 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 2009 Analysis Net assets increased $68.8 million or $18.5 million less than in the prior year. While total revenues were slightly lower compared prior year, this was offset by the reduction of net expenses. Total revenues decreased by $2.3 million due to offsetting changes in operating and nonoperating revenues. In December 2007, the District levied its final property tax. This loss in revenue has been partially offset by a newly implemented stoiniwater rate charge. As a result, property tax revenues decreased by S25.4 million. The provision for doubtful sewer service charge accounts increased $4.5 million while investment income was decreased by 4.4 million. There was an increase in sewer service charges of $32.6 million following a sanitary rate increase and a stormwater rate change in 2008. Total expenses ended the year down $2.3 million compared to 2008 due to offsetting balances in operating and nonoperating expenses. Total operating expenses for 2009 were reduced $12.4 million due overwhelmingly to a decrease in other operating expenses. Other operating expenses decreased by $8.4 million, mostly due to extensive watershed facility planning that took place in 2008 and was not continued in 2009. Depreciation expense was decreased by $7.5 million and general and administrative costs reduced by $1.9 million. Nonoperating expenses experienced increases in the costs of net loss on sale of utility plant, nonrecurring projects as well as interest expense totaling $10 million. There were also increases in engineering costs and collection system maintenance expenses of $7.9 million and $2.1 million, respectively. 2008 Analysis Net assets increased $87.3 million or $6.5 million more than in the prior year. While revenues increased due to the rate increases that took affect during the year, expenses grew at a faster pace. Total revenues increased $23.0 million largely due to an increase in sewer service charges of $22.8 million following a January sanitary rate increase and a March stormwater rate change. Property tax revenues increased $3.1 million following a rise in the assessed value of real estate within the District's boundaries. Licenses, permits, and other fees dropped $1.7 million as a result of a dramatic slow down in connection fees of S1.3 million. Changes in other revenue categories were less noteworthy, and they netted to a decrease of $1.2 million compared to prior year. Operating expenses increased by $35.9 million. Operating expenses increased in all areas. Other operating expenses showed the largest increase. The $7.8 million increase in other operating expenses was the result of more spending on noncapital projects paid through special appropriations. Depreciation increased over last year by $9.2 million due to the increasing value of the District's capital assets. The $3.8 million rise in water backup and overcharged system claims expenses resulted from the large amounts of rain we incurred throughout the spring. Pumping and treatment expense was also up in part due to heavy rains and flooding. The $6.7 million increase in pumping and treatment can be partially attributed to escalating personnel levels associated with new stormwater initiatives. 8 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 The Metropolitan St. Louis Sewer District Condensed Statements of Cash Flows (000s) Cash flows from operating activities Cash flows from noncapital financing activities Cash flows from capital and related financing activities Cash flows from investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and Cash Equivalents at End of Year Increase Increase (Decrease) (Decrease) 2009 2008 2009-2008 2007 2008-2007 $ 89,057 $ 50,280 $ 38,777 $ 72,214 $ (21,934) 2,129 27,512 (25,383) 24,401 3,11 (168,202) (169,917) 1,715 (68,948) (100,969; 40,070 120,352 (80,282) 61,784 58,568 (36,946) 28,227 (65,173) 89,451 (61,224) 43,403 15,176 28,227 103,089 (87,91 $ 6,457 $ 43,403 $(36,946) $ 192,540 $(149,137' 2009 Analysis The District ended the year with $6.5 million in cash and cash equivalents or $36.9 million lower than the prior year. Cash outflows from capital and related financing activities were $168.2 million or $1.7 million more than in the previous year. Cash flows from operating activities ended at a positive $89.1 million, which is a $38.8 million increase to 2008. Cash flows from investing activities dropped to a $40.1 million or a $80.3 million decrease to the previous year. This change is due in part to the District purchasing $432.6 million in investments compared to $359.1 million in proceeds from sale and maturity of investments. In 2008 the District was able to close the year with positive cash flows from investing due to only $266 million in purchases against $370.8 million from the sale and maturity of investments. The initial investment of over $70 million in bond proceeds drove this change. Cash flows from noncapital financing activities were reduced by $25.4 million in 2009 due to the District suspending the collection of various taxes. 2008 Analysis Cash and cash equivalents ended the year $149.13 million lower than the previous year. Cash outflows from capital and related financing activities were $169.9 million or $101.0 million more than in the previous year. The large decline is due to the absence of any new bond proceeds in the fiscal year. Cash flows from operating activities were a positive $50.3 million, but they were short of fiscal year 2007 numbers by $21.9 million. Offsetting these declines was a significant increase in positive cash flows from investing activities of $58.6 million over prior year, or $120.3 million. The largest driver of the positive cash flows from investments was the low reinvestment rate of maturing investments. Also positive was the change in cash flows from noncapital financing activities of $3.1 million over prior year levels, which amounts to $27.5 9 THE METROPOLITAN ST. LOUIS SEWER DIST CT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 million for fiscal year 2008. Capital Assets The Metropolitan St. Louis Sewer District Capital Assets Net of Depreciation (000s) Increase Increase (Decrease) (Decrease) 2009 2008 2009-2008 2007 2008-2007 Land $ 27,070 $ 27,070 $ - $ 26,976 $ 94 Construction in progress 476,237 333,105 143 132 249,127 83,978 Treatment and disposal plant and equipment 422,413 402,088 20,325 414,853 (12,765) Collection and pumping plant 1,370,782 1,347,861 22,921 1,297,710 50,151 General plant and equipment 21,790 16,318 5,472 16,126 192 Total $ 2,318,292 $ 2,126,442 $ 191,850 $ 2,004,792 $ 121,650 2009 Analysis Total capital assets, net of depreciation, increased $191.9 million over prior year. Construction in progress increased $143.1 million due to the large capital improvement and replacement program currently underway. Collection and pumping along with treatment and disposal increased $22.9 million and $20.3 million respectively. These increases can also be attributed to the high level of expansion and updating of the District's plant and system. Land remained unchanged in 2009, but general plant and equipment had additions of S5.5 million net of depreciation. 2008 Analysis Total capital assets, net of depreciation, increased $121.6 million over prior year. Construction in progress increased $84.0 million due to the large capital improvement and replacement program currently underway. Collection and pumping increased $50.1 million and treatment on disposal decreased $12.8 million. Small increases totaling $0.3 million in land and general plant and equipment round out the year's increase. 10 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 Long -Term Debt The Metropolitan St. Louis Sewer District Long-term Debt (000s) 2009 Increase (Decrease) 2008 2009-2008 2007 Revenue Bonds: Series 2004A $ 168,965 $ 170,485 $ (1,520) $ 171,995 Series 2004B 136,795 143,563 (6,768) 150,312 Series 2005A 5,955 6,240 (285) 6,520 Series 2006A 40,480 42,515 (2,035) 42,615 Series 2006B 13,575 14,205 (630) 14,205 Series 2006C 60,000 60,000 - 60,000 Series 2008A 30,000 30,000 SRF 2008AB 39,128 -- 39,128 West Watson and Nanell 100 130 (30) 175 Ozark and Tablerock 68 81 (13) 94 Energy Loan Program 48 58 (10) 69 Oracle/Blue Heron 4,130 4,130 $ 499,244 $ 437,277 2009 Analysis 61,967 $ 445,985 Increase (Decrease) 2008-2007 1,510) (6,749) (280) The District ended fiscal year 2009 with $499.2 million in long-term debt outstanding, consisting mainly of revenue bonds. The District had two bond additions and a capital lease this year (Series 2008A, SRF 2008AB and Oracle/Blue Heron) resulting in the substantial increase in long term debt. 2008 Analysis The District ended fiscal year 2008 with $437.3 million in long-term debt outstanding, consisting mainly of revenue bonds. The decrease of $8.7 million is a result of retirements throughout the fiscal year. Decisions Impacting the Future The District continues to implement the second phase of its multi decade wastewater capital improvement program utilizing the proceeds of $275 million bonds authorization granted by St. Louis voters in August 2008. This phase of the program includes the design and construction of $662 million of capital improvements through 2012. These regulatory required projects include completion of the Lemay Treatment Plant expansion, pump station improvements, and sewage collection system replacement and rehabilitation. The District elected to discontinue the assessment of approximately $24.4 million per year in property taxes previously used for stormwater funding. This funding has been replaced by a user fee based on the impervious area of each customer's property. A 120 fee per hundred square feet of impervious area became 11 THE METROPOLITAN ST. LOUIS SEWER DIST ' CT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 effective March 1, 2008 generating approximately $11.2 million during the District's fiscal year ending June 30, 2008. An increase in this fee to 14¢ was effective January 1, 2009. To date this fee is expected to generate a total of $36.8 million in funding for stormwater projects across the St. Louis region. The stormwater fee will remain at 14¢ until January 1, 2011 at which time an additional increase will be considered. The stormwater fee is currently in litigation. Resolution of the case is anticipated over the coming year. The District is also engaged in litigation with the U.S. Environmental Protection Agency and the Missouri Department of Natural Resources to address issues related to the Clean Water Act of 1972. See note 14 for additional information regarding this litigation. MSD is in the process of implementing new technology across the District to replace antiquated and inefficiency systems used for the past several decades. This initiative is scheduled for completion May 1, 2010. This new enterprise wide system is expected to streamline current District processes, save ratepayers money and improve response to customer issues. Requests for Information This financial report is designed to provide a general overview of the District's finances for all those with an interest in the District's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed or e -mailed to: Janice M. Zimmerman, Director of Finance The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 or jzimmer@stlmsd.com 12 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF NET ASSETS ASSETS June 30, 2009 2008 Current Assets: Cash $ 5,913,696 $ 30,731,606 Pooled cash and investments 274,316,863 280,804,458 Investments 9,661,493 39,592,453 Sewer service charges receivable, less allowance of $4,166,398 in 2009 and $3,551,593 in 2008 36,963,828 34,441,336 Unbilled sewer service charges receivable, less allowance of $423,000 in 2009 and $412,000 in 2008 20,146,052 19,733,172 Accrued income on investments 1,437,214 1,336,307 Other receivables, less allowance of $20,908 in 2009 and $61,598 in 2008 1,235,357 1,409,149 Supplies inventory 7,155,997 7,483,866 Total current assets 356,830,500 415,532,347 Noncurrent Assets: Restricted Assets: Cash 544,430 12,671,672 Pooled cash and investments 67,890,803 74,605,646 Investments 27,208,257 11,082,001 Accrued income on investments 618,013 451,844 Grants receivable -- 152,247 Other Assets: Note receivable 96,261,503 16,032,069 98,963,410 16,533,870 Capital Assets: Depreciable: Treatment and disposal plant and equipment 762,219,595 728,496,863 Collection and pumping plant 1,861,695,362 1,810,225,223 General plant and equipment 60,326,121 53,759,969 Less: Accumulated depreciation 2,684,241,078 2,592,482,055 869,255,067 826,215,131 1,814,986,011 1,766,266,924 Nondepreciable: Land 27,070,041 27,070,041 Construction in progress 476,236,001 333,105,564 Net capital assets 2,318,292,053 2,126,442,529 Total noncurrent assets 2,430,585,625 2,241,939,809 Total Assets 2,787,416,125 2,657,472,156 13 THE METROPOLITAN ST. LOUIS SEWER DIST ' CT STATEMENTS OF NET ASSETS LIABILITIES June 30, 2009 2008 Current Liabilities: Contracts and accounts payable 36,351,578 33,602,857 Deposits and accrued expenses 21,436,863 22,797,213 Retainage payable 8,278,238 8,580,936 Current portion of bonds and notes payable 15,402,057 10,508,610 81,468,736 75,489,616 Current Liabilities --Payable From Restricted Assets: Contracts and accounts payable 1,266,826 1,305,749 Retainage payable 226,107 235,291 1,492,933 1,541,040 Total current liabilities 82,961,669 77,030,656 Noncurrent Liabilities: Deposits and accrued expenses 4,659,607 5,201,546 Bonds and notes payable 486,482,071 430,742,624 Total Liabilities NET ASSETS 491,141,678 435,944,170 574,103,347 512,974,826 Net Assets: Invested in capital assets, net of related debt 1,852,182,143 1,722,856,756 Restricted for: Debt service 33,971,107 30,146,084 Subdistrict construction and improvement 60,797,463 67,276,286 Unrestricted 266,362,065 324,218,204 Total Net Assets $2,213,312,778 $2,144,497,330 14 THE METROPOLITAN ST. LOUIS SEWER DIST CT STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS Years Ended June 30, 2009 2008 Operating Revenues: Sewer service charges $ 254,378,459 $ 221,780,399 Recovery of (provision for) doubtful sewer service charge accounts (9,678,495) (5,161,982) Licenses, permits, and other fees 3,475,283 4,345,961 Other 1,550,111 960,670 Total operating revenues 249,725,358 221,925,048 Operating Expenses: Pumping and treatment 44,746,325 44,531,011 Collection system maintenance 32,917,464 30,807,310 Engineering 13,735,952 9,973,104 General and administrative 37,921,976 39,826,102 Water backup claims 6,816,722 7,439,436 Depreciation 47,370,379 54,933,859 Other 23,833,810 32,212,235 Total operating expenses 207,342,628 219,723,057 Operating Income 42,382,730 2,201,991 Nonoperating Revenues: Property taxes levied by the District 2,129,475 27,512,070 Investment income 13,115,519 17,476,621 Rent and other income 214,674 529,983 Total nonoperating revenues 15,459,668 45,518,674 Nonoperating Expenses: Net loss on disposal and sale of capital assets 2,162,189 686,459 Nonrecurring projects and studies 4,778,877 1,016,891 Interest expense 9,079,269 4,313,973 Total nonoperating expenses 16,020,335 6,017,323 Income before Capital Contributions 41,822,063 41,703,342 Capital Contributions: Utility plant contributed 26,302,897 44,866,870 Grant revenue 690,488 742,935 Total capital contributions 26,993,385 45,609,805 Change in Net Assets Net Assets -Beginning of Year Net Assets -End of Year 68,815,448 87,313,147 2,144,497,330 2,057,184,183 $2,213,312,778 $2,144,497,330 15 THE METROPOLITAN ST. LOUIS SEWER DIST CT STATEMENTS OF CASH FLOWS Years Ended June 30, 2009 2008 Cash flows from operating activities: Received from customers $246,543,742 $211,084,856 Paid to employees for services (70,669,904) (71,285,404) Paid to suppliers for goods and services (86,816,441) (89,519,594) Net cash provided by operating activities 89,057,397 50,279,858 Cash flows provided by noncapital financing activities: Taxes levied 2,129,476 27,512,070 Cash flows from capital and related financing activities: Proceeds from capital grants 842,734 693,263 Proceeds from issuance of debt 77,982,515 155,000 Interest received on bond proceeds to be used for capital improvements 1,673,210 6,718,124 Principal paid on debt (17,163,509) (8,863,431) Interest and fees paid on debt (17,542,583) (17,701,918) Payments for capital assets (214,150,674) (153,376,548) Proceeds from sale of capital assets 156,023 2,454,158 Miscellaneous income -- 4,371 Net cash used in capital and related financing activities (168,202,284) (169,916,981) Cash flows from investing activities: Purchase of investments (329,356,041) (266,027,512) Proceeds from sale and maturity of investments 359,071,774 370,802,423 Investment income 10,139,852 14,802,753 Proceeds from rents 214,674 774,383 Net cash (used) provided by investing activities 40,070,259 120,352,047 Net Increase (Decrease) in Cash and Cash Equivalents Cash at Beginning of Year Cash at End of Year Noncash capital and investing activities: Portion of utility plant contributed represented by: Utility plant contributed by other governments and developers Note receivable Other receivable Fair value investment adjustment gain (loss) (36,945,152) 43,403,278 $ 6,458,126 $ 26,302,897 28,226,994 15,176,284 $ 43,403,278 $ 44,866,870 (16,721,443) (842,162) $ 26,302,897 $ 27,303,265 $ (89,291) $ 279,444 16 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF CASH FLOWS Years Ended June 30, 2009 2008 Reconciliation of operating income to net cash flows provided by operating activities: Operating income $ 42,382,730 $ 2,201,991 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 47,370,379 54,933,859 Change in operating assets and liabilities: (Increase) decrease in billed and unbilled sewer service charges receivable (2,935,372) (11,544,532) (Increase) decrease in other receivables 173,792 666,452 (Increase) decrease in supplies inventory 327,869 (46,177) Increase (decrease) in contracts and accounts payable 2,748,721 597,286 Increase (decrease) in deposits and accrued expenses (1,010,722) 3,470,979 Net Cash Provided by Operating Activities $ 89,057,397 $ 50,279,858 17 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 Organization and Summary of Significant Accounting Policies Organization The Metropolitan St. Louis Sewer District (the District) was authorized by the voters, established and chartered under the provisions of the Constitution of Missouri, as a municipal corporation and a political subdivision of the State. Upon creation in 1954, the District assumed responsibilities to provide for the construction, operation, and maintenance of the sewer facilities within its defined boundaries. The District's service area now comprises all of the City of St. Louis and most of St. Louis County. Subdistricts within the District's total service area represent separate geographic areas within which specific taxes are levied for the retirement of indebtedness issued to finance construction of sanitary or stormwater facilities within the area or to, operate, maintain, or construct improvements within the subdistrict. The District also maintains all of the publicly owned stormwater sewers within its original boundaries and is continuing to accept maintenance of the stormwater sewers in the remainder of its service area. Pursuant to provisions of its charter and subject to limitations imposed by the Constitution of Missouri, all powers of the District are vested in a six -member Board of Trustees (the Board), three of whom are appointed by the Mayor of the City of St. Louis and three of whom are appointed by the County Executive of St. Louis County. Reporting Entity The District defines its financial reporting entity to include all component units for which the District's governing body is financially accountable. To be considered financially accountable, the organization must be fiscally dependent on the District and the District must either 1) be able to impose its will on the organization or 2) the relationship must have the potential for creating a financial benefit or imposing a financial burden on the District. Based on the foregoing, the District's financial statements include all funds that are established under the authority of the District's charter. There are no agencies, boards, commissions, or authorities that are controlled by or dependent on the District. Measurement Focus, Basis of Accounting, and Financial Statement Presentation Throughout the year, the District maintains its detailed accounting records on the modified accrual basis of accounting. In order to account for the transactions related to certain subdistricts and restricted resources, separate fund accounting records are maintained. For financial reporting purposes, the District reports its operations as a single enterprise fund. Accordingly, the accounting records are converted to the accrual basis of accounting and all interfund transactions are eliminated. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the related liability is incurred. The District's measurement focus is on the flow of economic resources. Unbilled sewer service charge revenues are accrued by the District based on estimated billings for services provided through the end of the current fiscal year. 18 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 1. Organization and Summary of Significant Accounting Policies (Continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Revenues and expenses are divided into operating and nonoperating items. Operating revenues generally result from providing services in connection with the District's principal ongoing operations. The principal operating revenues of the District are user fees, licenses, and permits for wastewater treatment services. Operating expenses include the costs associated with the conveyance and treatment of wastewater, stoiniwater, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. The District follows GASB Statement No. 33, Accounting and Financial Reporting for Non -Exchange Transactions (GASB 33), which establishes accounting and financial reporting standards for non - exchange transactions involving financial or capital resources. GASB 33 groups non -exchange transactions into the following four classes, based upon their principal characteristics: derived tax revenues, imposed non -exchange revenues, government mandated non - exchange transactions, and voluntary non -exchange transactions. The District recognizes assets from imposed non -exchange revenue transactions in the period when an enforceable legal claim to the assets arises or when the resources are received, whichever occurs first. Revenues are recognized in the period when the resources are required to be used or the first period that use is permitted. The District recognizes revenues from property taxes, net of estimated refunds and estimated uncollectible amounts, in the period for which the taxes are levied. Imposed non -exchange revenues also include licenses, permits, and other fees. Intergovernmental revenues, representing grants and assistance received from other governmental units, are generally recognized as revenues in the period when all eligibility requirements, as defined by GASB 33, have been met. Any resources received before eligibility requirements are met are reported as deferred revenues. When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, and then unrestricted resources as they are needed. The District follows all Governmental Accounting Standards Board (GASB) pronouncements as well as all Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principle Board Opinions, and Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. In addition, the District also applies all FASB Statements and Interpretations issued after November 30, 1989, except for those that conflict with or contradict GASB pronouncements. 19 THE METROPOLITAN ST. LOUIS SEWER DIST ' CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 1. Organization and Summary of Significant Accounting Policies (Continued) Cash and Cash Equivalents and Investments The District's "cash and cash equivalents" consist of all highly liquid investments (including restricted assets) with maturity dates of 89 days or less from the date acquired by the District. "Investments" consist of those investments with maturity dates 90 days or greater at the time of purchase by the District. Investments are stated at fair value based upon quoted market prices. The District's investment disclosures follow GASB Statement No. 40, Deposit and Investment Risk Disclosures, an Amendment of GASB Statement No. 3 (GASB 40). This standard's disclosure requirements address custodial credit risk, concentrations of credit risk, interest rate risk, and foreign currency risk. Capital Assets Capital assets are valued at historical cost or estimated historical cost based in part upon a study performed in 1981. Interest cost is capitalized as part of the historical cost of acquiring certain assets when the effect of such capitalization is material to the financial statements. Interest is not capitalized on assets constructed with contributions from other governmental sources. Depreciation is calculated on a straight-line basis over the following estimated useful lives: Treatment and disposal plant and equipment 10 to 50 years Collection and pumping plant 10 to 100 years General plant and equipment 3 to 50 years When designing user charge rates, the District includes funding for replacement cost of assets, which may differ from depreciation expense recorded for financial reporting purposes. Normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Betterments are capitalized and depreciated over the remaining useful lives of the related assets, as applicable. The District defines capital assets as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of three years. Capitalization of Interest Interest costs are capitalized as part of the costs of capital assets during the period of construction based on the related weighted average net borrowing costs incurred. Interest earned on temporary investments acquired with the proceeds of such borrowed funds from the date of the borrowing until the assets are ready for their intended use is used to reduce the interest costs capitalized on the constructed assets. Interest is not capitalized for outlays financed by capital grants (or other outside parties) externally restricted for the acquisition of specified assets. In 2009 and 2008, the District capitalized $6,776,034 and $6,638,985 of net interest expense, respectively. 20 THE METROPOLITAN ST. LOUIS SEWER DIST ''_ CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 1. Organization and Summary of Significant Accounting Policies (Continued) Supplies Inventory Supplies inventory consists of parts and supplies to be used to operate and maintain treatment facilities and various treatment -related equipment at the District. This inventory is stated at the lower of cost or market, determined on the average cost method. Expenses are recognized when the inventory is consumed. Net Assets Invested in capital assets, net of related debt: This component of net assets consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding debt that is attributable to the acquisition, construction, or improvement of those assets. Restricted: This component of net assets consists of constraints placed on net asset use through external constraints imposed by creditors, grantors, contributors, laws, or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Property taxes levied by the various subdistricts and other revenues received for construction in those subdistricts have also been restricted for that use. Clean water capital improvement surcharges, sewer extension and connection fees, grants, and other revenues received for construction within certain subdistricts have been restricted for that use. In addition, a portion of sanitary sewer charges have been restricted for the payment of principal and interest on certain debt of the District. Unrestricted net assets: This component of net assets consists of net assets that do not meet the definition of restricted or invested in capital assets, net of related debt. Capital Contributions Capital contributions to the District represent government grants and other aid used to fund capital projects. In accordance with GASB 33, capital contributions are recognized as revenue when the expenditure is made and the amount becomes subject to claim for reimbursement. Bond Issuance Costs/Bond Premiums and Discounts Bond issuance costs incurred, as well as bond premiums and discounts, and paid from the proceeds of revenue bond issues are deferred and amortized using the straight-line method over the term of the bonds. Compensated Absences Vacation - Under the terms of the District's personnel policies, employees are allowed to carry a maximum of 30 to 45 days of vacation (depending on length of service) from one calendar year to the next. Since vacation accrued at year-end is expected to be used by the employee during the following fiscal year, the accrual is reported as a component of current deposits and accrued expenses payable. 21 THE METROPOLITAN ST. LOUIS SEWER DIST ' CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 1. Organization and Summary of Significant Accounting Policies (Continued) Sick Leave - Employees earn sick pay benefits at accrual rates ranging from 10 days per year to 12 days per year (depending on length of service). Unused sick leave can be carried over at year-end without limitation. An employee retiring from the District with five or more years of service, who has unused accrued sick leave remaining, will be compensated for that portion of unused accrued sick leave at the rate of 1-1/4% for each year of District service. The District has recorded a liability, which has been actuarially determined to be equal to the accumulated expense charge that will amortize the employees' benefits over their period of District service. The liability, included in current deposits and accrued expenses payable, includes vested accumulated rights to receive sick leave benefits estimated to be paid within one year. The portion of sick leave expected to be paid after one year is recorded as a component of noncurrent deposits and accrued expenses payable. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. Board Designated Funds The Board has designated certain amounts for construction and improvement of the sewerage and drainage collection systems and treatment facilities, and for real property improvement and alterations. These amounts are included with unrestricted cash and investments. At June 30, 2009 and 2008, designated funds were $266,680,363 and S336,034,162, respectively. Reclassifications Certain reclassifications have been made to the June 30, 2008 amounts in order to confoiiii to the presentation of the June 30, 2009 financial statements. 2. Deposits and Investments With the approval of the District's Board of Trustees, the Secretary -Treasurer is authorized to invest excess cash in any investment authorized by the District's charter. The District's investment policy conforms to the investment policy guidelines for the State of Missouri. The District's investment policy authorizes the District to invest in the following instruments: U.S. Treasury notes, certificates of deposit, obligations of any agency or instrumentality of the U.S., repurchase agreements, banker's acceptances, and commercial paper rated in the three highest classifications, for terms specified in the policy. At June 30, 2009 and 2008, all of the District's investments were in compliance with the District's investment policy and charter. 22 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 2. Deposits and Investments (Continued) In accordance with the District's investment policy, the District also invests in mortgage -backed securities such as collateralized mortgage obligations. These securities are reported at fair value and are based on the cash flows from interest payments by the underlying mortgages. As a result, they are sensitive to prepayments by mortgagees, which may result from a decline in interest rates. For example, if interest rates decline and homeowners refinance mortgages, thereby prepaying the mortgages underlying these securities, the cash flow from interest payments is reduced and the value of these securities declines. Likewise, if homeowners pay on mortgages longer than anticipated, the cash flows are greater and the return on the initial investment would be higher than anticipated. A summary of deposits and investments as of June 30, 2009 and 2008, is as follows: 2009 2008 Deposits Repurchase agreements (collateralized U.S. Treasury and Agency obligations Commercial paper Bankers acceptance notes Interest Rate Risk Cost Fair Value Cost Fair Value $ 55,884,662 $ 55,884,662 $ 86,352,542 $ 86,352,542 1,662,000 1,662,000 18,148,622 18,148,622 271,258,321 273,727,585 215,735,890 216,407,597 54,226,147 54,261,295 111,835,020 112,167,778 16,366,512 16,411,297 $383,031,130 $385,535,542 $448,438,586 $449,487,836 As of June 30, 2009 and 2008, the District had the following investments and maturities: Investment Type Repurchase agreements (collateralized) Certificates of deposit U.S. Treasuries U.S. Agencies Commercial paper Bankers acceptance notes Total 2009 Fair Value $ 1,662,000 12,200,000 46,874,765 226,852,820 54,261,295 $341,850,880 Weighted Average Maturity (Years) 0.00 0.75 1.13 2.10 0.14 2008 Fair Value $ 18,148,622 7,300,000 24,673,030 191,734,567 112,167,778 16,411,297 Weighted Average Maturity (Years) 0.00 0.64 0.40 2.08 0.09 0.08 1.60 $370,435,294 1.20 In accordance with the District's investment policy, the District will minimize the risk that the fair value of debt securities in the portfolio will fall due to increases in general interest rates by: 23 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 2. Deposits and Investments (Continued) Interest Rate Risk (Continued) 1. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. 2. Investing operating funds primarily in short-term securities. 3. State law limits the maximum stated maturities to five years on any investment from the date of purchase. Custodial/Credit Risk The District will minimize credit risk, the risk of loss due to failure of the security issuer or backer, by: 1. Prequalifying the financial institutions, broker/dealers, intermediaries, and advisors with which the District will do business; and 2. Diversifying the portfolio so that potential losses on individual securities will be minimized. In accordance with its investment policy, the District limits its investments in these investment types to the top rating issued by NRSROs. As of June 30, 2009, the District's investments in commercial paper were rated Al by Standard & Poor's and P-1 by Moody's Investors Service. The District's investments in repurchase agreements carry the explicit guarantee of the U.S. Government. The District's investments in U.S. agencies that do not carry the explicit guarantee of the U.S. government all carry a rating assigned by Standard & Poor's of "AAA". All cash deposits of the District were fully collateralized with securities held by a third party financial institution in the District's name. Concentration of Credit Risk The District places no limit on the amount the District may invest in any one issuer with respect to U.S. Treasury Securities and collateralized time and demand deposits. U.S. Government agencies and government -sponsored enterprises are limited to 60% of the portfolio; and collateralized repurchase agree- ments are limited to 50% of the portfolio. U.S. Government agency callable securities, commercial paper, and bankers' acceptances are limited to 30% of the portfolio, each. The following table lists investments in issuers that represent 5% or more of total investments at June 30, 2009 and 2008: Percent of Total Investments Issuer Federal Home Loan Bank Federal National Mortgage Association Federal Home Loan Mortgage Corporation 2009 2008 15.7% 21.5 18.5 19.0% 10.9 10.3 24 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 3. Note Receivable The District has a note receivable with the City of Arnold, Missouri for its portion of the capital costs related to a wastewater facility. The City also pays reasonable fees for operation and maintenance costs. The note receivable will be paid over 30 years. At June 30, 2009, future payments are as follows: For the Years Ending June 30 2010 $ 1,100,500 2011 1,100,500 2012 1,100,500 2013 1,100,500 2014 1,100,500 2015 - 2019 5,502,500 2020 2024 5,502,500 2025 - 2029 5,502,500 2030 - 2032 4,306,869 Less: Amount representing interest 26,316,869 9,897,260 $16,419,609 Classification in statement of net assets: Current $ 387,540 Long-teiui 16,032,069 $16,419,609 25 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 4. Change in Capital Assets The following is a summary of capital assets changes for the fiscal years ended June 30, 2009 and 2008: For the Year Ended June 30, 2009 Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total capital assets being depreciated Less: Accumulated depreciation: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total accumulated depreciation Total capital assets being depreciated, net Total Capital Assets Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total capital assets being depreciated Less: Accumulated depreciation: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total accumulated depreciation Total capital assets being depreciated, net Total Capital Assets Balance June 30, 2008 $ 27,070,041 333,105,564 360,175,605 728,496,863 1,810,225,223 53,759,969 2,592,482,055 (326,409,264) (462,363,787) (37,442,080) (826,215,131) 1,766,266,924 $2,126,442,529 Additions 206,236,366 206,236.366 63,105,929 Deletions Balance June 30, 2009 $ -- $ 27,070,041 63,105,929 476,236,001 35,254,503 54,361,302 8,791,873 98,407,678 1,531,771 2,891,163 2,225,721 6,648,655 2,684,241,078 503,306,042 762,219,595 1,861,695,362 60,326,121 (14,274,098) (877,186) (29,794,996) (1,245,433) (3,301.285) (2,207,824) (47,370,379) (4,330,443) 51,037,299 2,318,212 (339,806,176) (490,913,350) (38,535,541) (869.255,067) 1,814,986,011 $257,273,665 $65,424,141 $2,318,292,053 For the Year Ended June 30, 2008 Balance June 30, 2007 Additions $ 26,976,107 249,126,873 276,102,980 722,541,939 1,730,404,446 54,502,189 2,507,448,574 (307,688,932) (432,693,938) (38,376,174) (778,759,044) (54.933,858) (7,477,771) (826,215,131) $ 340,734 148,772,276 149,113,010 11,718,894 79, 872,197 3,813,979 95,405,070 Balance Deletions June 30, 2008 $ 246,800 64,793,585 $ 27,070,041 333,105,564 65,040,385 360,175,605 5,763,970 51,420 4,556,199 728,496,863 1,810,225,223 53,759,969 10,371,589 2,592,482,055 (22,169,675) (3,449,343) (326,409,264) (29,721,609) (51,760) (462,363,787) (3,042,574) (3,976,668) (37,442,080) 1,728,689,530 $2,004,792,510 40,471,212 2,893,818 1,766,266,924 $189,584,222 $67,934,203 $2,126,442,529 26 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 5. Property Tax On or before May 1 of each year, the District levies ad valorem taxes on all taxable tangible property, real and personal, within its boundaries based on assessed valuations established by the City of St. Louis and St. Louis County assessors. Tax rates vary by subdistrict and purpose. Taxes levied are used for operations and stormwater maintenance, debt service, and construction. Taxes are recorded as nonoperating revenues. Property tax bills are mailed in October. They become delinquent and represent a lien on the related property if not paid by December 31. All property taxes are billed and collected by the City of St. Louis and St. Louis County Collectors of Revenue and are distributed to the District monthly. On June 12, 2008, pursuant to Ordinance 12661, the District set the property tax rate at zero and began charging a stormwater service charge on March 1, 2008 based on the property's impervious area. 6. Short-term Debt In August 2008, the District issued Tax and Revenue Anticipation Notes, Series 2008A, in the amount of $5,000,000. This debt was issued for financing of the construction of a storage facility and to undertake storm water projects within the District. On October 21, 2008, the District repaid the note plus $29,580 in interest at a rate of 2.2%. The following is a summary of changes in short-term debt for the year ended June 30, 2009: Balance Balance June 30, June 30, 2008 Additions Deletions 2009 Tax revenue anticipation note $ -- $ 5,000,000 $ 5,000,000 27 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities The following is a summary of changes in the District's long-term liabilities for the year ended June 30, 2009: Original Issuance Amounts Bonds and notes payable: Senior revenue bonds: Balance Balance June 30, June 30, 2008 Additions Retirements 2009 Series 2004A $175,000,000 $170,485,000 $ Series 2006C 60,000,000 60,000,000 Series 2008A 30,000,000 - 30,000,000 Subordinate revenue bonds: Series 2004B 161,280,000 143,562,500 Series 2005A 6,800,000 6,240,000 Series 2006A 42,715,000 42,515,000 Series 2006B 14,205,000 14,205,000 Series 2008A/B 40,000,000 Missouri Department of Natural Resources: West Watson and Nanell 535,600 129,661 Oracle/Blue Heron 12,000,000 -- Ozark and Table Rock 374,680 81,170 Energy Loan Program 98,595 58,468 Add: Unamortized premium, net Less: Bond issue costs, net Deposits and accrued expenses: Landfill closure and postclosure costs Compensated absences Net OPEB obligation $ 1,520,000 6,767,500 285,000 2,035,000 -- 630,000 40,000,000 872,500 4,130,000 29,781 13,000 10,728 Current Portion $168,965,000 $ 1,595,000 60,000,000 30,000,000 136,795,000 5,955,000 40,480,000 13,575,000 39,127,500 99,880 4,130,000 68,170 47,740 6,099,166 265,833 1,888,333 586,668 1,752,500 40,833 3,149,455 13,200 11,069 $543,008,875 $437,276,799 $74,130,000 $12,163,509 499,243,290 $15,402,057 571,983 $ 50,382 $ 5,203,328 825,984 466,900 547,800 9,700,133 (7,059,295) $501,884,128 $ 622,365 $ 204,803 5,824,509 2,801,967 1,014,700 $ 6,242,211 $ 1,424,166 $ 204,803 $ 7,461,574 $ 2,801,967 28 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities (Continued) Wastewater System Revenue Bonds Payable In August 2008, the District received voter authorization to an additional $275,000,000 of revenue bonds. In November 2008, the District issued $30,000,000 of Wastewater System Revenue Bonds Series 2008A (Series 2008A) from the authorization for the purpose of providing funds to finance the capital improvements and replacement program. These senior bonds have interest rates ranging from 5.1% to 5.3% and are payable in semiannual installments at varying amounts through 2035. The revenue bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. In November 2006, the District authorized and issued $60,000,000 of Wastewater System Revenue Bonds Series 2006C (Series 2006C) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. These senior bonds have interest rates ranging from 4.125% to 5% and are payable in semiannual installments at varying amounts through 2036. The revenue bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. In May 2004, the District authorized and issued $175,000,000 of Wastewater System Revenue Bonds Series 2004A (Series 2004A) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. These senior bonds have interest rates ranging from 2% to 5% and are payable in semiannual installments at varying amounts through 2034. The revenue bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the revenue bonds does not obligate the District to levy any foiiii of taxation therefore or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The scheduled payment of the principal of and interest on the Series 2006C and 2004A Bonds are guaranteed under a financial guaranty insurance policy. Water Pollution Control and Drinking Water Revenue Bonds Payable In October 2008, the State Environmental Improvement and Energy Resources Authority (the Authority) authorized and issued $69,435,000 of Water Pollution Control and Drinking Water Revenue Bonds (State Revolving Funds Programs) Series 2008A (Series 2008A). The Series 2008A bonds provided funds to make loans to 14 Missouri political subdivisions that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2008A/B bonds issued by the Authority were used to purchase subordinate Participant Revenue Bonds (Participant Bonds) authorized and issued by the District in the aggregate principal amount of $40,000,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 4% to 5.7% and are payable in semiannual installments at varying amounts through 2029. 29 THE METROPOLITAN ST. LOUIS SEWER DIST ' CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities (Continued) Water Pollution Control and Drinking Water Revenue Bonds Payable (Continued) In November 2006, the State Environmental Improvement and Energy Resources Authority (the Authority) authorized and issued S22,105,000 of Water Pollution Control and Drinking Water Revenue Bonds (State Revolving Funds Programs) Series 2006B (Series 2006B). The Series 2006B bonds provided funds to make loans to 7 Missouri political subdivisions that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2006B bonds issued by the Authority were used to purchase subordinate Participant Revenue Bonds (Participant Bonds) authorized and issued by the District in the aggregate principal amount of $14,205,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 4% to 5% and are payable in semiannual installments at varying amounts through 2030. In May 2006, the Authority authorized and issued $87,505,000 of State Revolving Funds Programs Series 2006A (Series 2006A). The Series 2006A bonds provided funds to make loans to 13 Missouri political subdivisions that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2006A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of 542,715,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 3.5% to 4.5% and are payable in semiannual installments at varying amounts through 2025. In May 2005, the Authority authorized and issued $53,060,000 of State Revolving Funds Programs Series 2005A (Series 2005A). The Series 2005A bonds provided funds to make loans to 10 Missouri political subdivisions and one Missouri nonprofit corporation that will be used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2005A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $6,800,000, the proceeds of which will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 3% to 5% and are payable in semiannual installments at varying amounts through 2026. In May 2004, the Authority authorized and issued $179,780,000 of State Revolving Funds Programs Series 2004B (Series 2004B). The Series 2004B bonds provided funds to make loans to 7 Missouri political subdivisions that will be used to finance water pollution control projects. A portion of the proceeds of the Series 2004B bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $161,280,000, the proceeds of which will be used to finance the District's three water pollution control construction projects outlined in the agreement. The District's Participant Bonds have interest rates ranging from 2% to 5.25% and are payable in semiannual installments at varying amounts through 2027. 30 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities (Continued) Water Pollution Control and Drinking Water Revenue Bonds Payable (continued) The Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Series 2004B, 2005A, 2006A, and 2006B bonds does not obligate the District to levy any form of taxation therefore or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. In connection with the District's issuance of the Participant Bonds, which were purchased with the proceeds of the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds issued by the Authority, the District participates in the State Revolving Loan Program established by the Missouri Department of Natural Resources (DNR). Monies from federal capitalization grants and state matching funds are used to fund a reserve account for each participant. As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits in a bond reserve fund in the District's name an additional 60% of the expenditure amount for the Series 2004B bonds or 70% for the Series 2005A, 2006A, 2006B bonds or 100% for the Series 2008A/B bonds. Interest earned from this reserve fund can be used by the District to fund interest payments on the bonds. On the date of each payment of the principal amount of the District's Participant Bonds, the trustee transfers from this reserve account to the master trustee an amount equal to 60% of the principal payment for the Series 2004B bonds or 70% for the Series 2005A, 2006A, 2006B bonds or 100% for the series 2008A/B bonds. The costs of operation and maintenance of the wastewater treatment and sewerage facilities and the debt service is payable from wastewater revenues. In accordance with the Series 2008 A/B, 2006A, 2006B, 2005A, 2004A, and 2004B bond issuances, the District's annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 125% of the current portion of principal and interest due on all senior bonds and at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2009 and 2008, the District was in compliance with this covenant. 31 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities (Continued) Principal and Interest Requirements on Revenue Bonds Payable The annual principal and interest requirements to maturity on revenue bonds payable outstanding as of June 30, 2009 are as follows: Wastewater System Revenue Bonds Payable/ Water Pollution Control and Drinking Water Revenue Bonds Payable Years ending June 30, Principal Interest Total 2010 $ 11,600,833 $ 23,350,044 $ 34,950,877 2011 13,617,500 23,802,149 37,419,649 2012 13,907,500 23,200,010 37,107,510 2013 14,235,833 22,597,671 36,833,504 2014 14,746,667 21,978,456 36,725,123 2015-2019 82,810,833 99,053,450 181,864,283 2020-2024 101,051,667 76,891,871 177,943,538 2025-2029 97,095,000 50,740,081 147,835,081 2030-2034 110,135,000 26,503,748 136,638,748 2035-2039 35,696,667 3,951 640 39,648,307 Total $494,897,500 $372,069,120 $866,966,620 West Watson and Nanell Loan Agreement During fiscal year 2005, the DNR loaned $535,600 to the District. The West Watson and Nanell Loan bears interest at a rate of 1.5% and is payable through November 1, 2014. The purpose of this note is to finance the planning, acquisition, construction, improvement, repair, rehabilitation, and extension of the sewer system of a certain regional subdistrict. This note is classified as special assessment debt by the District; therefore, the principal and interest on this note will be repaid from additional tax assessments on property values within the subdistrict. The additional assessment to be paid by the property owners is 54.78 cents per square foot over the next five years, with interest accruing at a rate of 2.5% per annum. Ozark and Table Rock Loan Agreement During fiscal year 2004, the DNR loaned $374,680 to the District. The Ozark and Table Rock Loan bears interest at a rate of 1.5% and is payable through November 1, 2013. The purpose of this note is to finance the planning, acquisition, construction, improvement, repair, rehabilitation, and extension of the sewer system of a certain regional subdistrict. This note is classified as special assessment debt by the District; therefore, the principal and interest on this note will be repaid from additional tax assessments on property values within the subdistrict. The additional assessment to be paid by the property owners is 61.2 cents per square foot over the next four years, with interest accruing at a rate of 2.5% per annum. 32 THE METROPOLITAN ST. LOUIS SEWER DIST ' CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities (Continued) Principal and Interest Requirements on Ozark and Table Rock and West Watson and Nanell Loan Agreements The annual principal and interest requirements to maturity on the Ozark and Table Rock Loan Agreement and the West Watson and Nanell Loan Agreement outstanding as of June 30, 2009 are as follows: Special Assessment Loan Agreements Years ending June 30, Principal Interest Total 2010 $ 54,033 $2,303 $ 56,336 2011 29,500 1,864 31,364 2012 30,000 1,418 31,418 2013 30,600 964 31,564 2014 23,917 499 24,416 Total $168,050 $7,048 $175,098 Energy Efficiency Leveraged Note Payable In April 2004, the DNR loaned S98,595 to the District. The Energy Efficiency Leveraged Note Payable bears interest at a rate of 3.15% per annum and is payable through August 1, 2013. The purpose of this note is to finance the design, acquisition, installation, and implementation of energy conservation measures. The principal and interest on this note will be repaid from wastewater revenues. Principal and Interest on Energy Efficiency Leveraged Note Payable The annual principal and interest requirements to maturity on the Energy Efficiency Leveraged Note Payable outstanding as of June 30, 2009 are as follows: Energy Efficiency Leveraged Note Payable Years ending June 30, Principal Interest Total 2010 $ 11,069 $ 1,417 $ 12,486 2011 11,420 1,066 12,486 2012 11,783 703 12,486 2013 12,156 329 12,485 2014 1,312 21 1,333 Total $ 47,740 $ 3,536 $ 51,276 33 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities (Continued) Master Equipment Lease / Purchase Agreement In June 2009, the District entered into a lease purchase agreement in which the District will receive proceeds in the total amount of $12,000,000 in monthly installments over the next nineteen months. These proceeds will be used to lease technology related to the District's upgrade to a new enterprise system. The lease bears interest at a rate of 3.2% and is payable through June 19, 2013 at which time the District has the option to purchase the leased equipment. Master Equipment Lease / Purchase Agreement Years ending June 30, Principal Interest Total 2010 $ 3,149,455 $ 172,949 $ 3,322,404 2011 2,927,513 221,942 3,149,455 2012 2,999,842 149,613 3,149,455 2013 2,923,190 53,315 2,976,505 Total $ 12,000,000 $ 597,819 $ 12,597,819 Restricted Cash and Investments The following trustee held accounts have been established in accordance with bond ordinances and financing agreements that require receipts generated from operations be segregated and certain reserve accounts be established: Revenue Fund The Revenue Fund will be used for the purpose of depositing wastewater operating revenues, providing funds to pay for expenses related to the operation and maintenance of the District, and fulfilling Sinking Fund requirements in accordance with the bond ordinances. Sinking/Repayment Funds The bond ordinances provide for deposits to and the use of monies in the Sinking Fund to be used for the sole purpose of principal and interest payments on the bonds. Sufficient monies shall be paid in periodic installments from the Revenue Funds. Debt Service Fund The Debt Service Fund shall be used by the Trustee for the sole purpose of paying the principal of and interest on the bonds, as and when the same become due. 34 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 7. Long -Term Liabilities (Continued) Restricted Cash and Investments (Continued) Debt. Service Reserve Fund After initial deposit of the amount required pursuant to the bond ordinances and financing agreements of the Series 2004A, 2006C and 2008A bonds, monies in the Debt Service Reserve Fund shall be disbursed and expensed by the District solely for the payment of the principal and interest on the bonds and notes to the extent of any deficiency in the Debt Service Fund for such purpose. The District may disburse and expend monies from the Debt Service Reserve Fund for such purpose immediately. At June 30, 2009 and 2008, cash and investments in the Debt Service Reserve Fund totaled $27,752,687 and $23,753,674, respectively. Special Participant Bond Reserve Account For the Series 2004B, 2005A, 2006A, 2006B and 2008A/B bonds, the District shall deposit into the Special Participant Bond Reserve Account amounts in accordance with the bond ordinance, if any, which shall be disbursed and expensed by the District solely for the payment of the principal and interest on the Participant Bonds to the extent of any deficiency in the Repayment Fund for such purpose. At June 30, 2009 and 2008, cash and investments in the Special Participant Bond Reserve Account held on behalf of the District totaled $2,093,239 and $117,534,716, respectively. Monies in this account are not considered to be District funds. However, interest earnings on this account may be used by the District to reduce interest payments on the bonds outstanding. Renewal and Extension Fund All sums accumulated and retained in the Renewal and Extension Fund shall be first used to prevent default in the payment of interest on or principal of the bonds when due and shall then be applied by the District from time to time, as and when the District shall determine, for purposes pursuant to the trust indenture. No monies have been deposited into this account at June 30, 2009 and 2008. Project Funds The Project Funds for all bond issuances outstanding will be used for the purpose of providing monies to pay project costs. The proceeds from the bonds and notes, after a deposit into the Debt Service Reserve Fund for the amounts required pursuant to the bond ordinances and note agreements of just the Series 2004A, 2006C and 2008A bonds, shall be deposited into the Project Fund. At June 30, 2009 and 2008, cash and investments in the Project Funds totaled $8,201,897 and $28,503,635, respectively. 35 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 Long -Term Liabilities (Continued) Restricted Cash and Investments (Continued) Rebate Funds The bond ordinances provide for the creation of a Rebate Fund into which shall be deposited such amounts as are required to be deposited therein pursuant to the arbitrage instructions regarding the calculation and payment of rebate amounts due. The District does not have any rights in or claims to such money; provided, however, any funds remaining in the Rebate Fund after redemption and payment of all bonds and payment of any rebatable arbitrage amount, or provision having been made therefore, shall be remitted to the District. At June 30, 2009 and 2008, cash and investments in the Rebate Funds totaled $571,477 and $2,210,557, respectively. Administrative Fee Funds The Administrative Fee Funds will be used for the payment of the Trustee's fees and other administrative fees pursuant to the note agreement. The Trustee shall immediately withdraw the fee amounts when due. Monies held in this account shall not be invested. Fair Value of Financial Instruments The value of the District's long-term debt is estimated based on the current rates offered to the District for debt of the same remaining maturities. The carrying amount and estimated fair value of the District's long-teiin debt as of June 30, 2009 were $501,884,128 and $526,658,421, respectively. The carrying amount and estimated fair value of the District's long-term debt as of June 30, 2008 were $441,251,234 and $447,684,965, respectively. 8. Defined Benefit Pension Plan Plan Description The Metropolitan St. Louis Sewer District Employees' Pension Plan (the Plan) is a noncontributory single employer defined benefit plan providing retirement benefits as well as death and disability benefits to members. As a condition of employment, all full-time employees of the District are covered by the Plan. The financial statements for the Plan are produced using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the related liability is incurred. The Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. 36 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 8 Defined Benefit Pension Plan (Continued) Plan Description (Continued) The Plan, established on November 1, 1967, is amended from time to time by the District's Board of Trustees, primarily to improve benefits to members. A Pension Committee consisting of two members of the District's Board of Trustees, two elected employee members, and four members of the District's management staff administer the Plan. A committee of the District's Board of Trustees, with the aid of an investment advisor, reviews and evaluates the Plan's investments and the related rates of return on a periodic basis. The Plan is exempt from the requirements of the Employee Retirement Income Security Act of 1974 and, as such, is not subject to the Act's reporting requirements. All benefits vest after five years of credited service. Members retiring at or after age 65 with five or more years credited service are entitled to a pension benefit. The Plan permits early retirement with reduced benefits beginning at age 55 if the member has completed 60 months of employment. A member whose combined age and term of service is equal to 75 may retire early with unreduced benefits. The annual benefit accrued by a member is equal to 1.45% of final average earnings plus 0.40% of final average earnings that are in excess of covered earnings multiplied by the period of years and months of credited service not to exceed 35 years. A survivor's benefit for vested members who have not yet reached their notinal retirement date or earned 75 points is provided for. The survivor's benefit is equal to the greater of 50% of the member's monthly -accrued retirement benefit as of the date of death, or 15% of the monthly earnings and the member's monthly -accrued retirement benefit actuarially reduced under the 100% joint and survivor annuity option. Members are also able to select a Contingent Annuity Pop -Up option. This option allows the member to elect a survivor annuity for life, with the provision that if the beneficiary should predecease the member, the benefit shall increase to the amount payable had the survivor option not been selected. Ordinance Number 10872, effective January 1, 2001, further amended the Plan to extend the cost of living increases for retirees from a maximum of 30% to 45% of the original benefit. Effective August 1, 2004, Ordinance No. 11781 amended the Plan to change the benefit formula to 1.7% of final average earnings plus 0.4% of final average earnings that are in excess of covered earnings multiplied by the period of years and months of credited service not to exceed 35 years without including accrued sick leave. Effective July 1, 2007, Ordinance No. 12395 amended the Plan for members whose annual retirement benefit , as of July 1, 2007, is determined to be higher under the foiiuula using the definition of "Final Average Earnings" in effect prior to August 1, 2004. Under the interim rule, if such a member retires on his normal retirement date of or after July 1, 2007 and/or before June 1, 2009 (the "window period"), he may elect to have his benefit determined using the 1.45%/0.4% of final average earnings formula including accrued sick leave or the 1.7%/0.4% of final average earnings formula without using accrued sick leave. The interim rule will not apply if at any time during the window period a member's benefit is determined to be higher under the 1.7%/0.4% foiniula. Sick leave is paid out at 1.25% per year of service times the amount of leave accrued not to exceed $50,000 unless the employee accrued an amount greater than $50,000 as of July 1, 2004, and retires or dies while in active service prior to July 1, 2007. Also, the Plan was amended to provide the retiring member with a 10% partial lump sum payment option. The balance of the distribution will be paid in accordance with any one of the other payment options available under the Plan. 37 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 8. Defined Benefit Pension Plan (Continued) Plan Description (Continued) The retirement benefit payable to a member who retires after his or her noiinal retirement date is the greater of a) the benefit that would have been payable on the normal retirement date plus a special annual retirement benefit provided by the accumulated value, at 4% per annum interest, of the monthly benefit that would have been received prior to the postponed retirement date or b) the benefit determined as of the postponed retirement date under the normal formula. Funding Policy The District's employees do not contribute to the Plan. Ordinances establishing the Plan provide for actuarially determined annual contributions, paid solely by the District, that are sufficient to pay benefits when due. The Entry Age Normal actuarial funding method is used to determine contributions. Annual Pension Cost Contributions of $7,425,602 and $7,673,240, excluding certain professional fees paid by the District, were made to the Plan during the Plan's calendar years ended December 31, 2009 and 2008., respectively. These contributions were made in accordance with actuarially deteriiiined contribution requirements based on actuarial valuations perfoiriied at January 1, 2009 and 2008, respectively, and for 2009 consisted of a) $5,793,713 normal cost plus b) S1,113,824 amortization of the actuarial accrued assets in excess of the actuarial accrued liability and prior changes c) multiplied by an interest factor of 1.075. The District provides certain professional fees, office space, utilities, and other services to the Plan at no cost. Other costs of administering the Plan are financed from plan net assets. Significant actuarial assumptions used in the valuations are as follows: Latest valuation date Actuarial cost method Amortization method Amortization period Asset valuation method Post -retirement benefit increases Investment rate of return Projected salary increases Social Security wage base January 1, 2009 Entry Age Noi iiial Level dollar closed 20 -year period Three-year average of adjusted market values CPI or 3% of current benefit, or $50 maximum, if less 7.5% per annum (1) 4.5% - 10.0% per annum (1) 4.0% per annum increase (1) (1) Includes inflation component of 3% 38 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 8. Defined Benefit Pension Plan (Continued) Three -Year Trend Infoiiiiation Historical trend information about the District's participation in the Plan is presented below to help readers assess the Plan's funding status on a going -concern basis and assess progress being made in accumulating, assets to pay benefits when due. Annual Percentage Calendar Pension of APC Net Pension Year Cost (APC) Contributed Obligation 2008 $ 7,425,602 100% 2007 7,673,240 100 2006 6,847,278 100 Required Supplementary Information Schedule of Funding Progress (dollars in thousands) Unfunded Entry Age Actuarial UAAL as a Actuarial Actuarial Accrued Annual Percentage Actuarial Value Accrued Liability Funded Covered of Covered Valuation of Assets Liability (UAAL) Ratio Payroll Payroll Date (1) (2) (1)-(2) (1)/(2) (3) (1-2)/(3) 01/0172009 $ 183,679 $ 212,066 $ (28,387) 86.6% $ 48,077 59.0% 01/01/2008 185,356 195,834 (10,478) 94.6 43,640 24.0 01/01/2007 170,757 187,432 (16,675) 91.1 42,113 39.6 9. Deferred Compensation Plan The District offers its employees a Deferred Compensation Plan created in accordance with Internal Revenue Code Section 457. The Deferred Compensation Plan, available to all District employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, disability, or due to financial hardship as defined by the Deferred Compensation Plan. The Deferred Compensation Plan was amended and restated to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001 (the Act). The Act made significant changes to Section 457(b) of the Internal Revenue Code of 1986, as previously amended. The Deferred Compensation Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries under Section 1448 of the Small Business Job Protection Act of 1996. As a result, the assets and liabilities of the Deferred Compensation Plan are not included in the accompanying financial statements. 39 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 9. Deferred Compensation Plan (Continued) The Deferred Compensation Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555.. 10. Post -Employment Benefits Other than Pensions Plan Description As part of a total compensation package, the District provides a single -employer defined benefit health care plan to employees who retire from the District on or after age 62 and five years of service or whose age plus years of service equal 75 points ("Rule of 75"). The District pays the monthly group health insurance premium for the individual until the retiree becomes eligible for Medicare at age 65. In addition, there is a closed group of disabled former employees who receive life insurance coverage from the District. The District's annual other post -employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities. The District's annual OPEB cost for the current year and the related information are as follows: Amortization of past service cost Normal cost Interest to end of fiscal year ARC Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost Contributions made Increase in net OPEB obligation Net OPEB obligation -beginning of year 764,200 904,800 75,100 1,744,100 21,000 (16,100) 1,749,000 (1,201,200) 547,800 466,900 Net OPEB Obligation -End of Year $ 1,014,700 The Plan was established by District Ordinance, which assigned the authority to establish and amend plan benefit provisions to the District. The contribution requirements of the District and plan members are established and maybe amended by the District. In future years, three-year trend information will be presented. Fiscal year 2008 was the year of implementation of GASB 45 and the District has elected to implement prospectively, therefore, prior year comparative funding progress is not available. 40 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 10. Post -Employment Benefits Other Than Pensions (Continued) Required Supplemental Information Schedule of Funding Progress (dollars in thousands) Actuarial Valuation Date 07/01/2007 Actuarial Value of Assets (1) Unfunded Actuarial Actuarial Accrued Accrued Liability Liability (UAAL) (2) (1)-(2) $ 21,938 ($ 21,938) Funded Ratio (1)/(2) --% Covered Payroll (3) UAAL as a Percentage of Covered Payroll (1-2)/(3) $ 43,640 (50.3%) Schedule of Employer Contributions (dollars in thousands) Year Ended June 30 2009 2008 Annual Required Contribution $ 1,744 $ 1,710 Contribution Made $ 1,201 $ 1,243 Percent Contributed Significant actuarial assumptions used in the valuation are as follows: Latest valuation date Discount rate Amortization period Medical trend Payroll inflation Mortality Turnover 69% 73% January 1, 2007 4.5% per annum 30 -year period 10% - (Grading down to 6% over the next 6 years) 4.5% per annum 1983 Group Annuity Mortality Table, Male Rates, set back 6 years for females Age 20 30 40 50 and over Terminating Disability Percent Percent 5.5% 3.7 1.1 0.056% 0.064 0.102 0.311 41 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 10. Post -Employment Benefits Other Than Pensions (Continued) Required Supplemental Information (Continued) Retirement Future Retiree Coverage Future Dependent Care 11. Self -Insurance Programs Age Rate Before After 75 Points 75 Points 55 1% 2% 56 2 4 57 2 5 58 2 6 59 3 8 60 4 10 61 5 15 62 5 35 63 5 20 64 5 25 65 100 100 90% of employees retiring prior to age 65 are assumed to elect medical coverage 50% elect spouse coverage 0% dependent children coverage The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District has established a risk management program and retains the risk related to officers', directors', and general liability; to its obligation to provide workers' compensation and medical and hospitalization benefits to its employees; and to pay water backup claims to its customers. The estimated liabilities for payment of incurred (both reported and unreported) but unpaid claims relating to these matters are included as a component of current deposits and accrued expenses, and as such are expected to be paid within one year of the date of the statement of net assets. At June 30, 2009 and 2008, these liabilities amounted to $2,246,526 and $5,056,508, respectively. 42 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 11. Self -Insurance Programs (Continued) The claims liabilities reported are based on the requirements of GASB Statement No. 10, which requires that a liability for claims be reported if information obtained prior to the issuance of the financial statements indicates it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Changes in the balance of claims liabilities during fiscal 2009 and 2008 were as follows: 2009 2008 Liability, beginning of year $ 5,056,208 $ 2,482,566 Current year claims and changes in estimates 15,027,843 15,000,916 Claim payments (17,837,525) (12,427,274) Liability, End of Year $ 2,246,526 $ 5,056,208 The District obtains periodic funding valuations from the third -party administrators managing the self- insurance programs and adjusts the charges as required to maintain the appropriate level of estimated claims liability. The District also maintains excess liability insurance coverage for workers' compensation and medical and hospitalization claims; general liability; and water backup damage to customers' property. The District purchases commercial insurance for all other risks of loss. Settled claims have not exceeded this commercial coverage in any of the past three years. 12. Closure and Postclosure Care Costs State and federal laws and regulations require the District to place a final cover on its Prospect Hill Reclamation Project landfill site when it stops accepting waste and to perfoili certain maintenance and monitoring functions at the site for 30 years after closure. Although closure and postclosure care costs will be paid only near or after the date that the landfill stops accepting waste, the District reports a portion of these closure and postclosure care costs as an operating expense in each period based on landfill capacity used as of the end of the fiscal year. The $622,365 and $571,983 reported as landfill closure and postclosure care liabilities at June 30, 2009 and 2008, respectively, represent the cumulative amounts reported at fiscal year-end based on the use of 80% and 74% of the estimated capacity of the landfill for fiscal years ended 2009 and 2008, respectively. The District will recognize the remaining estimated cost of closure and postclosure care of $151,146 at June 30, 2009 as the remaining estimated capacity is filled. These amounts are based on what it would cost to perform all closure and postclosure care in 2009. The District expects to close the landfill in the year 2012. Actual cost maybe higher due to inflation, changes in technology, or changes in regulations. The District is required to demonstrate that it has the financial capability to close the landfill to the State of Missouri through the use of a financial test as specified in 10 CSR 80-2.030(4)(D)6 of the Missouri Solid Waste Management Rules. The District has complied with the State's requirement. The District recognizes that estimates of closure costs may change as a result of inflation, deflation, and/or changes in technology and applicable laws and regulations. If closure cost estimates change, the liability currently reported on the balance sheet will be adjusted accordingly. 43 THE METROPOLITAN ST. LOUIS SEWER DISTRICT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 13. Commitments and Contingencies William Zweig et al. v. MSD. This case was filed on July 18, 2008 and, as amended, contends that MSD Ordinances No. 12560 and No. 12789, which enacted increases in MSD's stormwater user charge based on the amount of impervious area on the customer's property, are unconstitutional. The lawsuit claims the ordinances violate the so-called Hancock Amendment, Mo. Const. art. X, § 22(a), because the stormwater user charge is in reality a tax that requires voter approval. MSD's Board of Trustees passed the ordinances in December 2007 and December 2008, respectively, without submitting them to the voters. MSD contends the stormwater user charge is not a tax and, thus, not subject to voter approval. The original plaintiff is an MSD stormwater customer who seeks to represent a class of all MSD stormwater customers. In July 2009, two more plaintiff class representatives were added to the lawsuit. The lawsuit seeks (1) a declaration that the stoiiiiwater user charge is unconstitutional, (2) a refund of all stormwater user charges collected, and (3) payment of the plaintiffs' costs, including attorneys' fees. MSD has collected approximately $46,000,000 from the stormwater user charge, and is continuing to collect approximately $3,000,000 each month, which would be subject to the plaintiffs' request for a refund should the ordinances be declared unconstitutional. In addition, if the plaintiffs were to prevail and the ordinances were found unconstitutional, the plaintiffs would be entitled to their attorneys' fees and costs under the Hancock Amendment (Mo. Const. art. X, § 23). MSD has significant legal and factual arguments in support of its position and management of MSD expects to prevail in this matter. US and State of Missouri v. Metropolitan St. Louis Sewer District; In the US District Court for the Eastern District of Missouri; Case No. 07-1120. A lawsuit was filed by the Department of Justice on behalf of the United States Environmental Protection Agency ("EPA") for various alleged violations of the Clean Water Act. The District has been the subject of several investigatory actions by EPA over the past several years. Negotiations have been ongoing with EPA and DNR regarding the sewer collection system, both the combined system and the sanitary system, for several years. The Missouri Coalition for the Environment ("MCE") gave Notice of Intent to Sue the District under the citizen suit provisions of the Clean Water Act. EPA and DNR brought the suit in June 2007, and MCE moved to intervene. Intervention was granted in August 2007. In October 2007, the Court granted the District's motion to dismiss all of the plaintiffs' claims for civil penalties attributable to any and all of the District's alleged violations of the Clean Water Act that occurred before June 11, 2002 from this litigation. The suit is based on alleged violations of the Clean Water Act as a result of overflows in the combined and sanitary sewer systems causing pollutants to reach waters of the United States. There are other counts involving violations of peiiiiit conditions. Also, the suit alleges that the District does not have an approved Long -Term Control Program ("LTCP") for the combined system. The District has been working on these issues for several decades and has asked voters to approve bonds and rate increases to rehabilitate and maintain the collection system. As required by its Charter, the District has increased rates which will continue to fund the improvements sought by EPA and DNR. In September 2008, the Judge put in place a Stay while the parties mediate the issues. The parties have been in mediation over the past year. A status report on the Stay is due in November 2009. The District has submitted its LTCP, which is currently under review. 44 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 13. Commitments and Contingencies (Continued) The District is a defendant in various other matters of litigation. Of these matters, management and the District's legal counsel do not anticipate any material effect on the June 30, 2009 and 2008 financial statements. The District has entered into construction and other contracts amounting to approximately $226,105,854 and $259,543,000 at June 30, 2009 and 2008, respectively. Grants to be received from various governmental agencies and entities to partially offset the cost of the contract commitments amounted to approximately $399,000 and $588,000 at June 30, 2009 and 2008, respectively. At June 30, 2009, the District had $245,000,000 in bonds authorized by the voters in August, 2008, but unissued. These bonds will fund the second phase of a multi decade wastewater capital improvement program. 14. Restricted Net Assets The government -wide statement of net assets reports $94,768,570 and $97,422,370 of restricted net assets at June 30, 2009 and 2008, respectively, of which $60,797,463 and $67,276,286 are restricted by enabling legislation at June 30, 2009 and 2008, respectively. 45 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 15. Segment Information The District issued wastewater revenue bonds to finance wastewater infrastructure projects. The District accounts for both wastewater and stormwater activities in a single enterprise fund, but investors in those bonds rely solely on the revenue generated by the wastewater activities for repayment. Summary financial infoitiiation for each business line is presented below. Wastewater Stormwater Condensed Statement of Net Assets Assets: Total current assets Total restricted assets Total other assets Net capital assets Total assets Liabilities: Total current liabilties Total current liabilities --payable from restricted assets Total long-term liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net assets $ 297,072,899 80,715,270 13,442,890 1,943,887,886 $ 59,757,601 15,546,233 2,589,179 374,404,167 2,335,118,945 452,297,180 68,311,535 1,251,824 411,822,297 13,157,201 241,109 79,319,381 481,385,656 92,717,691 1,553,054,726 77,333,971 223,344,592 299,127,417 17,434,599 43,017,473 $1,853,733,289 $359,579,489 Condensed Statement of Revenues, Expenses, and Changes in Net Assets Operating revenues $ 209,394,713 $ 40,330,645 Depreciation expense (39,720,063) (7,650,316) Other operating expenses (134,136,731) (25,835,518) Operating income 35,537,919 6,844,811 Nonoperating revenues (expenses): Total nonoperating revenues 10,833,457 4,626,211 Total nonoperating expenses (13,433,051) (2,587,284) Capital contributions 22,633,953 4,359,432 Change in net assets 55,572,278 13,243,170 Beginning net assets 1,798,161,011 346,336,319 Ending net assets $1,853,733,289 $359,579,489 46 THE METROPOLITAN ST. LOUIS SEWER DIST CT NOTES TO FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 15. Segment Information (Continued) Condensed Statement of Cash Flows Net cash provided (used) by: Operating activities Noncapital financing activities Capital and related financing activities Investing activities Net increase (decrease) Beginning cash and cash equivalents Ending cash and cash equivalents 16. Future Accounting Pronouncement 74,674,627 1,785,566 (141,037,615) 33,598,912 (30,978,510) 36,393,649 $ 14,382,770 343,910 (27,164,669) 6,471,347 (5,966,642) 7,009,629 $ 5,415,139 $ 1,042,987 GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB 51), establishes standards for the measurement and recording the estimated historical cost for land associated with right-of-way easements. GASB 51 will be effective for the District for the fiscal year ending June 30, 2010. The District, however, has not yet completed its assessment of the statement or the potential impact of the statement on its financial position. 47 THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX B INFORMATION REGARDING THE DISTRICT’S SERVICE AREA THIS PAGE INTENTIONALLY LEFT BLANK B-1 INFORMATION REGARDING THE DISTRICT’S SERVICE AREA The Series 2010B Bonds are special, limited obligations of the District and are not obligations of The City of St.Louis, Missouri (the “City”), St.Louis County, Missouri (the “County”), the State of Missouri (the “State”), or any political subdivision of the City, the County or the State. The Series 2010B Bonds are payable solely from the revenues described in this Official Statement. As described elsewhere in this Official Statement, the service area of the District consists of the City and most of the County. The following information regarding the City and the County has been obtained from sources that the District believes to be reliable, but should not be construed as an indication that the Series 2010B Bonds are payable from any source other than the revenues of the District described in this Official Statement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010B BONDS,” “THE DISTRICT,”and “THE CIRP AND THE PROJECTS”in this Official Statement. Such information is not guaranteed as to accuracy or completeness by the Underwriters and is not to be construed as a representation by the Underwriters. The Underwriters have not verified this information. No representation is made by the Underwriters as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date as to which such information is provided. THE SERVICE AREA As more fully described in this Official Statement under the caption “THE DISTRICT - General”, the District was organized in 1954 to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage within the City and most of the more heavily populated areas of the County. When the District began operations, it took over the publicly owned wastewater and stormwater drainage facilities within its then-existing jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities.In subsequent years, voters have approved the District’s annexation of a 270 square mile area of the lower Missouri River and lower Meramec River watersheds, and the District has purchased various investor-owned or municipally operated systems serving areas of the County. The District’s service area now encompasses 525 square miles, including all 62 square miles of the City and 463 square miles (approximately 90%)of the County. A map showing the District’s current service area appears on the back cover of this Official Statement. The City of St.Louis, Missouri The history of the City of St.Louis dates to 1764 when Pierre Laclede and Auguste Chouteau selected the site as a fur trading post due in large part to its proximity to the confluence of the Mississippi and Missouri Rivers. The City was incorporated in 1823, and its current boundaries were established in 1876, when voters approved separation from St.Louis County and establishment of a home rule charter. The City remains a constitutional charter city not a part of any county, and exists under and pursuant to its Charter and the laws of the State of Missouri. The eastern boundary of the City is formed by the Mississippi River, and the City is bordered on the north, west and south by the County.The City occupies approximately 62 square miles of land, all of which lie within the service area of the District. St.Louis County, Missouri St.Louis County, Missouri was formed by a proclamation of Governor William Clark on October 1, 1812, nine years before Missouri attained statehood. In 1876, by vote of the entire county, the City of St.Louis separated itself from the County. The City of Clayton is the County seat and located in the east central part of the County. Sixty-six percent of the land area of the County is contained within the jurisdictional boundaries of 92 self-governing municipalities, containing more than two-thirds of the B-2 County population. The remaining unincorporated area comes under the direct jurisdiction of the County government. The County is a constitutional charter county operating and existing under its Charter and the laws of the State of Missouri. The County covers an area of approximately 525 square miles, 463 square miles of which lie within the service area of the District. ECONOMIC AND DEMOGRAPHIC DATA Population The City and the County are a part of the St.Louis Standard Metropolitan Statistical Area (the “St.Louis MSA”), comprised of the City, the County, the Counties of Franklin, Jefferson, Lincoln, St.Charles, Warren, Washington and the City of Sullivan in Missouri and the Counties of Bond, Calhoun, Clinton, Jersey, Macoupin, Madison and Monroe in Illinois. According to the U.S. Census Bureau, the population patterns for the City, the County, and the St.Louis MSA have been as follows: City of St.Louis St.Louis County St.Louis MSA Percentage Percentage Percentage Year Population Change Population Change Population Change 1960 750,026 N/A 703,532 N/A 2,161,228 N/A 1970 622,236 -17.04%951,353 35.23%2,428,655 12.37% 1980 453,085 -27.18%973,896 2.37%2,376,998 2.13% 1990 396,685 -12.48%993,529 2.00%2,444,097 2.82% 2000 348,189 -12.23%1,016,315 2.30%2,603,607 6.53% 2008 354,361 1.77%991,830 -2.41%2,720,670 4.50% _____________________ Source: U.S. Census Bureau Population for the years 1960-2000. 2000-2008 represent unofficial estimates of the U.S. Department of Commerce, Bureau of the Census. The largest municipalities within the District’s service area are as follows: Population Population Population Population Municipality 2008 2000 1990 1980 St.Louis (City)354,361 348,189 396,685 453,085 Florissant 50,561 50,497 51,206 55,721 Chesterfield*46,064 46,802 37,991 -- University City 36,289 37,428 40,087 42,690 Ballwin 30,033 31,283 21,816 12,656 Kirkwood 26,760 27,324 27,291 27,987 Hazelwood 25,345 26,206 15,512 12,935 Maryland Heights*25,949 25,756 25,407 -- Webster Groves 22,335 23,230 23,097 22,987 Ferguson 20,964 22,406 22,286 24,549 ______________ * The Cities of Chesterfield and Maryland Heights were not incorporated in St. Louis County until after 1980. Source: Missouri Census Data Center. Employment The following table sets forth information relating to the average composition of non-farm employment in the City and the County for the years 1990,2000, and 2007: B-3 City of St.Louis Employment St.Louis County Employment Private Employment:1990 2000 2007 1990 2000 2007 Manufacturing 48,675 35,503 23,831 118,736 87,687 57,933 Agriculture 631 ----5,072 6,931 388 Mining 234 ----1,241 1,227 994 Construction 9,977 10,067 --34,149 45,746 46,243 Transportation, Communication and Utilities 27,154 25,951 --38,254 51,152 43,744 Wholesale Trade 19,399 15,224 11,613 42,228 46,961 38,497 Retail Trade 36,083 29,934 11,580 121,977 134,854 86,291 Finance, Insurance and Real Estate 28,422 25,436 16,636 62,176 77,300 81,285 Services 99,547 109,830 130,637 215,147 279,413 317,545 Total Private Employment 270,122 252,951 243,058 638,980 731,271 718,013 Governmental Employment 51,100 47,092 39,861 53,783 59,826 61,621 Total 321,222 300,043 282919 692,763 791,097 779,634 ___________________ Source:U.S.Department of Commerce, Bureau of Economic Analysis; Missouri State Census Data Center. The (--)signifies that the data is not shown to avoid disclosure of confidential information, but the estimates for these items are included in the totals. The following table sets forth the total labor force, number of employed and unemployed workers in the City and the County for 2004 through 2008: City of St.Louis(1)St.Louis County(1) Labor Force Labor Force Year Employed Unemployed Total Employed Unemployed Total 2004 146,935 14,619 161,554 519,824 30,521 550,345 2005 147,825 13,095 160,920 522,972 28,449 551,421 2006 147,211 19,038 166,249 491,403 33,289 524,692 2007 145,793 11,016 156,809 497,719 25,761 523,480 2008 143,183 12,087 155,270 488,809 30,921 519,730 _________________________________________ (1)Figures are based on unofficial results. Source: Missouri Department of Employment Security, Missouri Department of Economic Development and U.S. Department of Labor, Bureau of Labor Statistics. B-4 The following table sets forth unemployment rates for the City, County, State and the United States for 2004 through 2008 and part of 2009: Unemployment Rates(1) Year City of St.Louis St.Louis County State of Missouri United States 2004 9.0%5.5%5.8%5.5% 2005 8.1 5.2 5.4 5.1 2006 11.2 6.2 6.3 6.4 2007 7.0 4.9 5.1 4.6 2008 7.8 5.9 6.3 5.8 2009(1)11.1 9.6 9.5 10.2 _______________________________________ (1)Figures are based on unofficial results.The 2009 results are as of September 31, 2009. Source: Missouri Department of Employment Security, Missouri Department of Economic Development and U.S. Department of Labor, Bureau of Labor Statistics. Major Employers The following list sets forth the names and approximate number of employees of major employers within the St. Louis Metropolitan Area, respectively as of December 31, 2007: St.Louis MSA Major Employers Company Nature of Business Approximate Number of Employees BJC Health System Health Care 23,001 The Boeing Co. Integrated Defense Systems Manufacturing 16,000 Scott Air Force Base Government 13,331 United States Postal Service Government 13,304 Walmart Retail 13,005 SSM Healthcare Health Care 12,582 Washington University Education 12,423 Schnucks Markets Grocery 10,700 AT&T, Inc.Telecommunications 9,442 St. John’s Mercy Healthcare Health Care 8,642 ________________________ Source: City of St.Louis –2007 Comprehensive Annual Financial Report and St.Louis Business Journal Book of Lists 2007. Per Capita Personal Income The following table presents per capita personal income for the City, the County, the State and the United States for the years 2001 through 2007, the latest date for which such information is available: B-5 City of St.Louis (1)St.Louis County(1)State of Missouri(1)United States(1) Year Per Capita Personal Income Per Capita Personal Income Per Capita Personal Income Per Capita Personal Income 2001 $31,532 $39,999 $27,809 $30,574 2002 32,577 41,698 28,358 30,810 2003 33,667 43,392 29,210 31,484 2004 34,735 45,101 30,475 33,050 2005 29,189 46,361 31,426 34,757 2006 29,189 48,848 32,789 36,714 2007 29,724 51,710 33,964 38,615 _______________________________________ (1)Per Capita Personal Income is the annual total personal income of residents divided by resident population as of July 1.“Personal Income”is the sum of net earnings by place of residence, rental income of persons, personal dividend income, personal interest income, and transfer payments.“Net Earnings”is earnings by place of work —the sum of wage and salary disbursements (payrolls), other labor income, and proprietors’ income —less personal contributions for social insurance, plus an adjustment to convert earnings by place of work to a place-of-residence basis. Personal Income is measured before the deduction of personal income taxes and other personal taxes and is reported in current dollars (no adjustment is made for price changes). Source: U.S. Department of Commerce, Bureau of Economic Analysis. *** THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX C DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT THIS PAGE INTENTIONALLY LEFT BLANK C-1 The following is a brief summary of certain provisions of the Master Bond Ordinance adopted by the District on April 22, 2004, as supplemented by the Ordinance adopted by the District on January 14, 2010 authorizing the issuance of the Series 2010B Bonds (collectively, the “Bond Ordinance”). This summary is not to be considered as a full statement of the provisions of such documents and is qualified by reference to and is subject to the complete Bond Ordinance, copies of which may be obtained from Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the underwriters of the Series 2010B Bonds. After delivery of the Series 2010B Bonds, copies of such documents will be available for inspection at the corporate trust office of the Paying Agent in St. Louis, Missouri or at such other office as shall be designated by the Paying Agent. DEFINITIONS The definitions of certain words and terms used in this Official Statement with respect to the Series 2010B Bonds are set forth below: “Accumulation Payments”shall have the meaning ascribed therefor under the caption “Sinking Fund –Debt Service Reserve Account” in this Appendix C. “Accreted Value”means, with respect to each Capital Appreciation Bond, (i) the initial principal amount of such Capital Appreciation Bond plus, on the date of calculation, the interest accrued thereon to such date compounded at the interest rate thereof on each compounding date contained in such Capital Appreciation Bond, and (ii) with respect to any calculation on a date other than a compounding date, the amount determined pursuant to clause (i) above as of the immediately preceding compounding date plus interest on such amount from such compounding date to the date of calculation at a rate equal to the interest rate on such Capital Appreciation Bond. “Additional Interest”means, for any period during which any Pledged Bonds are owned by a Credit Facility Provider pursuant to a Credit Facility or Credit Facility Agreement, the amount of interest accrued on such Pledged Bonds at the Pledged Bond Rate less the amount of interest which would have accrued during such period on an equal Principal amount of Bonds at the Bond Rate. “Annual Budget”means the annual budget of the District relating to the System (which shall include all costs, obligations and expenses properly allocable to the System), as amended or supplemented in accordance with established procedures of the District, adopted or in effect for a particular Fiscal Year. “Balloon Bonds”means any series of Bonds 25% or more of the Principal of which (i) is due in any 12 month period or (ii) may, at the option of the Bondholders, be required to be redeemed, prepaid, purchased directly or indirectly by the District, or otherwise paid in any 12-month period; provided that, in calculating the Principal of such Bonds due or required to be redeemed, prepaid, purchased, or otherwise paid in any 12 month period, such Principal shall be reduced to the extent that all or any portion of such amount is required to be redeemed or amortized prior to such 12 month period. “Balloon Date”means any Principal Maturity Date or Put Date on which more than 25% of the Principal of related Balloon Bonds mature or are subject to mandatory redemption or could, at the option of the Bondholders, be required to be redeemed, prepaid, purchased directly or indirectly by the District, or otherwise paid. “Bond Counsel”means any firm of nationally recognized bond counsel experienced in matters relating to tax-exempt financing, appointed by the District. “Bond Ordinance”means the Master Bond Ordinance adopted by the Board of Trustees of the District on April 22, 2004, and the Ordinance adopted by the Board of Trustees of the District on January 14, C-2 2010 authorizing the issuance of the Series 2010B Bonds, as the same may from time to time be modified, supplemented or amended by Supplemental Ordinances. “Bond Rate”means the rate of interest per annum payable on specified Bonds other than Pledged Bonds. “Bond Register”means the books for the registration, transfer and exchange of Bonds maintained by the Bond Registrar. “Bond Registrar”means any bank or trust company designated as such by the District in the Bond Ordinance with respect to any of the Bonds. Such Bond Registrar shall perform the duties required of the Bond Registrar in the Bond Ordinance. The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Trust Company of Missouri, St. Louis, Missouri), has been designated as Bond Registrar for the Bonds in the Master Bond Ordinance; provided, however, that in connection with the issuance of any SRF Bonds, the District shall appoint such separate Bond Registrar designated by the issuer of the SRF Bonds. “Bondholder”means the registered owner of one or more Bonds. “Bonds”means any revenue bonds authorized by and authenticated and delivered pursuant to the Bond Ordinance, including the Series 2010B Bonds, any other Senior Bonds, and any Subordinate Bonds. “Business Day”means a day other than a Saturday, Sunday or holiday on which the Paying Agent, Bond Registrar or applicable Credit Facility Provider is scheduled in the normal course of its operations to be open to the public for conduct of its banking operations. “Capital Appreciation Bonds”means Bonds which bear interest which is calculated based on periodic compounding, payable only at maturity or earlier redemption. “Charter”means the District’s Charter (Plan) approved by the voters of the City of St. Louis, Missouri and St. Louis County, Missouri on February 9, 1954 and amended on November 7, 2000, and as further amended from time to time in accordance with its terms. “Chief Financial Officer”means the individual presently holding the office of Secretary Treasurer of the District and any successor who might hereafter hold such office, and any individual, body or authority to whom or which may hereafter be delegated by law the duties, powers, authority, obligations or liabilities of such office. “Chief Officer” means the individual presently holding the office of Executive Director or Acting Executive Director of the District as appointed by the Governing Body and any successor who might hereafter hold such office, and any individual, body or authority to whom or which may hereafter be delegated by law the duties, powers, authority, obligations or liabilities of such office. “Code”means the Internal Revenue Code of 1986, as amended, and the applicable regulations of the Treasury Department proposed or promulgated thereunder. “Commitment,”when used with respect to Balloon Bonds, means a binding written commitment from a financial institution, surety or insurance company to refinance such Bonds on or prior to any Balloon Date thereof, including without limitation any Credit Facility for such Bonds. “Consultant” means an independent engineer or utility consultant or firm of independent engineers or utility consultants experienced in the planning and management of wastewater systems and having a nationally recognized reputation for such work. C-3 “Continuing Disclosure Agreement”means (i) with respect to the Series 2010B Bonds, the Disclosure Dissemination Agent Agreement dated as of January 1,2010 between the District and Digital Assurance Certification, L.L.C., as Dissemination Agent, as amended from time to time in accordance with its terms, in substantially the form attached as an exhibit to the Bond Ordinance, and (ii) with respect to any other series of Bonds, the continuing disclosure agreement relating to such series of Bonds, as amended from time to time in accordance with its terms. “Costs,”with respect to any Project, means the total cost, paid or incurred, to study, plan, design, finance, acquire, construct, reconstruct, renovate, repair, replace, equip, install, or otherwise develop such Project and shall include, but shall not be limited to, the following costs and expenses relating to such Project and the reimbursement to the District for any such items previously paid by the District: (i)the cost of all lands, real or personal properties, rights, easements, and franchises acquired; (ii)the cost of all machinery and equipment, financing charges, and interest prior to and during construction and for six months after completion of construction; (iii)the cost of the acquisition, construction, reconstruction or installation of such Project; (iv)the cost of engineering, architectural,development and supervisory services, fiscal agents’ and legal expenses, plans and specifications, and other expenses necessary or incident to determining the feasibility or practicability of any Projects, administrative expenses, and such other expenses as may be necessary or incident to any financing by Bonds; (v)the cost of placing such Project in operation; (vi)the cost of condemnation of property necessary for such construction and operation; (vii)Costs of Issuance; and (viii)any other costs which may be incident to such Project. “Costs of Issuance”means issuance costs with respect to the Bonds, including but not limited to the following: underwriters’ spread (whether realized directly or derived through purchase of Bonds at a discount below the price at which they are expected to be sold to the public), management fee and expenses; Credit Facility fees and Reserve Account Credit Facility fees; counsel fees (including bond counsel, underwriter’s counsel, District’s counsel, as well as any other specialized counsel fees incurred in connection with the borrowing); financial advisor fees of any financial advisor to the District incurred in connection with the issuance of the Bonds; rating agency fees; escrow agent and paying agent fees; accountant fees and other expenses related to issuance of the Bonds; printing costs (for the Bonds and of the preliminary and final official statement relating to the Bonds); and fees and expenses of the District incurred in connection with the issuance of the Bonds. “Credit Facility”means any letter of credit, insurance policy, guaranty, surety bond, standby bond purchase agreement, line of credit, revolving credit agreement, or similar obligation, arrangement, or instrument issued by a bank, insurance company, or other financial institution which is used by the District to perform one or more of the following tasks: (i) enhancing the District’s credit by assuring owners of any of the Bonds that Principal of and interest on such Bonds will be paid promptly when due; (ii) providing liquidity for the owners of Bonds through undertaking to cause Bonds to be bought from the owners thereof when submitted pursuant to an arrangement prescribed by a Series Ordinance; or (iii) remarketing any Bonds so submitted to the Credit Facility Provider (whether or not the same Credit Facility Provider is remarketing the Bonds). The term Credit Facility shall not include a Reserve Account Credit Facility. C-4 “Credit Facility Agreement”means an agreement between the District and a Credit Facility Provider pursuant to which the Credit Facility Provider issues a Credit Facility and may include the promissory note or other instrument evidencing the District’s obligations to a Credit Facility Provider pursuant to a Credit Facility Agreement. The term Credit Facility Agreement shall not include a Reserve Account Credit Facility Agreement. “Credit Facility Provider”means any issuer of a Credit Facility then in effect for all or part of the Bonds. The term Credit Facility Provider shall not include any Reserve Account Credit Facility Provider. Whenever in the Bond Ordinance the consent of the Credit Facility Provider is required, such consent shall only be required from the Credit Facility Provider whose Credit Facility is issued with respect to the series of Bonds for which the consent is required. “Debt Service Requirement”means the total Principal and interest coming due on Senior Bonds, or all Bonds, as applicable, whether at maturity or upon mandatory redemption, in any specified period; provided, however, that (i) Debt Service Requirement with respect to SRF Bonds shall mean the net amount of Principal and interest coming due on such SRF Bonds after taking into account any so-called “SRF Subsidy” (i.e., the amount of anticipated investment earnings which will accrue on any reserve account relating to the SRF Bonds and which will reduce the debt service payments of the District with respect to such SRF Bonds), and (ii) Debt Service Requirement with respect to Bonds issued as “build America bonds” shall mean the net amount of Principal and interest coming due on such Bonds after taking into account the anticipated receipt of interest subsidy payments on such Bonds. If any Bonds Outstanding or proposed to be issued shall bear interest at a Variable Rate, the interest coming due in any specified future period shall be determined as if the Variable Rate in effect at all times during such future period equaled the average of the BMA Municipal Bond Index (formerly PSA Municipal Bond Index) for the prior 5 calendar years, or any successor index as certified by a Financial Advisor. If any Capital Appreciation Bonds are Outstanding or proposed to be issued, the total Principal and interest coming due in any specified period shall be determined, with respect to such Capital Appreciation Bonds, by the Series Ordinance of the District authorizing such Capital Appreciation Bonds. With respect to any Bonds secured by a Credit Facility, Debt Service Requirement shall include (i) any upfront or periodic commission or commitment fee obligations with respect to such Credit Facility, (ii) the outstanding amount of any Reimbursement Obligation owed to the applicable Credit Facility Provider and interest thereon, (iii) any Additional Interest owed on Pledged Bonds to a Credit Facility Provider, and (iv) any remarketing agent fees. With respect to any Hedged Bonds, the interest on such Hedged Bonds during any Hedge Period and for so long as the provider of the related Hedge Agreement has not defaulted on its payment obligations thereunder shall be calculated by adding (x) the amount of interest payable by the District on such Hedged Bonds pursuant to their terms and (y) the amount of Hedge Payments payable by the District under the related Hedge Agreement and subtracting (z) the amount of Hedge Receipts payable by the provider of the related Hedge Agreement at the rate specified in the related Hedge Agreement; provided, however, that to the extent that the provider of any Hedge Agreement is in default thereunder, the amount of interest payable by the District on the related Hedged Bonds shall be the interest calculated as if such Hedge Agreement had not been executed. In determining the amount of Hedge Payments or Hedge Receipts payable or receivable for any future period which are not fixed throughout the Hedge Period (i.e., which are variable), such Hedge Payments or Hedge Receipts for any period of calculation (the “Determination Period”) shall be computed by assuming that the variables comprising the calculation (e.g., indices) applicable to the Determination Period are equal to the average of the actual variables which were in effect (weighted according to the length of the period during which each such variable was in effect) for the most recent twelve-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a twelve-month period). For the purpose of calculating the Debt Service Requirement on Balloon Bonds (1) which are subject to a Commitment or (2) which do not have a Balloon Date within 12 months from the date of calculation, such Bonds shall be assumed to be amortized in substantially equal annual amounts to be paid for Principal and interest over an assumed amortization period of 20 years at an assumed interest rate (which shall be the interest rate certified by a Financial Advisor to be the interest rate at which the District could reasonably expect to borrow the same amount by issuing Bonds with the same priority of lien as such C-5 Balloon Bonds and with a 20-year term); provided, however, that if the maturity of such Bonds (taking into account the term of any Commitment) is in excess of 20 years from the date of issuance, then such Bonds shall be assumed to be amortized in substantially equal annual amounts to be paid for Principal and interest over an assumed amortization period of years equal to the number of years from the date of issuance of such Bonds to maturity (including the Commitment) and at the interest rate applicable to such Bonds. For the purpose of calculating the Debt Service Requirement on Balloon Bonds (1) which are not subject to a Commitment and (2) which have a Balloon Date within 12 months from the date of calculation, the Principal payable on such Bonds on the Balloon Date shall be calculated as if paid on the Balloon Date. The Principal of and interest on Bonds and Hedge Payments shall be excluded from the determination of Debt Service Requirement to the extent that (1) the same were or are expected to be paid with amounts on deposit on the date of calculation (or Bond proceeds to be deposited on the date of issuance of proposed Bonds) in the Project Fund, the Sinking Fund or a similar fund for Subordinate Bonds or (2) cash or non-callable Government Securities are on deposit in an irrevocable escrow or trust account in accordance with the provisions of the Bond Ordinance (or a similar escrow or trust account for Subordinate Bonds) and such amounts (including, where appropriate, the earnings or other increment to accrue thereon) are required to be applied to pay Principal or interest and are sufficient to pay such Principal or interest. “Debt Service Reserve Account”means the account by that name within the Sinking Fund established in the Bond Ordinance. “Debt Service Reserve Requirement”means an amount determined from time to time by the District as a reasonable reserve for the payment of Principal of and interest on Senior Bonds which are not Senior SRF Bonds. Initially, this amount shall be the least of (a) 10% of the stated Principal amount of the Senior Bonds which are not Senior SRF Bonds, (b) the maximum annual Principal and interest requirements (taking into account the anticipated receipt of interest subsidy payments on the Series 2010B Bonds)on the Senior Bonds which are not Senior SRF Bonds (determined as of the issue date of each series of Senior Bonds which are not Senior SRF Bonds), or (c) 125% of the average annual Principal and interest requirements (taking into account the anticipated receipt of interest subsidy payments on the Series 2010B Bonds)on the Senior Bonds which are not Senior SRF Bonds (determined as of the issue date of each series of Senior Bonds which are not Senior SRF Bonds). The District may in its sole discretion change, reduce or increase this amount from time to time by Supplemental Ordinance, but in no event may the District reduce this amount (A)below the greater of (1) while the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds or the Series 2010B Bonds are Outstanding, the least of (x)the aggregate of 10% of the stated Principal amounts of the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and the Series 2010B Bonds, (y) the aggregate of the maximum annual Principal and interest requirements on the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and the Series 2010B Bonds (determined as of their respective issue dates), or (z) the aggregate of 125% of the average annual Principal and interest requirements on the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and the Series 2010B Bonds (determined as of their respective issue dates), or (2) 50% of the average annual Debt Service Requirement with respect to Senior Bonds (other than Senior SRF Bonds) in the then current or any succeeding Fiscal Year, and (B) unless each Rating Agency indicates in writing to the District that such reduction will not, by itself, result in a reduction or withdrawal of its current Rating on the Senior Bonds. If the aggregate initial offering price of a series of Bonds to the public is less than 98% or more than 102% of par, such offering price shall be used in lieu of the stated Principal amount. Notwithstanding the foregoing, the Debt Service Reserve Requirement, if any, in connection with any Senior SRF Bonds or any Subordinate Bonds, including Subordinate SRF Bonds, shall be as provided in the Series Ordinance authorizing the issuance of such Senior SRF Bonds or such Subordinate Bonds. “Depository”means the depository of each fund established under the Bond Ordinance, and any successor depository of such fund hereafter designated by the District from time to time by Supplemental Ordinance. The Depository for the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and the Series 2010B Bonds is Bank of America, N.A., St. Louis, Missouri. C-6 “District”means The Metropolitan St. Louis Sewer District, a body corporate, a municipal corporation and a political subdivision duly created and existing under the laws of the State, and any successor thereto. “DTC”means The Depository Trust Company, New York, New York, or its nominee, or its successors and assigns, or any other depository performing similar functions under the Bond Ordinance. “Event of Default”means any of the events defined as such in the Bond Ordinance. “Expenses of Operation and Maintenance”means all expenses reasonably incurred in connection with the operation, maintenance and repair of the System,including salaries, wages, the cost of materials and supplies, rentals of leased property, if any, management fees, payments to others for the treatment and disposal of sewage, the cost of audits and periodic Consultant’s reports, Paying Agent’s and Bond Registrar’s fees and expenses, payment of premiums for insurance required by the Bond Ordinance and other insurance which the District deems prudent to carry on the System and its operations and personnel, obligations (other than for borrowed money or for rents payable under capital leases) incurred in the ordinary course of business, liabilities incurred by endorsement for collection or deposit of checks or drafts received in the ordinary course of business, short-term obligations incurred and payable within a particular Fiscal Year, other obligations or indebtedness incurred for the purpose of leasing (pursuant to a true or operating lease) equipment, fixtures, inventory or other personal property, and, generally, all expenses, exclusive of interest on the Bonds and depreciation or amortization, which under accounting principles generally accepted for municipal utility purposes are properly allocable to operation and maintenance; however, only such expenses as are reasonable and necessary or desirable for the proper operation and maintenance of the System shall be included. “Expenses of Operation and Maintenance” also includes the District’s obligations under any contract with any other political subdivision or public agency or authority of one or more political subdivisions pursuant to which the District undertakes to make payments measured by the expenses of operating and maintaining any facility which constitutes part of the System and which is owned or operated in part by the District and in part by others. “Financial Advisor”means an investment banking or financial advisory firm, commercial bank, or any other Person who or which is appointed by the District for the purpose of passing on questions relating to the availability and terms of specified types of Bonds and is actively engaged in and, in the good faith opinion of the District, has a favorable reputation for skill and experience in underwriting or providing financial advisory services in respect of similar types of securities. “Fiscal Year”means the 12-month period used by the District for its general accounting purposes, as it may be changed from time to time. The Fiscal Year at the time the Bond Ordinance was adopted begins on July 1 and ends on June 30 of the immediately following calendar year. “Fitch”means Fitch, Inc. or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the District. At the time the Bond Ordinance was adopted, the notice address of Fitch is One State Street Plaza, New York, New York 10004. “Forecast Period”means a period of three consecutive Fiscal Years commencing with the Fiscal Year in which any proposed Senior Bonds are to be issued. “Form 8038-CP”means the IRS Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, to be filed with the IRS with respect to the Series 2010B Bonds. “Governing Body”means the Board of Trustees of the District and any predecessor or successor in office to such present body, and any Person to whom or which may hereafter be delegated by law the duties, powers, authority, obligations, or liabilities of the present body, either in whole or in relation to the System. C-7 “Government Loans”means loans to the District by the government of the United States or the State, or by any department, authority or agency of either, for the purpose of acquiring, constructing, reconstructing, improving, bettering or extending any part of the System. “Government Obligations”means (a) direct obligations of the United States of America for the full and timely payment of which the full faith and credit of the United States of America is pledged or (b)obligations issued by a person controlled or supervised by and acting as an instrumentality of the United States of America, the full and timely payment of the principal of and the interest on which is fully and unconditionally guaranteed as a full faith and credit obligation of the United States of America (including any securities described in (a) or (b) issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), which obligations, in either case, (i) are not subject to redemption or prepayment prior to maturity except at the option of the holder of such obligations and (ii) may include U.S. Treasury Trust Receipts. “Hedge Agreement”means, without limitation, (i) any contract provided by a Qualified Hedge Provider known as or referred to or which performs the function of an interest rate swap agreement, currency swap agreement, forward payment conversion agreement, or futures contract; (ii) any contract provided by a Qualified Hedge Provider providing for payments based on levels of, or changes or differences in, interest rates, currency exchange rates, or stock or other indices; (iii) any contract provided by a Qualified Hedge Provider to exchange cash flows or payments or series of payments; (iv) any type of contract provided by a Qualified Hedge Provider called, or designed to perform the function of, interest rate floors, collars, or caps, options, puts, or calls, to hedge or minimize any type of financial risk, including, without limitation, payment, currency, rate, or other financial risk; and (v) any other type of contract or arrangement provided by a Qualified Hedge Provider that the District determines is to be used, or is intended to be used, to manage or reduce the cost of any Bonds, to convert any element of any Bonds from one form to another, to maximize or increase investment return, to minimize investment return risk, or to protect against any type of financial risk or uncertainty. “Hedge Contingency Payments”means amounts payable by the District pursuant to any Hedge Agreement as termination payments, fees, expenses and indemnity payments. “Hedge Payments”means amounts payable by the District pursuant to any Hedge Agreement, other than Hedge Contingency Payments. “Hedge Period”means the period during which a Hedge Agreement is in effect. “Hedge Receipts”means amounts payable by any provider of a Hedge Agreement pursuant to such Hedge Agreement, other than termination payments, fees, expenses and indemnity payments. “Hedged Bonds”means any Bonds for which the District shall have entered into a Hedge Agreement. “Independent Certified Public Accountant”means a certified public accountant, or a firm of certified public accountants, who or which is “independent” as that term is defined in Rule 101 and related interpretations of the Code of Professional Ethics of the American Institute of Certified Public Accountants, of recognized standing, who or which does not devote his or its full time to the District (but who or which may be regularly retained by the District). “Interest Payment Date”means each date on which interest is to become due on any Bonds, as established in the Series Ordinance for such Bonds, and with respect to the Series 2010B Bonds, shall be as specified in the Bond Ordinance. C-8 “Investment Earnings”means all interest received on and profits derived from investments of moneys in all funds and accounts of the District other than investments derived from or with respect to (a)stormwater revenues, (b) all funds and accounts established in connection with SRF Bonds and (c)obligations issued by the District on behalf of any of its subdistricts. “IRS”means the Internal Revenue Service and any successors or assigns. “Maximum Annual Debt Service”means the maximum amount of Debt Service Requirements as computed for the then current or any future Fiscal Year. “Moody’s” means Moody’s Investors Service, Inc. or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the District. At the time the Bond Ordinance was adopted, the notice address of Moody’s is 99 Church Street, New York, New York 10007. “Net Operating Revenues”means Operating Revenues, after provision for payment of all Expenses of Operation and Maintenance. “Operating Revenues”means all income and revenue of any nature derived from the operation of the System, including periodic wastewater billings, service charges, other charges for wastewater service and the availability thereof (other than any special assessment proceeds), connection or tap fees (whether accounted for as revenues or as contributed capital), net proceeds from business interruption insurance, the principal of gifts, bequests, contributions, grants and donations available to pay debt service of Bonds, and any amounts deposited in escrow in connection with the acquisition, construction, remodeling, renovation and equipping of facilities to be applied during the period of determination to pay interest on Bonds, but excluding (a) any profits or losses on the early extinguishment of debt or on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and local, state or federal grants or other moneys received for the payment of Expenses of Operation and Maintenance, (b) local, state, or federal grants, loans (including Government Loans), capital improvement contract payments, or other moneys received for capital improvements to the System, (c) Investment Earnings, (d) any stormwater charges and (e) any property tax revenues. “Other System Obligations” means obligations of any kind, including but not limited to, Government Loans, general obligation bonds, revenue bonds, capital leases, installment purchase agreements, or notes (but excluding Bonds and related obligations to Credit Facility Providers, Reserve Account Credit Facility Providers and Qualified Hedge Providers), incurred or issued by the District to finance or refinance the cost of acquiring, constructing, reconstructing, improving, equipping, bettering, or extending any part of the System. “Outstanding”means, when used in reference to Bonds, all Bonds which have been duly authenticated and delivered under the Bond Ordinance, with the exception of (a) Bonds in lieu of which other Bonds have been issued under agreement to replace lost, mutilated, stolen, or destroyed obligations, (b) Bonds surrendered by the owners in exchange for other Bonds under the Bond Ordinance,and (c) Bonds for the payment of which provision has been made in accordance with the Bond Ordinance. In determining the amount of Capital Appreciation Bonds Outstanding under the Bond Ordinance, the Accreted Value of such Capital Appreciation Bonds at the time of determination shall be used. “Paying Agent”means any bank or trust company, including any successors and assigns thereof, authorized by the District in the Bond Ordinance to pay the Principal of, premium, if any, or interest on any Bonds on behalf of the District. Such Paying Agent shall perform the duties required of the Paying Agent in the Bond Ordinance. The Bank of New York Mellon Trust Company, N.A. (as successor to BNY Trust Company of Missouri, St. Louis, Missouri), is designated as Paying Agent for the Bonds; provided, however, C-9 that in connection with the issuance of any SRF Bonds, the District shall appoint such Paying Agent designated by the issuer of the SRF Bonds. “Payments Account”means the account by that name within the Sinking Fund established in the Bond Ordinance. “Permitted Investments”means obligations in which the District is permitted to invest moneys of the District pursuant to applicable law, which have (or are collateralized by obligations which have) a Rating by any Rating Agency which is equal to or greater than the third highest long-term Rating of such Rating Agency, or which bears (or are collateralized by obligations which bear) the second highest short-term Rating of such Rating Agency. As of the date of adoption of the Master Bond Ordinance, obligations in which the District is permitted to invest proceeds of Bonds are described in Section 7.020 of the Charter. “Person”or “person”means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, body, authority, government, or agency or political subdivision thereof. “Pledged Bond”means any Bond purchased and held by a Credit Facility Provider pursuant to a Credit Facility Agreement. A Bond shall be deemed a Pledged Bond only for the actual period during which such Bond is owned by a Credit Facility Provider pursuant to a Credit Facility Agreement. “Pledged Bond Rate”means the rate of interest payable on Pledged Bonds, as may be provided in a Credit Facility or Credit Facility Agreement. “Pledged Revenues”means Net Operating Revenues, Investment Earnings, Hedge Receipts, and all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund. “Principal”means (i) with respect to a Current Interest Bond, the principal amount of such Bond, and (ii) with respect to a Capital Appreciation Bond, the Accreted Value of such Capital Appreciation Bond. “Principal Maturity Date”means each date on which Principal is to become due on any Bonds, by maturity or mandatory sinking fund redemption, as established in the Series Ordinance for such Bonds. “Project”means the acquisition, construction, reconstruction, improvement, betterment, extension or equipping of the System, in whole or in part, with the proceeds of a series of Bonds, including, but not limited to, the Series 2010B Project. “Project Fund”means the fund by that name established in the Bond Ordinance. “Put Date”means any date on which a Bondholder may elect to have Balloon Bonds redeemed, prepaid, purchased directly or indirectly by the District, or otherwise paid. “Qualified Hedge Provider”means an entity whose senior unsecured long term obligations, financial program rating, counterparty rating, or claims paying ability, or whose payment obligations under the related Hedge Agreement are absolutely and unconditionally guaranteed by an entity whose senior unsecured long term obligations, financial program rating, counterparty rating, or claims paying ability, are rated either (i) at least as high as the third highest Rating of each Rating Agency, but in no event lower than any Rating on the related Hedged Bonds at the time of execution of the Hedge Agreement, or (ii) in any such lower Rating which each Rating Agency indicates in writing to the District will not, by itself, result in a reduction or withdrawal of its Rating on the related Hedged Bonds that is in effect prior to entering into the Hedge Agreement. An C-10 entity’s status as a “Qualified Hedge Provider” is determined only at the time the District enters into a Hedge Agreement with such entity and shall not be redetermined with respect to that Hedge Agreement. “Rating”means a rating in one of the categories by a Rating Agency, disregarding pluses, minuses, and numerical gradations. “Rating Agencies”or “Rating Agency”means Fitch, Moody’s, and Standard & Poor’s or any successors thereto and any other nationally recognized credit rating agency then maintaining a rating on any Bonds at the request of the District. If at any time a particular Rating Agency does not have a rating outstanding with respect to the relevant Bonds, then a reference to Rating Agency or Rating Agencies shall not include such Rating Agency. “Rebate Fund”means the fund by that name established in the Bond Ordinance. “Record Date”means, with respect to any semiannual Interest Payment Date, the 15th day of the calendar month immediately preceding such Interest Payment Date, and any record dates designated by the District in a Series Ordinance. “Reimbursement Obligation”means the obligation of the District to directly reimburse any Credit Facility Provider for amounts paid by such Credit Facility Provider under a Credit Facility, whether or not such obligation to so reimburse is evidenced by a promissory note or other similar instrument. “Renewal and Extension Fund”means the fund by that name established in the Bond Ordinance. “Replenishment Payments”shall have the meaning ascribed therefor in under the caption “Sinking Fund –Debt Service Reserve Account” in this Appendix C. “Reserve Account Credit Facility”means any letter of credit, insurance policy, line of credit, or surety bond, together with any substitute or replacement therefor, if any, complying with the provisions of the Bond Ordinance, thereby fulfilling all or a portion of the Debt Service Reserve Requirement. “Reserve Account Credit Facility Agreement”means any agreement between the District and a Reserve Account Facility Provider relating to the issuance of a Reserve Account Credit Facility, as such agreement may be amended from time to time. “Reserve Account Credit Facility Provider”means any provider of a Reserve Account Credit Facility. “Revenue Fund”means the fund by that name established in the Bond Ordinance. “Senior Bonds”means the Series 2004A Bonds, the Series 2006C Bonds, the Series 2008A Bonds, the Series 2010B Bonds and any Bonds, including Senior SRF Bonds, issued with a right to payment and secured by a lien on a parity with the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and the Series 2010B Bonds (except with respect to any Credit Facility which may be available only to one or more series of Senior Bonds and except that Senior SRF Bonds shall not be secured by the Debt Service Reserve Account) pursuant to the Bond Ordinance. “Senior Hedge Agreements”means Hedge Agreements relating to Hedged Bonds which are Senior Bonds. “Senior SRF Bonds”means SRF Bonds which are Senior Bonds. C-11 “Series 2010B Bonds”means the District’s Taxable Wastewater System Revenue Bonds (Build America Bonds –Direct Pay), Series 2010B, in the original aggregate Principal amount of $85,000,000* authorized under the Bond Ordinance. “Series 2010B Costs of Issuance Account”means the account by that name within the Project Fund established in the Bond Ordinance. “Series 2010B Project”means the project as (1) generally described in the report dated September 2002, prepared by the District’s program planners, Sverdrup, Kwame and Metcalf & Eddy, and (2) particularly described in plans and specifications on file from time to time with the District. “Series 2010B Project Account”means the account by that name within the Project Fund established in the Bond Ordinance. “Series 2010B Rebate Account”means the account by that name within the Rebate Fund established in the Bond Ordinance. “Series Ordinance”means a bond ordinance or bond ordinances of the District (which may be supplemented by one or more bond ordinances) to be adopted prior to and authorizing the issuance and delivery of any series of Bonds. The Master Bond Ordinance shall constitute the Series Ordinance for the Series 2004A Bonds, as well as a Master Bond Ordinance for Senior Bonds and Subordinate Bonds. Such a bond ordinance as supplemented shall establish the date or dates of the pertinent series of Bonds, the schedule of maturities of such Bonds, whether any such Bonds will be Capital Appreciation Bonds, the name of the purchaser(s) of such series of Bonds, the purchase price thereof, the rate or rates of interest to be borne thereby, whether fixed or variable, the interest payment dates for such Bonds, the terms and conditions, if any, under which such Bonds may be made subject to redemption (mandatory or optional) prior to maturity, the form of such Bonds, and such other details as the District may determine. “Sinking Fund”means the fund by that name established in the Bond Ordinance. “SRF Bonds”means such Bonds or other obligations issued in connection with the District’s participation in the Missouri State Revolving Fund Program of the Missouri Department of Natural Resources and the State Environmental Improvement and Energy Resources Authority, which SRF Bonds may be Senior SRF Bonds or Subordinate SRF Bonds. “Standard and Poor’s”or “S&P”means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the District. At the time the Master Bond Ordinance was adopted, the notice address of Standard & Poor’s is 25 Broadway, New York, New York 10004. “State”means the State of Missouri. “Subordinate Bonds”means Bonds, including Subordinate SRF Bonds, issued with a right to payment from the Pledged Revenues and secured by a lien on the Pledged Revenues expressly junior and subordinate to the Senior Bonds. “Subordinate Hedge Agreements”means Hedge Agreements relating to Hedged Bonds which are Subordinate Bonds. “Subordinate SRF Bonds”means SRF Bonds which are Subordinate Bonds. *Preliminary; subject to change. C-12 “Supplemental Ordinance”means (a) any Series Ordinance and (b) any modification, amendment, or supplement to the Master Bond Ordinance other than a Series Ordinance. “System”means the sanitary sewer system of the District, as it now exists and as it may be hereafter added to, extended, improved and equipped, either from the proceeds of the Bonds or from any other sources at any time hereafter, including, without limitation, (a) all sanitary sewers, all combined sewers, all pumping stations, all wastewater treatment plants, and all equipment used in connection therewith, all facilities for the collection, treatment and disposal of sewage and wastewater, including industrial wastes, and (b) all other facilities or property of any nature or description, real or personal, tangible or intangible, now or hereafter owned or used by the District in the collection, treatment and disposal of sewage. The District may own a partial interest in any sanitary sewer facility, the remaining interest in which may be owned by or on behalf of a political subdivision of the State or any agency or authority thereof. In case of such ownership, the rights and interests possessed by the District in such facility shall be included as part of the System. “Tax-Exempt Bonds”means any Bonds the interest on which has been determined, in an opinion of Bond Counsel, to be excludable from the gross income of the owners thereof for federal income tax purposes. “Underwriter”means (i) with respect to the Series 2010B Bonds,Merrill Lynch, Pierce, Fenner & Smith Incorporated, St. Louis, Missouri, as representative of the original purchasers of the Series 2010B Bonds, and (ii) with respect to any additional series of Bonds, the underwriter(s) specified in the Series Ordinance authorizing such series of Bonds. “U.S.Treasury Trust Receipts”means receipts or certificates which evidence an undivided ownership interest in the right to the payment of portions of the principal of or interest on obligations described in clauses (a) or (b) of the term Government Obligations, provided that such obligations are held by a bank or trust company organized under the laws of the United States acting as custodian of such obligations, in a special account separate from the general assets of such custodian. “Variable Rate”means a rate of interest applicable to Bonds, other than a fixed rate of interest which applies to a particular maturity of Bonds, so long as that maturity of Bonds remains Outstanding. FUNDS AND ACCOUNTS The District establishes or ratifies the establishment of the following funds and accounts, and the moneys deposited in such funds and accounts shall be held in trust for the purposes set forth in the Bond Ordinance: (a)The Metropolitan St. Louis Sewer District Wastewater Revenue Fund (the “Revenue Fund”), to be held by the Depository for the account of the District. (b)The Metropolitan St. Louis Sewer District Wastewater Sinking Fund (the “Sinking Fund”), to be held by the Depository for the account of the District, and within said Sinking Fund a Payments Account and a Debt Service Reserve Account. (c)The Metropolitan St. Louis Sewer District Wastewater Renewal and Extension Fund (the “Renewal and Extension Fund”), to be held by the Depository for the account of the District. (d)The Metropolitan St.Louis Sewer District Wastewater Rebate Fund (the “Rebate Fund”), to be held by the Depository for the account of the District, and within said Rebate Fund a Series 2010B Rebate Account. C-13 (e)The Metropolitan St. Louis Sewer District Wastewater Project Fund (the “Project Fund”), to be held by the Depository for the account of the District, and within said Project Fund a Series 2010B Project Account and a Series 2010B Costs of Issuance Account. Each account listed above shall be held within the fund under which it is created. The District reserves the right, in its sole discretion, to create additional subaccounts or to abolish any subaccounts within any account from time to time. Revenue Fund The District shall deposit and continue to deposit all Operating Revenues in the Revenue Fund from time to time as and when received. Moneys in the Revenue Fund shall be applied by the District from time to time to the following purposes and, prior to the occurrence and continuation of an Event of Default, in the following order of priority: (1) to pay Expenses of Operation and Maintenance, (2) to deposit into the Sinking Fund the amounts required by the Bond Ordinance and described below under the caption “–Sinking Fund”, (3) to make Replenishment Payments to the Debt Service Reserve Account and to pay to any Credit Facility Provider any amounts due under a Credit Facility Agreement, including Additional Interest, in accordance with the Bond Ordinance and described below under the caption “–Sinking Fund –Debt Service Reserve Account,” (4) to deposit into the Rebate Fund the amounts required by the Bond Ordinance, (5) to pay any amounts due any Reserve Account Credit Facility Provider pursuant to the Reserve Account Credit Facility Agreement, (6)to deposit the amounts required to be deposited into the funds and accounts created by any Series Ordinance authorizing the issuance of Subordinate Bonds, for the purpose of paying Principal of (whether at maturity, upon mandatory redemption or as otherwise required by a Series Ordinance relating to Subordinate SRF Bonds) and interest on Subordinate Bonds, making Hedge Contingency Payments under Senior Hedge Agreements, making Contingency Payments under Senior Hedge Agreements, making Hedge Payments and making Hedge Contingency Payments under Subordinate Hedge Agreements, and accumulating reserves for such payments, (7) to make Accumulation Payments to the Debt Service Reserve Account in accordance with the Bond Ordinance and described below under the caption “–Sinking Fund –Debt Service Reserve Account,” and (8) to pay any amounts required to be paid with respect to any Other System Obligations. In addition to, and after, the deposits described above, the District may from time to time deposit into the Renewal and Extension Fund any moneys and securities held in the Revenue Fund in excess of 45 days’ estimated Expenses of Operation and Maintenance. Any money withdrawn from the funds and accounts described in clause (6) above relating to Subordinate Bonds for use in making payments described in said clause (6) shall be released from the lien of the Bond Ordinance. If at any time the amounts in any account of the Sinking Fund are less than the amounts required by the Bond Ordinance, and there are not on deposit in the Renewal and Extension Fund available moneys sufficient to cure any such deficiency, then the District shall withdraw from the funds and accounts of the District relating to Subordinate Bonds and deposit in such account of the Sinking Fund, as the case may be, the amount necessary (or all the moneys in such funds and accounts, if less than the amount required) to make up such deficiency. Sinking Fund Payments Account-General.Sufficient moneys shall be paid in periodic installments from the Revenue Fund into the Payments Account for the purpose of paying the Principal of and interest (excluding Additional Interest) on the Senior Bonds as they become due and payable and for the purpose of making Hedge Payments under Senior Hedge Agreements. Amounts held in the Payments Account shall be used solely to pay interest (excluding Additional Interest) and Principal of the Senior Bonds as the same become due and payable (whether at maturity or upon redemption) and to pay Hedge Payments under Senior Hedge Agreements when due. Amounts held in the Payments Account shall not be used to pay Additional Interest. C-14 Interest.Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Interest Payment Date for Senior Bonds (or, in the case of Senior Bonds bearing interest at a Variable Rate, on or before the Business Day preceding each Interest Payment Date), the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment and, in the case of Senior SRF Bonds, anticipated investment earnings on reserve funds held by a bond trustee relating to such Senior SRF Bonds, is not less than the interest (excluding Additional Interest) coming due on such Senior Bonds on such Interest Payment Date. The District shall also deposit and continue to deposit all Hedge Receipts under Senior Hedge Agreements in the Payments Account from time to time as and when received. Principal.Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Principal Maturity Date for Senior Bonds, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than the Principal coming due on such Senior Bonds on such Principal Maturity Date. Hedge Payments.On or before the 30th day preceding each payment date for Hedge Payments under Senior Hedge Agreements, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than such Hedge Payments coming due on such payment date. Application of Moneys in Payments Account.No further payments need be made into the Payments Account whenever the amount available in the Payments Account, if added to the amount then in the Debt Service Reserve Account (without taking into account any amount available to be drawn on any Reserve Account Credit Facility), is sufficient to retire all Senior Bonds then Outstanding and to pay all unpaid interest accrued and to accrue prior to such retirement. No moneys in the Payments Account shall be used or applied to the optional purchase or redemption of Senior Bonds prior to maturity unless: (i) provision shall have been made for the payment of all of the Senior Bonds; or (ii) such moneys are applied to the purchase and cancellation of Senior Bonds which are subject to mandatory redemption on the next mandatory redemption date, which falls due within 12 months, such Senior Bonds are purchased at a price not more than would be required for mandatory redemption, and such Senior Bonds are cancelled upon purchase; or (iii) such moneys are applied to the purchase and cancellation of Senior Bonds at a price less than the amount of Principal which would be payable on such Senior Bonds, together with interest accrued through the date of purchase, and such Senior Bonds are cancelled upon purchase; or (iv) such moneys are in excess of the then required balance of the Payments Account and are applied to redeem a part of the Senior Bonds Outstanding on the next succeeding redemption date for which the required notice of redemption may be given. Debt Service Reserve Account.Upon the issuance of the Series 2010B Bonds, the District shall deposit into the Debt Service Reserve Account the amount specified in the Bond Ordinance. There shall be deposited into the Debt Service Reserve Account the amounts specified in Series Ordinances with respect to Senior Bonds. Notwithstanding the foregoing, there shall be no deposit into the Debt Service Reserve Account with respect to any SRF Bonds nor shall the Debt Service Reserve Account secure any SRF Bonds. After the issuance of any Senior Bonds, the increase in the amount of the Debt Service Reserve Requirement resulting from the issuance of such Senior Bonds shall be accumulated, to the extent not covered by deposits from Bond proceeds or funds on hand, over a period not exceeding 61 months from the date of delivery of such Senior Bonds in monthly deposits (“Accumulation Payments”), none of which is less than 1/60 of the amount to be accumulated. The balance of the Debt Service Reserve Account shall be maintained at an amount equal to the Debt Service Reserve Requirement (or such lesser amount that is required to be accumulated in the Debt Service Reserve Account in connection with the periodic accumulation to the Debt Service Reserve Requirement after the issuance of Senior Bonds or upon the failure of the District to provide a substitute Reserve Account Credit Facility in certain events). There shall be transferred from the Revenue Fund on a pro rata basis (1) to the Debt Service Reserve Account the amount necessary to restore, as further described below, the amount of cash and securities in the Debt Service Reserve Account to an amount equal to the difference C-15 between (a) the Debt Service Reserve Requirement (or such lesser monthly amount that is required to be deposited into the Debt Service Reserve Account after the issuance of Senior Bonds or upon the failure of the District to provide a substitute Reserve Account Credit Facility in certain events) and (b) the portion of the required balance of the Debt Service Reserve Account satisfied by means of a Reserve Account Credit Facility, and (2) to any Reserve Account Credit Facility Provider the amount necessary to reinstate any Reserve Account Credit Facility which has been drawn down. Whenever for any reason the amount in the Payments Account is insufficient to pay all interest or Principal becoming due on the Senior Bonds within the next seven days (or, in the case of Senior Bonds bearing interest at a Variable Rate, on the next Business Day), the District shall make up any deficiency by transfers first from the Renewal and Extension Fund and second from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds. Whenever, on the date that such interest or Principal is due, there are insufficient moneys in the Payments Account available to make such payment, the District shall, without further instructions, apply so much as may be needed of the moneys in the Debt Service Reserve Account to prevent default in the payment of such interest or Principal, with priority to interest payments. Whenever by reason of any such application or otherwise (other than required Accumulation Payments), the amount remaining to the credit of the Debt Service Reserve Account is less than the amount then required to be in the Debt Service Reserve Account, such deficiency shall be remedied by monthly deposits (“Replenishment Payments”) from the Revenue Fund, to the extent funds are available in the Revenue Fund for such purpose after all required transfers set forth above have been made. The District may elect to satisfy in whole or in part the Debt Service Reserve Requirement by means of a Reserve Account Credit Facility, subject to the following requirements: (A) the Reserve Account Credit Facility Provider must have a credit rating issued by a Rating Agency not less than the then current Rating on the related series of Senior Bonds (or, in the case of a series of Senior Bonds supported by a Credit Facility, the underlying rating on such Senior Bonds); (B) the District shall not secure any obligation to the Reserve Account Credit Facility Provider by a lien equal to or superior to the lien granted to the related series of Senior Bonds; (C) each Reserve Account Credit Facility shall have a term of at least one (1) year (or, if less, the remaining term of the related series of Senior Bonds) and shall entitle the District to draw upon or demand payment and receive the amount so requested in immediately available funds on the date of such draw or demand; (D) the Reserve Account Credit Facility shall permit a drawing by the District for the full stated amount in the event (i) the Reserve Account Credit Facility expires or terminates for any reason prior to the final maturity of the related series of Senior Bonds, and (ii) the District fails to satisfy the Debt Service Reserve Requirement by the deposit to the Debt Service Reserve Account of cash, obligations, a substitute Reserve Account Credit Facility, or any combination thereof, on or before the date of such expiration or termination; (E) if the Rating issued by the Rating Agency to the Reserve Account Credit Facility Provider is withdrawn or reduced below the Rating assigned to the related series of Senior Bonds immediately prior to such action by the Rating Agency, the District shall provide a substitute Reserve Account Credit Facility within sixty (60) days after such rating change, and, if no substitute Reserve Account Credit Facility is obtained by such date, shall fund the Debt Service Reserve Requirement in not more than twenty-four (24) equal monthly deposits commencing not later than the first day of the month immediately succeeding the date representing the end of such sixty (60) day period; (F) if the Reserve Account Credit Facility Provider commences any insolvency proceedings or is determined to be insolvent or fails to make payments when due on its obligations, the District shall provide a substitute Reserve Account Credit Facility within sixty (60) days thereafter, and, if no substitute Reserve Account Credit Facility is obtained by such date, shall fund the Debt Service Reserve Requirement in not more than twenty-four (24) equal monthly deposits commencing not later than the first day of the month immediately succeeding the date representing the end of such sixty (60) day period; and (G) the prior written consent of the Credit Facility Provider, as to the provider and the structure of the Reserve Account Credit Facility, shall be obtained by the District. If the events described in either clauses (E) or (F) above occur, the District shall not relinquish the Reserve Account Credit Facility at issue until after the Debt Service Reserve Requirement is fully satisfied by the provision of cash, obligations, or a substitute Reserve Account Credit Facility or any combination thereof. Any amount received from the Reserve Account Credit Facility shall be deposited directly into the Payments Account, and such deposit shall constitute the application of amounts in the Debt Service Reserve Account. Repayment of any draw-down on the Reserve C-16 Account Credit Facility (other than repayments which reinstate the Reserve Account Credit Facility) and any interest or fees due the Reserve Account Credit Facility Provider under such Reserve Account Credit Facility shall be secured by a lien on the Pledged Revenues subordinate to payments into the Sinking Fund and the Rebate Fund and payments to any Credit Facility Provider securing Senior Bonds. Any such Reserve Account Credit Facility shall be pledged to the benefit of the owners of all of the Senior Bonds. The District reserves the right, if it deems it necessary in order to acquire such a Reserve Account Credit Facility, to amend the Bond Ordinance without the consent of any of the owners of the Bonds in order to grant to the Reserve Account Credit Facility Provider such additional rights as it may demand, provided that such amendment shall not, in the written opinion of Bond Counsel filed with the District,impair or reduce the security granted to the owners of Senior Bonds or any of them. Deposit of Interest Subsidy Payments on the Series 2010B Bonds.The interest subsidy payments to be received from the United States Treasury Department under the “Build America Bonds” program shall be deposited in the Sinking Fund. Renewal and Extension Fund In addition to the deposits to be made to the Renewal and Extension Fund pursuant to the Bond Ordinance, the District shall deposit in the Renewal and Extension Fund all termination payments received under any Hedge Agreements. All sums accumulated and retained in the Renewal and Extension Fund shall be used first to prevent default in the payment of interest on or Principal of the Senior Bonds when due and then shall be applied by the District from time to time, as and when the District shall determine, to the following purposes and, prior to the occurrence and continuation of an Event of Default, in the order of priority determined by the District in its sole discretion: (a) for the purposes for which moneys held in the Revenue Fund may be applied under the Bond Ordinance, (b) to pay any amounts which may then be due and owing under any Hedge Agreement (including termination payments, fees, expenses, and indemnity payments), (c) to pay any governmental charges and assessments against the System or any part thereof which may then be due and owing, (d) to make acquisitions, betterments, extensions, repairs, or replacements or other capital improvements (including the purchase of equipment) to the System deemed necessary by the District (including payments under contracts with vendors, suppliers, and contractors for the foregoing purposes), (e) to acquire Senior Bonds by redemption or by purchase in the open market at a price not exceeding the callable price as provided and in accordance with the terms and conditions of the Bond Ordinance, which Senior Bonds may be any of the Senior Bonds, prior to their respective maturities, and when so used for such purposes the moneys shall be withdrawn from the Renewal and Extension Fund and deposited into the Payments Account for the Senior Bonds to be so redeemed or purchased and (f) for any other purpose of the District. Payments for the purposes set forth in clause (e) of the preceding sentence are not “required payments” for purposes of the District’s rate covenant set forth in the Bond Ordinance. Rebate Fund The District shall calculate, from time to time, as required in order to comply with the provisions of Section 148(f) of the Code, the amounts required to be rebated (including penalties) to the United States and shall deposit or cause to be deposited into the Rebate Fund any and all of such amounts promptly following a determination of any such amount. The District shall direct the Depository of the Rebate Fund to keep all moneys held therein invested in Permitted Investments. To the extent and at the times required in order to comply with Section 148(f) of the Code, the District may withdraw funds from the Rebate Fund for the purpose of making rebate payments (including penalties) to the United States as required by Section 148(f) of the Code. Except as otherwise specifically provided in the Bond Ordinance, moneys in the Rebate Fund may not be withdrawn from the Rebate Fund for any other purpose. C-17 All earnings on investments held in the Rebate Fund shall be retained in the Rebate Fund and shall become part of the Rebate Fund. Moneys held in the Rebate Fund, including the Investment Earnings thereon, if any, shall not be subject to a pledge in favor of the owners of the Bonds under the Bond Ordinance and may not be used to pay amounts due on the Bonds or under any Credit Facility Agreements or Hedge Agreements or amounts required for the operation, maintenance, enlargement, or extension of the System. Project Fund The District shall establish within the Project Fund a separate account for each Project. Except as may be otherwise provided in the Series Ordinance authorizing the issuance of SRF Bonds, moneys in the Project Fund shall be held by the Depository, or such other bank as may from time to time be designated by the District, and applied to the payment of the Costs of the Project, or for the repayment of advances made for that purpose in accordance with and subject to the provisions and restrictions set forth in the Bond Ordinance. The District covenants that it will not cause or permit to be paid from the Project Fund any sums except in accordance with such provisions and restrictions; provided, however, that any moneys in the Project Fund not presently needed for the payment of current obligations during the course of construction may be invested in Permitted Investments maturing not later than (i) the date upon which such moneys will be needed according to a schedule of anticipated payments from the Project Fund filed with the District by the Consultant in charge of the Project or (ii) in the absence of such schedule, 36 months from the date of purchase, in either case upon written direction of the District. Any such investments shall be held by the Depository, in trust, for the account of the Project Fund until maturity or until sold, and at maturity or upon such sale the proceeds received therefrom including accrued interest and premium, if any, shall be immediately deposited by the Depository in the Project Fund and shall be disposed of in the manner and for the purposes provided in the Bond Ordinance. At such time as the Depository is furnished with a certificate from the Chief Financial Officer stating that all Costs of Issuance have been paid, and in any case not later than 6 months after the date of issuance of the Series 2010B Bonds, the Depository shall transfer any money in the Series 2010B Costs of Issuance Account to the Series 2010B Project Account of the Project Fund. Moneys in each separate account in the Project Fund shall be used for the payment or reimbursement of the Costs of the Project for which such account was established as provided in the Bond Ordinance. All payments from the Project Fund shall be made upon draft except as provided in the Bond Ordinance, signed by an officer of the District properly authorized to sign on its behalf, but before such officer shall sign any such draft, there shall be filed with the Depository a requisition for such payment, in substantially the form attached as an exhibit to the Bond Ordinance, stating each amount to be paid and the name of the person to whom payment is due, and certifying: (a)That an obligation in the stated amount has been incurred by the District and that the same is a proper charge against the Project Fund and has not been paid and stating that the bill or statement of account for such obligation, or a copy thereof, is on file in the office of the District; (b)That the signer has no notice of any vendor’s, mechanic’s, or other liens or rights to liens, chattel mortgages, or conditional sales contracts which should be satisfied or discharged before such payment is made; and (c)That such requisition contains no item representing payment on account of any retained percentages which the District is, at the date of any such certificate, entitled to retain. In the event the United States government or government of the State, or any department, authority, or agency of either, agrees to allocate moneys to be used to defray any part of the Cost of any Project upon the condition that the District appropriate a designated amount of moneys for such purpose, and it is required of the District that its share of such cost be deposited in a special account, the District shall have the right to C-18 withdraw any sum so required from the Project Fund by appropriate transfer and deposit the same in a special account for that particular Project; provided, however, that all payments thereafter made from such special account shall be made only in accordance with the requirements set forth in the Bond Ordinance. Withdrawals for investment purposes only may be made by the Depository to comply with written directions from the District without any requisition other than such direction. For each series of Bonds, the District shall, when a Project has been completed, and may, when a Project has been substantially completed, file with the Depository a certificate signed by the Chief Financial Officer estimating what portion of the funds remaining in the separate account relating to such Project will be required by the District for the payment or reimbursement of the Costs of such Project. The Chief Financial Officer shall attach to his or her certificate a certificate of the supervising engineer certifying that such Project has been completed or substantially completed, as the case may be, in accordance with the plans and specifications therefor and approving the estimates of the Chief Financial Officer with respect to the portion of funds in the account required for Costs of the Project. Such funds that will not be used shall be (1) transferred to the Payments Account and used to redeem Bonds of the related series on the next redemption date or to pay Principal of such Bonds on the next Principal Maturity Date, or (2) transferred to the Payments Account and used to pay interest on Bonds of the related series, provided that the District shall first obtain an opinion of Bond Counsel to the effect that, under existing law, the application of such moneys to pay interest on such Bonds (a) is allowed under State law, and (b) if such Bonds are Tax-Exempt Bonds, will not, by itself and without more, adversely affect the exclusion from gross income for federal income tax purposes of interest payable on such Bonds. When all moneys have been withdrawn or transferred from any separate account within the Project Fund in accordance with the provisions of the Bond Ordinance, such separate account shall terminate and cease to exist. DEPOSITS AND INVESTMENTS All moneys in the funds and accounts established under the Bond Ordinance, except those funds and accounts created by a Series Ordinance in connection with the issuance of SRF Bonds, shall be held by the District in one or more Depositories qualified for use by the District. Uninvested moneys shall, at least to the extent not guaranteed by the Federal Deposit Insurance Corporation, be secured to the fullest extent required by the laws of the State for the security of public funds. Moneys in the funds and accounts established under the Bond Ordinance, except those funds and accounts created by a Series Ordinance in connection with the issuance of SRF Bonds, shall be invested and reinvested in Permitted Investments bearing interest at the highest rates reasonably available (except to the extent that a restricted yield is required or advisable under Section 148 of the Code) and containing such maturities as are deemed suitable by the District; provided, however, that without the prior written consent of the Credit Facility Provider, investments of moneys in the Debt Service Reserve Account shall not have maturities extending beyond five years. Investment of moneys in funds and accounts created by a Series Ordinance in connection with the issuance of SRF Bonds shall be as set forth in such Series Ordinance. Investment Earnings in each fund and account (except the Debt Service Reserve Account) shall be retained therein. Investment Earnings from the investment of moneys in the Debt Service Reserve Account shall be retained in the Debt Service Reserve Account at all times the balance is less than the Debt Service Reserve Requirement; thereafter and at all times the balance of the Debt Service Reserve Account is equal to or greater than the Debt Service Reserve Requirement, such Investment Earnings shall be deposited in the Payments Account. The Series Ordinance authorizing the issuance of any Subordinate Bonds shall specify any maturity limitations and allocations of Investment Earnings on investments of moneys in the funds and accounts relating to such Subordinate Bonds. C-19 Moneys in each of such funds shall be accounted for as a separate and special fund apart from all other District funds, provided that investments of moneys therein may be made in a pool of investments together with other moneys of the District so long as sufficient Permitted Investments in such pool, not allocated to other investments of contractually or legally limited duration, are available to meet the requirements of the foregoing provisions. All investments made under the Bond Ordinance shall, for purposes of the Bond Ordinance, be valued at fair market value on the 45th day (or the next succeeding Business Day if such 45th day is not a Business Day) prior to each Interest Payment Date. The valuation of the investment of moneys in funds and accounts created by a Series Ordinance in connection with the issuance of SRF Bonds shall be as set forth in such Series Ordinance. MAINTENANCE OF SYSTEM The District covenants that it will enforce reasonable rules and regulations governing the System and the operation thereof, that it will operate the System in an efficient and economical manner and will at all times maintain the System in good repair and in sound operating condition, that it will make all necessary repairs, renewals, and replacements to the System, and that it will comply with all valid acts, rules, regulations, orders, and directions of any legislative, executive, administrative, or judicial body applicable to the System and the District’s operation thereof. RATE COVENANT See the heading “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS –Rate Covenant.” INSURANCE With respect to the System, the District will carry adequate public liability, fidelity and property insurance, such as is maintained by similar utilities as the System. The District shall indemnify itself against the usual hazards incident to the construction of any Project, and without in any way limiting the generality of the above, shall: (a) require each construction contractor and each subcontractor to furnish a bond, or bonds, of such type and in amounts adequate to assure the faithful performance of their contracts and the payment of all bills and claims for labor and material arising by virtue of such contracts; and (b) require each construction contractor or the subcontractor to maintain at all times until the completion and acceptance of the Project adequate compensation insurance for all of their employees and adequate public liability and property damage insurance for the full and complete protection of the District from any and all claims of every kind and character which may arise by virtue of the operations under their contracts, whether such operations be by themselves or by anyone directly or indirectly for them, or under their control. All such policies shall be for the benefit of and made payable to the District and shall be on deposit with the District; provided, however, the District may elect to be a self-insurer with respect to any risks for which insurance is required under the Bond Ordinance. The cost of such insurance may be paid as an Expense of Operation and Maintenance. All moneys received for losses under any such insurance policies, except public liability policies, are pledged by the District as security for the Bonds until and unless such proceeds are paid out in making good the loss or damage in respect of which such proceeds are received, either by repairing the property damaged or replacing the property destroyed or by depositing the same in the Renewal and Extension Fund. Adequate provision for making good such loss and damage shall be made within 120 days from the date of the loss. Insurance proceeds not used in making such provision shall be deposited in the Renewal and Extension Fund C-20 on the expiration of such 120-day period. Such insurance proceeds shall be payable to the District by appropriate clause to be attached to or inserted in the policies. NO SALE,LEASE OR ENCUMBRANCE; EXCEPTIONS Except as expressly permitted in the Bond Ordinance, the District irrevocably covenants, binds, and obligates itself not to sell, lease, encumber, or in any manner dispose of the System as a whole or in part until all of the Bonds and all interest thereon shall have been paid in full or provision for payment has been made in accordance with the Bond Ordinance. The District shall have and reserves the right to sell, lease, or otherwise dispose of any of the property comprising a part of the System in the following manner, if any one of the following conditions exists: (i)such property is not necessary for the operation of the System; (ii) such property is not useful in the operation of the System; (iii) such property is not profitable in the operation of the System; or (iv) the disposition of such property will be advantageous to the System and will not adversely affect the security for the Bondholders. All proceeds of any such sale, lease or other disposition shall be deposited in the Renewal and Extension Fund. Prior to any such sale, lease or other disposition, there shall be filed with the District: (i) an opinion of Bond Counsel to the effect that such sale, lease or other disposition will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes (provided that such opinion shall not be required if the Chief Financial Officer determines that such portion of the System was not financed with the proceeds of any Tax-Exempt Bonds); and (ii) an opinion of a Consultant expressing the view that such sale, lease or other disposition will not result in any diminution of Net Operating Revenues to the extent that in any future Fiscal Year the Net Operating Revenues and Investment Earnings will be less than (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds to be Outstanding after such sale, lease or other disposition or (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds to be Outstanding after such sale, lease or other disposition.In reaching this conclusion, the Consultant shall take into consideration such factors as the Consultant may deem significant, including (i) anticipated diminution of Operating Revenues, (ii) anticipated increase or decrease in Expenses of Operation and Maintenance attributable to the sale, lease or other disposition, and (iii) reduction in the annual Debt Service Requirement attributable to the application of the proceeds of such sale, lease or other disposition to the provision for payment of Bonds theretofore Outstanding. Such sale, lease or other disposition may include a partial interest in a sanitary sewer facility owned or to be owned in whole or in part by the District. The District reserves the right to transfer the System as a whole to any political subdivision or authority or agency of one or more political subdivisions of the State to which may be delegated the legal authority to own and operate the System, or any portion thereof, on behalf of the public, and which undertakes in writing, filed with the District, the District’s obligations under the Bond Ordinance, provided that there shall be first filed with the District: (i) an opinion of Bond Counsel to the effect that such sale will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes; and (ii) an opinion of a Consultant expressing the view that such transfer will not result in any diminution of Net Operating Revenues to the extent that in any future Fiscal Year the Net Operating Revenues and Investment Earnings will be less than (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds to be Outstanding after such transfer or (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds to be Outstanding after such transfer. In reaching this conclusion, the Consultant shall take into consideration such factors as the Consultant may deem significant, including any rate schedule adopted by the transferee political subdivision, authority, or agency. Upon receipt of an opinion of Bond Counsel to the effect that such action will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes, the District may enter into such management contracts and sale/leaseback agreements as the District C-21 may deem appropriate, and such management contracts and sale/leaseback agreements shall not constitute a sale, lease or other disposition within the meaning of the Bond Ordinance. ENFORCEMENT OF CHARGES AND CONNECTIONS Except as otherwise determined in accordance with District policy and provided that such action or inaction will not materially impair the rights of the Bondholders, the District shall compel the prompt payment of rates, fees, and charges imposed for service rendered on every lot or parcel connected with the System, and to that end will vigorously enforce all of the provisions of any resolution or ordinance of the District having to do with sanitary sewer connections and with sanitary sewer charges, and all of the rights and remedies permitted the District under law. The District expressly covenants and agrees that such charges will be enforced and promptly collected to the full extent permitted by law, including the requirement for the making of reasonable deposits by customers of the System to the extent required by the District and the securing of injunctions against the disposition of sewage or industrial waste into the System by any premises delinquent in the payment of such charges. None of the facilities or services afforded by the System will be furnished to any user without a reasonable charge being made therefor. ANNUAL BUDGET The District agrees to adopt an Annual Budget for the System for each Fiscal Year in compliance with the Charter and the rate covenants as stated in the Bond Ordinance. BOOKS AND AUDITS The District will install and maintain proper books, records and accounts for the System according to standard accounting practices for the operation of facilities comparable to the System. Annual audits will be made by a certified public accountant. SENIOR AND SUBORDINATE LIEN BONDS No Prior Lien Bonds nor Senior Bonds Except as Permitted in the Bond Ordinance All Senior Bonds shall have complete parity of lien on the Pledged Revenues despite the fact that any of the Senior Bonds may be delivered at an earlier date than any other of the Senior Bonds. The District may issue Senior Bonds in accordance with the Bond Ordinance, but the District shall issue no other obligations of any kind or nature payable from or enjoying a lien on the Pledged Revenues or any part thereof having priority over or, except as permitted in the Bond Ordinance, on a parity with the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and the Series 2010B Bonds. Refunding Bonds Any or all of the Senior Bonds may be refunded prior to maturity, upon redemption in accordance with their terms, or with the consent of the owners of such Senior Bonds, and the refunding Bonds so issued shall constitute Senior Bonds, if: (a)The District shall have obtained a report from an Independent Certified Public Accountant or a Financial Advisor demonstrating that the refunding will reduce the total debt service payments on Outstanding Senior Bonds on a present value basis. C-22 (b)As an alternative to, and in lieu of, satisfying the requirements of paragraph (a) above, all Outstanding Senior Bonds are being refunded under arrangements which immediately result in making provision for the payment of the refunded Bonds. (c)The requirements described in paragraphs (e) and (g) below under the caption “-Senior Bonds”) are met with respect to such refunding Bonds. Senior Bonds Bonds (including refunding Bonds which do not meet the requirements of the Bond Ordinance described above under the caption “–Refunding Bonds” may also be issued on a parity with the Series 2004A Bonds,the Series 2006C Bonds,the Series 2008A Bonds and the Series 2010B Bonds pursuant to a Series Ordinance, and the Bonds so issued shall constitute Senior Bonds, if all of the following conditions are satisfied: (a)There shall have been filed with the District either: (i)a report by an Independent Certified Public Accountant to the effect that the historical Net Operating Revenues and Investment Earnings for a period of 12 consecutive months of the most recent 18 consecutive months prior to the issuance of the proposed Senior Bonds were equal to at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds, or (ii)a report by a Consultant to the effect that the forecasted Net Operating Revenues and Investment Earnings for each Fiscal Year in the Forecast Period are expected to equal at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds. The report by the Independent Certified Public Accountant that is required by the Bond Ordinance and described in subparagraph (i) above may contain pro forma adjustments to historical Net Operating Revenues equal to 100% of the increased annual amount attributable to any revision in the schedule of rates, fees, and charges for the services, facilities, and commodities furnished by the System, adopted prior to the date of delivery of the proposed Senior Bonds and not fully reflected in the historical Net Operating Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of a Consultant as to the amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. The report by the Consultant that is required by the Bond Ordinance and described in subparagraph (ii) above may not take into consideration any rate schedule to be imposed in the future, unless such rate schedule has been adopted by ordinance of the Governing Body. Such rate schedule adopted by ordinance may contain, however, future effective dates. (b)The District shall have received, at or before issuance of the Senior Bonds, a report from an Independent Certified Public Accountant to the effect that the payments required to be made into each account of the Sinking Fund have been made and the balance in each account of the Sinking Fund is not less than the balance required by the Bond Ordinance as of the date of issuance of the proposed Senior Bonds. C-23 (c)Except with respect to Senior SRF Bonds, the Series Ordinance authorizing the proposed Senior Bonds must require (i) that the amount to be accumulated and maintained in the Debt Service Reserve Account be increased to not less than 100% of the Debt Service Reserve Requirement computed on a basis which includes all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds and (ii) that the amount of such increase be deposited in such account on or before the date and at least as fast as specified in the Bond Ordinance. (d)The Series Ordinance authorizing the proposed Senior Bonds must require the proceeds of such proposed Senior Bonds to be used solely to make capital improvements to the System, to fund interest on the proposed Senior Bonds, to acquire existing or proposed sanitary sewer utilities, to refund other obligations issued for such purposes (whether or not such refunding Bonds satisfy the requirements of the Bond Ordinance described above under the caption “–Refunding Bonds”), and to pay expenses incidental thereto and to the issuance of the proposed Senior Bonds. (e)If any Senior Bonds would bear interest at a Variable Rate, the Series Ordinance under which such Senior Bonds are issued shall provide a maximum rate of interest per annum which such Senior Bonds may bear. (f)The Chief Officer shall have certified, by written certificate dated as of the date of issuance of the Senior Bonds, that the District is in compliance with all requirements of the Bond Ordinance. (g)The District shall have received an opinion of Bond Counsel, dated as of the date of issuance of the Senior Bonds, to the effect that the Series Ordinance and any related Supplemental Ordinance authorizing the issuance of Senior Bonds have been duly adopted by the District. Subordinate Bonds Bonds may also be issued on a subordinate basis to the Series 2004A Bonds, the Series 2006C Bonds, the Series 2008A Bonds, the Series 2010B Bonds and any other Senor Bonds pursuant to a Series Ordinance, and the Bonds so issued shall constitute Subordinate Bonds, if all of the following conditions are satisfied: (a)There shall have been filed with the District either: (i)a report by an Independent Certified Public Accountant to the effect that the historical Net Operating Revenues and Investment Earnings for a period of 12 consecutive months of the most recent 18 consecutive months prior to the issuance of the proposed Subordinate Bonds were equal to at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds, or (ii)a report by a Consultant to the effect that the forecasted Net Operating Revenues and Investment Earnings for each Fiscal Year in the Forecast Period are expected to equal at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds. The report by the Independent Certified Public Accountant that is required by the Bond Ordinance and described in subparagraph (i) above may contain pro forma adjustments to historical Net Operating Revenues equal to 100% of the increased annual amount attributable to any revision in the schedule of rates, fees, and C-24 charges for the services, facilities, and commodities furnished by the System, adopted prior to the date of delivery of the proposed Subordinate Bonds and not fully reflected in the historical Net Operating Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of a Consultant as to the amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. The report by the Consultant that is required by the Bond Ordinance and described in subparagraph (ii) above may not take into consideration any rate schedule to be imposed in the future, unless such rate schedule has been adopted by ordinance of the Governing Body.Such rate schedule adopted by ordinance may contain, however, future effective dates. (b)The Series Ordinance authorizing the Subordinate Bonds shall provide that such Subordinate Bonds shall be junior and subordinate in lien and right of payment to all Senior Bonds Outstanding at any time. (c)The Series Ordinance authorizing the Subordinate Bonds shall establish funds and accounts for the moneys to be used to pay debt service on the Subordinate Bonds, to pay Hedge Payments under Subordinate Hedge Agreements, and to provide reserves therefor. (d)The requirements of the Bond Ordinance described in paragraphs (d), (e) and (g) above under the caption “–Senior Bonds”) are met with respect to such Subordinate Bonds (as if such Bonds constituted Senior Bonds). In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization, or other similar proceedings in connection therewith, relative to the District or to its creditors, as such, or to its property, and in the event of any proceedings for voluntary liquidation, dissolution, or other winding up of the District, whether or not involving insolvency or bankruptcy, the owners of all Senior Bonds then Outstanding and related Qualified Hedge Providers shall be entitled to receive payment in full of all Principal and interest due on all such Senior Bonds in accordance with the provisions of the Bond Ordinance and related Hedge Payments in accordance with the provisions of the Senior Hedge Agreements before the owners of the Subordinate Bonds or related Qualified Hedge Providers are entitled to receive any payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance on account of Principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements. In the event that any of the Subordinate Bonds are declared due and payable before their expressed maturities because of the occurrence of an Event of Default (under circumstances when the provisions of preceding paragraph are not be applicable), no owners of Subordinate Bonds or related Qualified Hedge Providers may receive any accelerated payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance of Principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements, until the owners of all Senior Bonds Outstanding and related Qualified Hedge Providers have received timely payment when due of all Principal of and interest on all such Senior Bonds and all Hedge Payments under related Senior Hedge Agreements. If any Event of Default shall have occurred and be continuing (under circumstances when the provisions of second preceding paragraph are not applicable), the owners of all Senior Bonds then Outstanding and related Qualified Hedge Providers shall be entitled to receive payment in full of all Principal and interest then due on all such Senior Bonds and all Hedge Payments under related Senior Hedge Agreements before the owners of the Subordinate Bonds or related Qualified Hedge Providers are entitled to receive any Payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance of Principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements. C-25 The obligations of the District to pay to the owners of the Subordinate Bonds the Principal of, premium, if any, and interest thereon in accordance with their terms and to pay Hedge Payments to related Qualified Hedge Providers in accordance with the terms of the Subordinate Hedge Agreements shall be unconditional and absolute. Nothing in the Bond Ordinance shall prevent the owners of the Subordinate Bonds or related Qualified Hedge Providers from exercising all remedies otherwise permitted by applicable law or under the Bond Ordinance or the Subordinate Hedge Agreements upon default thereunder, subject to the rights contained in the Bond Ordinance of the owners of Senior Bonds and related Qualified Hedge Providers to receive cash, property, or securities otherwise payable or deliverable to the owners of the Subordinate Bonds and related Qualified Hedge Providers, and any Series Ordinance authorizing Subordinate Bonds may provide that, insofar as a trustee or paying agent for the Subordinate Bonds is concerned, the foregoing provisions shall not prevent the application by such trustee or paying agent of any moneys deposited with such trustee or paying agent for the purpose of the payment of or on account of the Principal of, premium, if any, and interest on such Subordinate Bonds and Hedge Payments under Subordinate Hedge Agreements if such trustee or paying agent did not have knowledge at the time of such application that such payment was prohibited by the foregoing provisions. Any series of Subordinate Bonds and related Subordinate Hedge Agreements may have such rank or priority with respect to any other series of Subordinate Bonds and related Subordinate Hedge Agreements as may be provided in the Series Ordinance authorizing such series of Subordinate Bonds and may contain such other provisions as are not in conflict with the provisions of the Bond Ordinance. Accession of Subordinate Bonds and Related Subordinate Hedge Agreements to Senior Status By proceedings authorizing all or any Subordinate Bonds, the District may provide for the accession of such Subordinate Bonds and related Subordinate Hedge Agreements to the status of complete parity with the Senior Bonds and related Senior Hedge Agreements if, as of the date of accession, the conditions of the Bond Ordinance described in subparagraphs (a), (e) and (f) above under the caption “–Senior Bonds”) are satisfied, on a basis which includes all Outstanding Senior Bonds and such Subordinate Bonds, and if on the date of accession: (a)the Debt Service Reserve Account contains an amount equal to the Debt Service Reserve Requirement computed on a basis which includes all Outstanding Senior Bonds and such Subordinate Bonds (but which excludes, in the case of both Outstanding Senior Bonds and such Subordinate Bonds, any SRF Bonds); and (b)the Payments Account contains the amount which would have been required to be accumulated therein on the date of accession if the Subordinate Bonds had originally been issued as Senior Bonds. Credit Facilities and Hedge Agreements In connection with the issuance of any Bonds under the Bond Ordinance, the District may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the Principal of, premium, if any, or interest due or to become due on such Bonds, providing for the purchase of such Bonds by the Credit Facility Provider, or providing funds for the purchase of such Bonds by the District. In connection therewith the District shall enter into Credit Facility Agreements with such Credit Facility Providers providing for, among other things, (i) the payment of fees and expenses to such Credit Facility Providers for the issuance of such Credit Facilities; (ii) the terms and conditions of such Credit Facilities and the Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facilities. The District may secure any Credit Facility by an agreement providing for the purchase of the Bonds secured thereby with such adjustments to the rate of interest, method of determining interest, maturity, or redemption provisions as are specified by the District in the applicable Series Ordinance. The District may in a Credit Facility Agreement agree to directly reimburse such Credit Facility Provider for amounts paid under the terms of such Credit C-26 Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created for purposes of the Bond Ordinance until amounts are paid under such Credit Facility. Any such Reimbursement Obligation shall be deemed to be a part of the Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to Principal and interest payments with respect to such Bonds shall include Principal and interest (except for Additional Interest and Principal amortization requirements with respect to the Reimbursement Obligation that are more accelerated than the amortization requirements for the related Bonds, without acceleration) due on the Reimbursement Obligation incurred as a result of payment of such Bonds with the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest and Principal amortization requirements with respect to the Reimbursement obligation that are more accelerated than the amortization requirements for the related Bonds, without acceleration)shall be fully subordinate to the payment of debt service on the related class of Bonds. Any such Credit Facility shall be for the benefit of and secure such Bonds or portion thereof as specified in the applicable Series Ordinance. In connection with the issuance of any Bonds or at any time thereafter so long as such Bonds remain Outstanding, the District may enter into Hedge Agreements with Qualified Hedge Providers, and no other providers, with respect to any Bonds. The District shall authorize the execution, delivery, and performance of each Hedge Agreement in a Supplemental Ordinance, in which it shall designate the related Hedged Bonds. The District’s obligation to pay Hedge Payments may be secured by a pledge of, and lien on, the Pledged Revenues on a parity with the lien created by the Bond Ordinance to secure the related Hedged Bonds, or may be subordinated in lien and right of payment to the payment of the Bonds, as determined by the District. Other Obligations The District expressly reserves the right, at any time, to adopt one or more other bond ordinances and reserves the right, at any time, to issue any other obligations not secured by the amounts pledged under the Bond Ordinance. DEFAULT AND ENFORCEMENT Events of Default An “Event of Default” shall mean the occurrence of any one or more of the following: (a)failure to pay the Principal or redemption price of any Bond when the same shall become due and payable, either at maturity or by proceedings for redemption or otherwise; or (b)failure to pay any installment of interest on any Bond when and as such installment of interest shall become due and payable; or (c)default shall be made by the District in the performance of any obligation in respect to the Debt Service Reserve Account and such default shall continue for 30 days thereafter; or (d)the District shall (1) admit in writing its inability to pay its debts generally as they become due, (2) file a petition in bankruptcy or take advantage of any insolvency act, (3) make an assignment for the benefit of its creditors, (4) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or (5) be adjudicated a bankrupt; or (e)a court of competent jurisdiction shall enter an order,judgment, or decree appointing a receiver of the System or any of the funds or accounts established in the Bond Ordinance, or of the whole or any substantial part of the District’s property, or approving a petition seeking reorganization of the District under the federal bankruptcy laws or any other applicable law or statute of the United States of America or the C-27 State, and such order, judgment, or decree shall not be vacated or set aside or stayed within 60 days from the date of the entry thereof; or (f)under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of any of the funds or accounts established in the Bond Ordinance, or of the whole or any substantial part of the District’s property, and such custody or control shall not be terminated or stayed within 60 days from the date of assumption of such custody or control; or (g)the District shall fail to perform any of the other covenants, conditions, agreements, and provisions contained in the Bonds or in the Bond Ordinance (other than the covenant in the Bond Ordinance relating to continuing disclosure) on the part of the District to be performed, and such failure shall continue for 90 days after written notice specifying such failure and requiring it to be remedied shall have been given to the District by the owners of not less than, or a Credit Facility Provider securing not less than, 25% in aggregate Principal of the Bonds then Outstanding; provided, however, if the failure stated in such notice can be corrected, but not within such 90-day period, the District shall have 180 days after such written notice to cure such default if corrective action is instituted by the District within such 90-day period and diligently pursued until the failure is corrected; or (h)(1) an Event of Default relating to the non-payment of the Principal or redemption price or installment of interest shall occur under any Series Ordinance or (2) an Event of Default, other than as described in clause (h)(1) shall occur under any Series Ordinance; or (i)failure by any Credit Facility Provider to pay the purchase price of Bonds under any Credit Facility then in effect; or (j)delivery to the District by a Credit Facility Provider of written notice stating that an “Event of Default” has occurred under any Credit Facility Agreement; or (k)delivery to the District by a Qualified Hedge Provider of written notice stating that an “event of default” has occurred under any Senior Hedge Agreement. Remedies Upon the happening and continuance of any Event of Default described in clauses (a), (b) and (h)(1) above under the caption “Events of Default” as to any Senior Bond, then and in every such case, upon the written declaration of the owners of more than 50% in aggregate Principal of all Senior Bonds then Outstanding or upon the written demand of a Credit Facility Provider securing more than 50% in aggregate Principal of the Senior Bonds then Outstanding, the Principal of all Senior Bonds then Outstanding shall become due and payable immediately, together with the interest accrued thereon to the date of such acceleration, at the place of payment provided therein, and interest on the Senior Bonds shall cease to accrue after the date of such acceleration, anything in the Bond Ordinance or in the Senior Bonds to the contrary notwithstanding. With respect to any Senior Bonds secured by a Credit Facility, only the applicable Credit Facility Provider may give written demand to declare the Principal of and accrued interest on such Senior Bonds to be immediately due and payable. Upon the happening and continuance of any Event of Default described in clause (i) above under the caption “Events of Default”, then and in every such case, upon the written declaration of the owners of more than 50% in aggregate Principal of the Senior Bonds of the affected series then Outstanding, the Principal of all Senior Bonds of the affected series then Outstanding shall become due and payable immediately, together with the interest accrued thereon to the date of such acceleration, at the place of payment provided therein, and interest on the Senior Bonds of the affected series shall cease to accrue after the date of such acceleration, anything in the Bond Ordinance or in the Senior Bonds of the affected series to the contrary notwithstanding. C-28 Upon the happening and continuance of any Event of Default described in clause (k) above under the caption “Events of Default”, then and in every such case, upon the written declaration of the owners of more than 50% in aggregate Principal of the Senior Bonds of the affected series then Outstanding, the Principal of all Senior Bonds of the affected series then Outstanding shall become due and payable immediately, together with the interest accrued thereon to the date of such acceleration, at the place of payment provided therein, and interest on the Senior Bonds of the affected series shall cease to accrue after the date of such acceleration, anything in the Bond Ordinance or in the Senior Bonds of the affected series to the contrary notwithstanding. Notwithstanding the foregoing, with respect to any Senior Bonds secured by a Credit Facility, only the applicable Credit Facility Provider may give written demand to declare the Principal of and accrued interest on such Senior Bonds to be immediately due and payable. Upon any declaration of acceleration under the Bond Ordinance, the District shall immediately draw under the applicable Credit Facility to the extent permitted by the terms thereof that amount which, together with other amounts on deposit under the Bond Ordinance, shall be sufficient to pay the Principal of and accrued interest on the related Senior Bonds so accelerated. The above provisions, however, are subject to the condition that if, after the Principal of the Senior Bonds shall have been so accelerated, all arrears of interest upon such Bonds, and interest on overdue installments of interest at the rate on such Bonds, shall have been paid by the District, the Principal of such Bonds which has matured (except the Principal of any Bonds not then due by their terms except as provided above) have been paid, and the District shall also have performed all other things in respect to which it may have been in default under the Bond Ordinance, and, if applicable, each Credit Facility Provider shall have reinstated the Credit Facility in the full amount available to be drawn thereunder by written notice to the District, then, in every such case, the owners of more than 50% in aggregate Principal of all Senior Bonds then Outstanding by written notice to the District, may waive such default and its consequences and such waiver shall be binding upon the District and upon all owners of the Bonds; but no such waiver shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. Notwithstanding the foregoing, as long as the applicable Credit Facility Provider shall not then continue to dishonor draws under the Credit Facility, no Event of Default with respect to the related Senior Bonds may be waived without the express written consent of such Credit Facility Provider. Upon the happening and continuance of any Event of Default, any owner of Senior Bonds then Outstanding affected by the Event of Default or a duly authorized agent for such owner may proceed to protect and enforce its rights and the rights of the owners of Senior Bonds by such of the following remedies as it shall deem most effectual to protect and enforce such rights: (1)by mandamus or other suit, action, or proceeding at law or in equity, enforce all rights of the owners of Senior Bonds, including the right to require the appointment of a receiver for the System or to exercise any other right or remedy provided by the Constitution and laws of the State and the Charter and to require the District to perform any other covenant or agreement contained in the Bond Ordinance; (2)by action or suit in equity, require the District to account as if it were the trustee of an express trust for the owners of the Senior Bonds; (3)by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the owners of the Senior Bonds; or (4)by pursuing any other available remedy at law or in equity or by statute. In the enforcement of any remedy under the Bond Ordinance, owners of Senior Bonds shall be entitled to sue for, enforce payment on, and receive any and all amounts then or during any default becoming, and at any time remaining, due from the District for Principal, redemption premium, interest, or otherwise, under any C-29 provision of the Bond Ordinance or of the Senior Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in such Senior Bonds, together with any and all costs and expenses of collection and of all proceedings under the Bond Ordinance and under such Senior Bonds, without prejudice to any other right or remedy of the owners of Senior Bonds, and to recover and enforce a judgment or decree against the District for any portion of such amounts remaining unpaid, with interest, costs, and expenses, and to collect from any moneys available for such purpose, in any manner provided by law, the moneys adjudged or decreed to be payable. If no Senior Bonds are then Outstanding or if no Event of Default with respect to any Senior Bonds has then occurred and is continuing, in the enforcement of any remedy under the Bond Ordinance, owners of Subordinate Bonds shall be entitled to sue for, enforce payment on, and receive any and all amounts then or during any default becoming, and at any time remaining, due from the District for Principal, redemption premium, interest, or otherwise, under any provision of the Bond Ordinance or of the Subordinate Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in such Subordinate Bonds, together with any and all costs and expenses of collection and of all proceedings under the Bond Ordinance and under such Subordinate Bonds, without prejudice to any other right or remedy of the owners of Subordinate Bonds, and to recover and enforce a judgment or decree against the District for any portion of such amounts remaining unpaid, with interest, costs, and expenses, and to collect from any moneys available for such purpose, in any manner provided by law, the moneys adjudged or decreed to be payable. Nothing in this paragraph is intended to diminish the rights of the owners of Subordinate Bonds described in clauses (1) through (4) above. No remedy conferred upon or reserved to the Bondholders is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Bond Ordinance or now or hereafter existing at law or in equity or by statute. Application of Moneys After Default If an Event of Default occurs and shall not have been remedied, the District or a receiver appointed for the purpose shall apply all Pledged Revenues as follows and in the following order of priority: (a)Expenses of Receiver and Paying Agent and Bond Registrar -to the payment of the reasonable and proper charges, expenses, and liabilities of any receiver and the Paying Agent and Bond Registrar under the Bond Ordinance; (b)Expenses of Operation and Maintenance and Renewals and Replacements -to the payment of all reasonable and necessary Expenses of Operation and Maintenance and major renewals and replacements to the System; (c)Principal or Redemption Price, Interest,and Hedge Payments Relating to Senior Bonds -to the payment of the interest and Principal or redemption price then due on the Senior Bonds and Hedge Payments then due under Senior Hedge Agreements, as follows: (i)Unless the Principal of all the Senior Bonds shall have become due and payable, all such moneys shall be applied as follows: first:To the payment to the persons entitled thereto of all installments of interest then due on the Senior Bonds, in the order of the maturity of such installments (with interest on defaulted installments of interest at the rate or rates borne by the Senior Bonds with respect to which such interest is due, but only to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or C-30 preference. If some of the Senior Bonds bear interest payable at different intervals or upon different dates than the semiannual Interest Payment Dates specified for the Series 2010B Bonds, and if at any time moneys from the Debt Service Reserve Account must be used to pay any such interest, the moneys in the Debt Service Reserve Account shall be applied (to the extent necessary) to the payment of all interest becoming due on the dates upon which such interest is payable to and including the next succeeding semiannual Interest Payment Date specified for the Series 2010B Bonds. After such date, moneys in the Debt Service Reserve Account plus any other moneys available in the Payments Account shall be set aside for the payment of interest on Senior Bonds of each class (a class consisting of all Senior Bonds payable as to interest on the same dates) pro rata among Senior Bonds of the various classes on a daily basis so that there shall accrue to each owner of a Senior Bond throughout each Fiscal Year the same proportion of the total interest payable to such owner of a Senior Bond as shall so accrue to every other owner of a Senior Bond during such Fiscal Year. As to any Capital Appreciation Bond which is a Senior Bond, such interest shall accrue on the Accreted Value of such Bond and be set aside on a daily basis until the next compounding date for such Bonds, whereupon it shall be paid to the owner of such Bond as interest on a defaulted obligation and only the unpaid portion of such interest (if any) shall be treated as Principal of such Bond. second:To the payment of the Hedge Payments due under any Senior Hedge Agreements pursuant to their terms. third:To the payment to the persons entitled thereto of the unpaid Principal of any of the Senior Bonds which shall have become due at maturity or upon mandatory redemption prior to maturity (other than Senior Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Bond Ordinance), in the order of their due dates, with interest upon such Senior Bonds from the respective dates upon which they became due, and, if the amount available shall not be sufficient to pay in full Senior Bonds due on any particular date, together with such interest, then to the payment first of such interest, ratably according to the amount of such interest due on such date, and then to the payment of such Principal, ratably according to the amount of such Principal due on such date, to the persons entitled thereto without any discrimination or preference. If some of the Senior Bonds mature (including mandatory redemption prior to maturity as a maturity) upon a different date or dates than the annual Principal Maturity Dates specified for the Series 2010B Bonds, and if at any time moneys from the Debt Service Reserve Account must be used to pay any such Principal becoming due, the moneys in the Debt Service Reserve Account not required to pay interest under paragraph first above shall be applied to the extent necessary to the payment of all Principal becoming due on the dates upon which such Principal is payable to and including the final annual Principal Maturity Date specified for the Series 2010B Bonds. After such date, moneys in the Debt Service Reserve Account not required to pay interest plus any other moneys available in the Payments Account shall be set aside for the payment of Principal of Senior Bonds of each class (a class consisting of all Senior Bonds payable as to Principal on the same date) pro rata among Senior Bonds of the various classes which mature or must be redeemed pursuant to mandatory redemption prior to maturity throughout each Fiscal Year in such proportion of the total Principal payable on each such Senior Bond as shall be equal among all classes of Senior Bonds maturing or subject to mandatory redemption within such Fiscal Year. The Accreted Value of a Capital Appreciation Bond which C-31 is a Senior Bond (except for interest which shall have been paid under paragraph first) shall be treated as Principal for purposes of this paragraph third. fourth:To the payment of the redemption premium on and the Principal of any Senior Bonds called for optional redemption pursuant to their terms. (ii)If the Principal of all the Senior Bonds shall have become due and payable, all such moneys shall be applied to the payment of the Principal and interest then due and unpaid upon the Senior Bonds, with interest thereon as aforesaid, and due and unpaid Hedge Payments under Senior Hedge Agreements, without preference or priority of Principal over interest or Hedge Payments or of interest over Principal or Hedge Payments,or of Hedge Payments over Principal or interest, or of any installment of interest over any other installment of interest, or of any Senior Bond over any other Senior Bonds, or of any such Hedge Payment over any other such Hedge Payment, ratably, according to the amounts due respectively for Principal, interest, and Hedge Payments, to the persons entitled thereto without any discrimination or preference. Rights of Credit Facility Provider Notwithstanding any other provision of the Bond Ordinance, in the event that the District shall draw under a Credit Facility any amount for the payment of Principal of or interest on any Bonds, then upon such payment the related Credit Facility Provider shall succeed to and become subrogated to the rights of the recipients of such payments and such Principal or interest shall be deemed to continue to be unpaid and Outstanding for all purposes and shall continue to be fully secured by the Bond Ordinance until the Credit Facility Provider, as successor and subrogee, has been paid all amounts owing in respect of such subrogated payments of Principal and interest. Such rights shall be limited and evidenced by having the District note the Credit Facility Provider’s rights as successor and subrogee on its records, and the District shall, upon request, deliver to the Credit Facility Provider (i) in the case of interest on the Bonds, an acknowledgment of the Credit Facility Provider’s ownership of interest to be paid on the Bonds specifying the amount of interest owed, the period represented by such interest, and the CUSIP numbers of the Bonds on which such interest is owed and (ii) in the case of Principal of the Bonds, either the Bonds themselves duly assigned to the Credit Facility Provider or new Bonds registered in the name of the Credit Facility Provider or in such other name as the Credit Facility Provider shall specify. Whenever moneys become available for the payment of any interest then overdue, the Credit Facility Provider shall be treated as to interest owed to it as and as if it had been the Bondholder of the Bonds upon which such interest is payable on any special record date therefor. No Obligation to Levy Taxes Nothing contained in the Bond Ordinance shall be construed as imposing on the District any duty or obligation to levy any taxes either to meet any obligation incurred in the Bond Ordinance or to pay the Principal of or interest on the Bonds. DEFEASANCE Except as otherwise provided in any Series Ordinance with respect to Bonds secured by a Credit Facility,Bonds for the payment or redemption of which sufficient moneys or sufficient Government Obligations shall have been deposited with the Paying Agent or the Depository of the Sinking Fund (whether upon or prior to the maturity or the redemption date of such Bonds) shall be deemed to be paid and no longer Outstanding under the Bond Ordinance; provided,however, that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been duly given as provided in the Bond Ordinance or firm and irrevocable arrangements shall have been made for the giving of such notice; and, provided, further, that Bonds bearing interest at a Variable Rate shall not be deemed to have been paid and discharged within the meaning of the Bond Ordinance unless the interest rate payable on such Bonds is calculated at the maximum interest rate specified for such Bonds to the earlier of the first tender or redemption date. Government C-32 Obligations shall be considered sufficient for purposes of the Bond Ordinance only: (i) if such Government Obligations are not callable by the issuer of the Government Obligations prior to their stated maturity; and (ii) if such Government Obligations fall due and bear interest in such amounts and at such times as will assure sufficient cash to pay currently maturing interest and to pay Principal and redemption premiums, if any, when due on the Bonds without rendering the interest on any Tax-Exempt Bonds includable in gross income of any owner thereof for federal income tax purposes. The District may at any time surrender to the Bond Registrar for cancellation by it any Bonds previously authenticated and delivered under the Bond Ordinance which the District may have acquired in any manner whatsoever. All such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. SUPPLEMENTAL ORDINANCES Supplemental Ordinances Not Requiring Consent of Bondholders The District, from time to time and at any time, subject to the conditions and restrictions in the Bond Ordinance, may adopt one or more Supplemental Ordinances which thereafter shall form a part of the Bond Ordinance, for any one or more or all of the following purposes: (a)To add to the covenants and agreements of the District in the Bond Ordinance other covenants and agreements thereafter to be observed or to surrender, restrict, or limit any right or power reserved in the Bond Ordinance to or conferred upon the District (including but not limited to the right to issue Senior Bonds); (b)To make such provisions for the purpose of curing any ambiguity, or of curing, correcting, or supplementing any defective provision contained in the Bond Ordinance, or in regard to matters or questions arising under the Bond Ordinance, as the District may deem necessary or desirable and not inconsistent with the Bond Ordinance; (c)To subject to the lien and pledge of the Bond Ordinance additional revenues, receipts, properties, or other collateral; (d)To evidence the appointment of successors to any Depository, Paying Agent, or Bond Registrar; (e)To modify, amend, or supplement the Bond Ordinance in such manner as to permit the qualification of the Bond Ordinance under the Trust Indenture Act of 1939 or any federal statute hereinafter in effect, and similarly to add to the Bond Ordinance such other terms, conditions, and provisions as may be permitted or required by such Trust Indenture Act of 1939 or any similar federal statute; (f)To make any modification or amendment of the Bond Ordinance required in order to make any Bonds eligible for acceptance by DTC or any similar holding institution or to permit the issuance of any Bonds or interests therein in book-entry form; (g)To modify any of the provisions of the Bond Ordinance in any respect if such modification shall not become effective until after the Bonds Outstanding immediately prior to the effective date of such Supplemental Ordinance shall cease to be Outstanding and if any Bonds issued contemporaneously with or after the effective date of such Supplemental Ordinance shall contain a specific reference to the modifications contained in such subsequent proceedings; C-33 (h)Subject to the provisions of the Bond Ordinance relating to the Project Fund, to modify the provisions of the Bond Ordinance with respect to the disposition of any moneys remaining in the Project Fund upon the completion of any Project; (i)To increase the size or scope of the System, to add other utilities to the System, to create additional subaccounts or to abolish any subaccounts within any account, or to change the amount of the Debt Service Reserve Requirement, but not below the amount specified in such definition; (j)To modify the Bond Ordinance to permit the qualification of any Bonds for offer or sale under the securities laws of any state in the United States of America; (k)To modify the Bond Ordinance to provide for the issuance of Senior Bonds or Subordinate Bonds, and such modification may deal with any subjects and make any provisions which the District deems necessary or desirable for that purpose; (l)To make such modifications in the provisions of the Bond Ordinance as may be deemed necessary by the District to accommodate the issuance of Bonds which (i) are Capital Appreciation Bonds (including, but not limited to, provisions for determining the Debt Service Requirement for such Capital Appreciation Bonds and for treatment of Accreted Value in making such determination) or (ii) bear interest at a Variable Rate; and (m)To modify any of the provisions of the Bond Ordinance in any respect (other than a modification of the type described in below under the caption “–Supplemental Ordinances Requiring Consent of Bondholders”) requiring the unanimous written consent of the Bondholders); provided that for (i) any Outstanding Bonds which are assigned a Rating and which are not secured by a Credit Facility providing for the payment of the full amount of Principal and interest to be paid thereon, each Rating Agency shall have given written notification to the District that such modification will not cause the then applicable Rating on any Bonds to be reduced or withdrawn, and (ii) any Outstanding Bonds which are secured by Credit Facilities providing for the payment of the full amount of the Principal and interest to be paid thereon, each Credit Facility Provider shall have consented in writing to such modification. Any Supplemental Ordinance of the District may modify the provisions of the Bond Ordinance in such a manner, and to such extent and containing such provisions, as the District may deem necessary or desirable to effect any of the purposes stated above. As used in the Bond Ordinance, the term “modify” shall mean “modify, amend, or supplement” and the term “modification” shall mean “modification, amendment,or supplement.” Supplemental Ordinances Requiring Consent of Bondholders With the consent (evidenced as provided in the Bond Ordinance) of the owners of not less than a majority in aggregate Principal of the Outstanding Bonds of each class (senior and subordinate), voting separately by class, the District may from time to time and at any time adopt a Supplemental Ordinance for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Bond Ordinance or of any Supplemental Ordinance; provided, however, that no such Supplemental Ordinance shall: (1) extend the maturity date or due date of any mandatory sinking fund redemption with respect to any Bond Outstanding under the Bond Ordinance; (2) reduce or extend the time for payment of Principal of, redemption premium, or interest on any Bond Outstanding under the Bond Ordinance; (3) reduce any premium payable upon the redemption of any Bond under the Bond Ordinance or advance the date upon which any Bond may first be called for redemption prior to its stated maturity date; (4) give to any Senior Bond or Senior Bonds (or related Senior Hedge Agreements) a preference over any other Senior Bond or Senior Bonds (or C-34 related Senior Hedge Agreements); (5) permit the creation of any lien or any other encumbrance on the Pledged Revenues having a lien equal to or prior to the lien created under the Bond Ordinance for the Senior Bonds; (6) reduce the percentage of owners of senior or subordinate classes of Bonds required to approve any such Supplemental Ordinance; or (7) deprive the owners of the Bonds of the right to payment of the Bonds or from the Pledged Revenues, without, in each case, the consent of the owners of all the affected Bonds then Outstanding. No amendment may be made under the Bond Ordinance which affects the rights or duties of any Credit Facility Provider securing any of the Bonds or any Qualified Hedge Provider under any Hedge Agreement without its written consent. If the District intends to enter into or adopt any Supplemental Ordinance as described in this caption, the District shall mail, by registered or certified mail, to the registered owners of the Bonds at their addresses as shown on the Bond Register, a notice of such intention along with a description of such Supplemental Ordinance not less than 30 days prior to the proposed effective date of such Supplemental Ordinance. The consents of the registered owners of the Bonds need not approve the particular form of wording of the proposed Supplemental Ordinance, but it shall be sufficient if such consents approve the substance thereof. Failure of the owner of any Bond to receive the notice required in the Bond Ordinance shall not affect the validity of any Supplemental Ordinance if the required number of owners of the Bonds of each class shall provide their written consent to such Supplemental Ordinance. Notwithstanding any provision of the Bond Ordinance to the contrary, upon the issuance of a Credit Facility to secure any Bonds and for the period in which such Credit Facility is outstanding, the Credit Facility Provider may have the consent rights of the owners of the Bonds which are secured by such Credit Facility pertaining to some or all of the amendments or modifications of the Bond Ordinance, to the extent provided in the applicable Series Ordinance. Notwithstanding the foregoing, if a Credit Facility Provider is granted the consent rights of the owners of any Bonds in a Series Ordinance and refuses to exercise such consent rights, either affirmatively or negatively, then the registered owners of the Bonds secured by the related Credit Facility may exercise such consent rights. Notice of Supplemental Ordinances The District shall cause the Bond Registrar to mail a notice by registered or certified mail to the registered owners of all Bonds Outstanding, at their addresses shown on the Bond Register or at such other address as has been furnished in writing by such registered owner to the Bond Registrar, setting forth in general terms the substance of any Supplemental Ordinance which has been adopted and approved. * * * C-35 SUMMARY OF THE CONTINUING DISCLOSUREAGREEMENT The following is a summary of certain provisions and covenants contained in the Continuing Disclosure Agreement. Such summary does not purport to be a complete statement of the terms of the Continuing Disclosure Agreement and accordingly is qualified in its entirety by reference thereto and is subject to the full text thereof. Definitions In addition to the definitions set forth in the Continuing Disclosure Agreement, the following capitalized terms shall have the following meanings: “Annual Filing Date”means the date, set in the Continuing Disclosure Agreement, by which the Annual Report is to be filed with the Repositories. “Annual Financial Information”means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in the Continuing Disclosure Agreement. “Annual Report”means an Annual Report described in and consistent with the Continuing Disclosure Agreement. “Audited Financial Statements”means the financial statements (if any) of the District for the prior fiscal year, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and as described in the Continuing Disclosure Agreement. “Certification”means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Voluntary Report or Notice Event notice, respectively,required to be submitted to the Repositories under the Continuing Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the District and shall include the full name of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies. “Disclosure Representative”means the Secretary-Treasurer of the District or his or her designee, or such other person as the District shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent. “Disclosure Dissemination Agent”means Digital Assurance Certification, L.L.C., acting in its capacity as Disclosure Dissemination Agent (“DAC”) under the Continuing Disclosure Agreement, or any successor Disclosure Dissemination Agent designated in writing by the District pursuant to the Continuing Disclosure Agreement. “Holder”means any person (a) having the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries) or (b) treated as the owner of any Bonds for federal income tax purposes. “Information”means any Annual Financial Information, Audited Financial Statements, Notice Event notices and Voluntary Reports. “Notice Event”means an event listed as such in the Continuing Disclosure Agreement. C-36 “MSRB”means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934. “Official Statement”means that Official Statement prepared by the District in connection with the Bonds. “Paying Agent”means the institution identified as such in the document under which the Bonds were issued. “Rule”means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. “Voluntary Report”means the information provided to the Disclosure Dissemination Agent by the District pursuant to the Continuing Disclosure Agreement. Provision of Annual Reports The District shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, together with a copy for the Paying Agent, no later than two (2) business days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to the MSRB not later than 180 days after the end of each fiscal year of the District, commencing with the fiscal year ending June 30, 2010. Such date and each anniversary thereof is the “Annual Filing Date.”The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in the Continuing Disclosure Agreement. If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind the District of its undertaking to provide the Annual Report. Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification) no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the District will not be able to file the Annual Report within the time required under the Continuing Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Notice Event relating to the failure to provide annual financial information as required by the Continuing Disclosure Agreement has occurred and to immediately send a notice to the MSRB in substantially the form specified in the Continuing Disclosure Agreement. If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 12:00 noon on the first business day following the Annual Filing Date for the Annual Report,a Notice Event relating to the failure to provide annual financial information as required by the Continuing Disclosure Agreement shall have occurred and the District irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form specified in the Continuing Disclosure Agreement;provided that such Notice Event notice shall not be delivered to the MSRB in the event a Notice Event notice has previously been delivered to the MSRB for such Annual Report and Certification pursuant to clause (ii) of the preceding paragraph. If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 12:00 noon on the first business day following the date upon which the Annual Report and Certification was anticipated to be filed pursuant to any Notice Event notice delivered under the Continuing Disclosure Agreement, a Notice Event relating to the failure to provide annual financial information shall have occurred C-37 and the District irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form specified in the Continuing Disclosure Agreement. The Disclosure Dissemination Agent shall: (i)determine the address, which address may be electronic,of the MSRB each year prior to the Annual Filing Date; (ii)upon receipt, promptly file each Annual Report received from the District under the Continuing Disclosure Agreement with the MSRB; (iii)upon receipt, promptly file each Audited Financial Statement received from the District under the Continuing Disclosure Agreement with the MSRB; (iv)upon receipt, promptly file the text of each disclosure to be made with the MSRB together with a completed copy of the Material Event Notice Cover Sheet in the form specified in the Continuing Disclosure Agreement; and (v)provide the District evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under the Continuing Disclosure Agreement. The District may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Paying Agent (if any) and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year. Content of Annual Reports Each Annual Report shall contain Annual Financial Information with respect to the District, including the information provided in the Official Statement under the headings:“FINANCIAL OPERATIONS OF THE DISTRICT -Historical and Projected Sewer Rates and Charges,” “-Customer Accounts,” “- Largest User Charge Customers,”and “–User Charge Revenues.”Each Annual Report shall include Audited Financial Statements prepared in accordance with generally accepted accounting principles (“GAAP”). If audited financial statements are not available on or prior to two (2) business days prior to the Annual Filing Date, then, unaudited financial statements, prepared in accordance with GAAP will be included in the Annual Report.The District shall provide to the Disclosure Dissemination Agent, in a timely manner, an electronic copy of the Audited Financial Statements (if any)when they become available, accompanied by a Certificate, together with a copy for the Paying Agent, for filing with the MSRB. Any or all of the items listed above may be included by specific reference from other documents, including official statements of debt issues with respect to which the District is an “obligated person” (as defined by the Rule), which have been previously filed with each of the Securities and Exchange Commission or available on the MSRB Internet Website. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The District will clearly identify each such document so incorporated by reference. Reporting of Notice Events The occurrence of any of the following events, if material, with respect to the Bonds constitutes a Notice Event: C-38 1.Principal and interest payment delinquencies; 2.Non-payment related defaults; 3.Unscheduled draws on debt service reserves reflecting financial difficulties; 4.Unscheduled draws on credit enhancements relating to the Bonds reflecting financial difficulties; 5.Substitution of credit or liquidity providers, or their failure to perform; 6.Adverse tax opinions or events affecting the tax-exempt status of the Bonds; 7.Modifications to rights of Bondholders; 8.Optional, contingent or unscheduled Bond calls; 9.Defeasances; 10.Release, substitution, or sale of property securing repayment of the Bonds; 11.Rating changes on the Bonds; or 12.Failure to provide annual financial information as required. The District shall promptly notify the Disclosure Dissemination Agent in writing upon the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to the Continuing Disclosure Agreement. Such notice shall be accompanied with the text of the disclosure that the District desires to make, the written authorization of the District for the Disclosure Dissemination Agent to disseminate such information, and the date the District desires for the Disclosure Dissemination Agent to disseminate the information. The Disclosure Dissemination Agent is under no obligation to notify the District or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within five business days of receipt of such notice, instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to the Continuing Disclosure Agreement, together with the text of the disclosure that the District desires to make, the written authorization of the District for the Disclosure Dissemination Agent to disseminate such information, and the date the District desires for the Disclosure Dissemination Agent to disseminate the information. If the Disclosure Dissemination Agent has been instructed by the District to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with the MSRB in accordance with the Continuing Disclosure Agreement. Voluntary Reports The District may instruct the Disclosure Dissemination Agent to file information with the MSRB, from time to time pursuant to a Certification of the Disclosure Representative accompanying such information (a “Voluntary Report”). C-39 Nothing in the Continuing Disclosure Agreement shall be deemed to prevent the District from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in the Continuing Disclosure Agreement or including any other information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice, in addition to that required by the Continuing Disclosure Agreement. If the District chooses to include any information in any Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice in addition to that which is specifically required by the Continuing Disclosure Agreement, the District shall have no obligation under the Continuing Disclosure Agreement to update such information or include it in any future Annual Report, Annual Financial Statement, Voluntary Report or Notice Event notice. Termination of Reporting Obligation The obligations of the District and the Disclosure Dissemination Agent under the Continuing Disclosure Agreement shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds, when the District is no longer an obligated person with respect to the Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required. Disclosure Dissemination Agent The District has appointed Digital Assurance Certification, L.L.C. (“DAC”) as exclusive Disclosure Dissemination Agent under the Continuing Disclosure Agreement.The District may, upon thirty days written notice to the Disclosure Dissemination Agent and the Paying Agent, replace or appoint a successor Disclosure Dissemination Agent.The Disclosure Dissemination Agent may resign at any time by providing thirty days’ prior written notice to the District.Upon termination or resignation of DAC’s services as Disclosure Dissemination Agent, whether by notice of the District or DAC, the District agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under the Continuing Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor, the District shall remain liable until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent. Remedies in Event of Default In the event of a failure of the District or the Disclosure Dissemination Agent to comply with any provision of the Continuing Disclosure Agreement, the Holders’ rights to enforce the provisions of the Continuing Disclosure Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties’ obligation under the Continuing Disclosure Agreement. Any failure by a party to perform in accordance with the Continuing Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated in the Continuing Disclosure Agreement. Amendment; Waiver Notwithstanding any other provision of the Continuing Disclosure Agreement, the District and the Disclosure Dissemination Agent may amend the Continuing Disclosure Agreement and any provision of the Continuing Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the District and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds and would not, in and of itself, cause the undertakings in the Continuing Disclosure Agreement to violate the Rule if such amendment or waiver had been effective on the date of the Continuing Disclosure Agreement but taking into account any subsequent change in or official interpretation of the Rule; provided neither the District or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto. C-40 Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to the Continuing Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the District. No such amendment shall become effective if the District shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment. * * * APPENDIX D FORM OF OPINION OF CO-BOND COUNSEL THIS PAGE INTENTIONALLY LEFT BLANK D-1 FORM OF OPINION OF CO-BOND COUNSEL Gilmore & Bell, P.C., St. Louis, Missouri, and White Coleman & Associates, LLC, St. Louis, Missouri, Co- Bond Counsel, propose to issue their approving opinions upon the issuance of the Series 2010B Bonds in substantially the following form: The Metropolitan St. Louis Sewer District St. Louis, Missouri Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the Underwriters St. Louis, Missouri Re:$__________The Metropolitan St. Louis Sewer District,Taxable Wastewater System Revenue Bonds (Build America Bonds –Direct Pay), Series 2010B Ladies and Gentlemen: We have acted as co-bond counsel in connection with the issuance by The Metropolitan St. Louis Sewer District (the “District”), of the above-captioned bonds (the “Bonds”). In this capacity, we have examined the District’s Charter, the law and the certified proceedings, certifications and other documents that we deem necessary to render this opinion. The Bonds are issued pursuant to a Master Bond Ordinance adopted by the Board of Trustees of the District on April 22, 2004, as supplemented by the Ordinance adopted by the Board of Trustees of the District on January 14,2010 (collectively, the “Bond Ordinance”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Bond Ordinance. Regarding questions of fact material to our opinion,we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. Based on and subject to the foregoing, we are of the opinion, under existing law, as follows: D-2 1.The Bonds have been duly authorized, executed and delivered by the District and are valid and legally binding limited obligations of the District, payable solely from the Pledged Revenues of the District’s sanitary sewer system (the “System”), after providing for the costs of operation and maintenance thereof. The Bonds do not constitute general obligations of the District nor do they constitute an indebtedness of the District within the meaning of any constitutional, statutory or charter provision, limitation or restriction, and the taxing power of the District is not pledged to the payment of the Bonds. 2.The Bond Ordinance has been duly adopted by the Board of Trustees of the District and constitutes a valid and legally binding obligation of the District enforceable against the District.The Bond Ordinance creates a valid lien on the revenues and other funds pledged by the Bond Ordinance for the security of the Bonds on a parity with any Senior Bonds issued or to be issued as provided under the Bond Ordinance. 3.The interest on the Bonds is exempt from income taxation by the State of Missouri. We express no opinion regarding the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement). Further,we express no opinion regarding the perfection or priority of the lien on revenues or other funds pledged under the Bond Ordinance or tax consequences arising with respect to the Bonds other than as expressly set forth in this opinion. The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Ordinance may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’rights generally and by equitable principles, whether considered at law or in equity, and their enforcement may be subject to the exercise of judicial discretion in appropriate cases. This opinion is given as of its date, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may come to our attention or any changes in law that may occur after the date of this opinion. Very truly yours, THIS PAGE INTENTIONALLY LEFT BLANK Printed By www.MuniDeals.com