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O M L og o

Nassau County Sewer System Request for Information June 18, 2012

Responses due on Wednesday, July 11, 2012

Nassau County Edward Mangano - County Executive Rob Walker - Chief Deputy County Executive Timothy Sullivan - Deputy County Executive for Finance

TABLE OF CONTENTS Page I. II. III. IV. Overview of Request for Information System Description Submission Contents Submission Instructions 3 3 9 9 11 12 13

Appendix A Draft Concession Agreement Term Sheet Appendix B Illustrative Financial Projections Appendix C MOU with United Water

I.

Overview of Request for Information (RFI)

Introduction

Nassau County, New York (the County) has engaged Morgan Stanley & Co. LLC (Morgan Stanley) as an advisor to assist in evaluating a potential concession, lease or other similar transaction (the Public-Private Partnership or P3) involving the assets of the Countys sewer system (the System). The System is responsible for the collection, treatment and disposal of sewage in a large area of the County, with a current customer base of approximately 1.0 million. This Request for Information (RFI) is being provided by the County to invite you to submit preliminary thoughts regarding a potential P3 of the System. While your response is not binding in any way, the County would appreciate your candid feedback as it continues to evaluate a potential P3 transaction. As you may be aware, the County formally started this evaluation process in September of last year when it issued a Request for Operator Qualifications. Three qualified operators were allowed to complete detailed due diligence of the System and respond to a Request for Proposal (Operator RFP) dated December 22, 2011. Based on responses to the Operator RFP, the County selected United Water, a subsidiary of Suez Environnement, (the Operator or United Water) as the preferred operator should the County pursue a P3 transaction. Therefore, United Water would be the operator that each investor would be assuming as part of a potential P3 of the System. The Memorandum of Understanding (MOU) that documents what has been negotiated between the County and United Water to date is included in Appendix C. The County reserves the right to modify or terminate the solicitation at any stage if the County determines such action to be in its best interests in its sole discretion. The receipt of responses to this RFI will in no way obligate the County to enter into any contract of any kind with any party. Nassau County is committed to a policy of equal opportunity and does not discriminate against vendors on the basis of age, sex, sexual orientation, race, color, creed, religion, ethnicity, national origin, disability, marital status, familial status, veteran status or any other basis protected under federal, state and local laws, regulations and ordinances.

II.

System Description

Nassau County Overview

Established in 1899, the County is the site of some of New York States earliest colonial settlements, some of which date to the 1640s. With a total land area of 287 square miles and a population of over 1.3 million, the County is bordered to the west by the New York City borough of Queens, to the east by Suffolk County, to the north by Long Island Sound and to the south by the Atlantic Ocean. Together, the northern and southern boundaries of the County comprise nearly 188 miles of scenic coastline. The County includes 3 towns, 2 cities, 64 incorporated villages, 56 school districts and various special

districts that provide fire protection, water supply and other services. Land uses within the County are predominantly single-family residential, commercial and industrial.
System Overview

The System is responsible for the collection, treatment and disposal of sewage in a large area of the County, with a current customer base of approximately 1.0 million. In 2003 the Countys prior 27 sewage collection and three sewage disposal districts (the Prior Districts) were abolished, dissolved and merged into the Nassau County Sewer and Storm Water Resources District (the District). At such time, all of the rights, privileges, duties, responsibilities and obligations of the Prior Districts became the rights, privileges, duties, responsibilities and obligations of the District. The Nassau County Sewer and Storm Water Finance Authority (the Authority) receives all assessments for sewer services and transfers funds to the District. The District is responsible for System operations via the Nassau County Department of Public Works. The Operator will not operate the Countys storm water resources system, whose infrastructure is independent of the System. The System consists of facilities providing for the collection, treatment and disposal of sewage (each a Sewerage Facility and collectively Sewerage Facilities, and the services provided thereby, Sewerage Services). A Sewerage Facility or Sewerage Facilities are defined herein as a Facility or collectively Facilities. Sewerage Services are defined herein as Services. The System serves approximately 1.0 million County residents and businesses, and serves as critical infrastructure supporting the regional economy and community. The System has unique access to such customers and a piping infrastructure that cannot be replicated in a cost-effective manner. Significant capital spending is required to establish a wastewater collection and treatment system and stringent approval and regulatory processes are required to establish wastewater services in the area. For example, over the past 30 years, the County has spent in excess of $800 million (~$30 million/year) for capital construction improvements to its sewer facilities (plants, pump stations and sewer pipes). As a result, there are nearly insurmountable barriers to entry to construct a wastewater system with a comparable footprint. In early 2008, the County signed inter-municipal agreements with each of the Village of Lawrence and the Village of Cedarhurst to consolidate each villages sewer system into the Countys sewer system. Construction contracts were bid during the Summer of 2009 to implement the physical improvements necessary to consolidate the Village systems within the County system. Construction activities commenced as of December 2009 with completion of the work anticipated by October 2013. Effective January 1, 2012, the County assumed responsibility for the operation and maintenance of both Village wastewater treatment plants until such time as the construction activities are completed and the plants can be decommissioned. Upon this same date (January 1, 2012), the County also assumed responsibility for the operation and maintenance of the Villages sewage collection systems.

The below map further highlights the Systems facilities and presence within the County.

Exhibit 1: Nassau County Sewer Facilities

nAS

Glen Cove

Bay Park

Cedar Creek

Nassau County Plant County Sewer / County Disposal Village Sewer / County Disposal
Source County Information

Sewerage Facilities

General

The Countys Department of Public Works (Department Table 1: Key Sewerage Facilities Statistics or DPW) is currently responsible for the management, 3 maintenance, operation, repair and replacement of the Main Wastewater Treatment Plants Sewerage Facilities, which include three major wastewater Treatment Plant Capacity (MGD) 147.5 treatment plants in the County (Bay Park Sewage Sewage Pump Stations 53 Treatment Plant (Bay Park), the Cedar Creek Water Miles of Sewers 3,000 Pollution Control Plant (Cedar Creek), and Glen Cove Number of Manholes 64,000 Water Pollution Control Plant (Glen Cove)), 53 sewage Individual service connections 300,000 pump stations and approximately 3,000 miles of sewers. Source Department of Public Works Please note that the assets listed for inclusion under the P3 of the System may change at the discretion of the County. In addition, the County provides services to other areas by contract; the Operator would assume responsibility for these services. Three Disposal Zones comprise the Countys sewage operations. Below are additional details on each zone: Sewage Disposal Zone of Assessment No. 1 (SD1) covers an area of approximately two square miles with an estimated population of approximately 8,000. The sanitary sewage collected within SD1 was previously transported to and processed at a sewage treatment plant in Inwood, New York. However, the Inwood plant was decommissioned and converted to a sewage pump station, so since 1999 all sewage collected within SD1 has been pumped to Bay Park for processing. Sewage Disposal Zone of Assessment No. 2 (SD2) spans approximately 70 square miles in the western portion of the County with an estimated population of approximately 524,000. The sanitary sewage collected within SD2 is transported to and processed at Bay Park. Approximately 75% of the total land area in SD2 is used for residential housing. Commercial establishments generate the majority of the remaining contributory flow, with relatively insignificant flows from industrial enterprises. Sewage Disposal Zone of Assessment No. 3 (SD3) encompasses an area of approximately 105 square miles in the eastern portion of the County. The sanitary sewage collected within SD3 is transported to and processed at Cedar Creek. The estimated population of SD3 is approximately 600,000, and similar to SD2, the majority of the influent flow is from residential and commercial areas, with minimal industrial flows. In addition to the sewage collection systems operated by the County, there are six village-owned and operated collection systems in the County that discharge to the Countys sewage disposal system. The villages are: Freeport, Garden City, Hempstead, Mineola, Rockville Center and Roslyn. The residents within these areas (with the exception of Roslyn) pay assessments for County sewage disposal services. The Village of Roslyn pays a user fee based upon the volume of sewage discharged. The County has no operation or maintenance responsibilities for these six collection systems, and as such, they are not a part of the System.

Sewage Treatment Plants Bay Park was originally constructed in the late 1940s, and was placed into operation in 1950. It was initially capable of processing 27 million gallons per day (MGD) of municipal sanitary waste and meeting secondary treatment levels through the utilization of an activated sludge process. The plant was first expanded in 1960 to provide secondary treatment and increase its capacity to 60 MGD. Beginning in the mid-1980s, the plant was expanded again to increase its capacity to achieve secondary treatment of an average daily flow of 70 MGD. The plant discharges its treated effluent into Reynolds Channel via an 84-inch diameter outfall pipe, which is approximately 2.3 miles long. Cedar Creek was originally constructed in the early 1970s and was placed into operation in 1974. It was capable of processing 56 MGD of municipal sanitary waste and meeting secondary treatment levels through the utilization of an activated sludge process. The plant was expanded as part of a capital improvements program in the mid-1980s through the early 1990s to achieve secondary treatment of an average daily flow of 72 MGD. The plant discharges its treated effluent into the Atlantic Ocean via an 84-inch outfall pipe approximately 2.5 miles off the shore of Jones Beach. Glen Cove was originally constructed in the 1920s, when the plant provided only primary treatment with chlorine disinfection. In the 1950s, the plant was upgraded to include secondary treatment using trickling filters, secondary clarifiers and anaerobic digestors (for sludge). In 1980, the new biological nitrification plant (BNR) was opened to replace the old trickling filter plant. The completion of the BNR retrofit in 1999 de-rated the facilitys design capacity 8.0 MGD to 5.5 MGD, its current capacity. The plant has performed particularly well in removing BOD, TSS and nitrogen; in fact, Glen Cove achieves the greatest amount of nitrogen reduction of all wastewater treatment facilities that discharge into Zone 10 of Long Island Sound. The facilitys effluent travels to Long Island Sound through Glen Cove Creek. Improvements to Bay Park, Cedar Creek and Glen Cove were initiated in the mid-1980s and continued through the 1990s with plans for additional projects currently in progress. The sewage treatment plants operations are regulated by the Clean Water Act under the direction of the United States Environmental Protection Agency (the EPA). The EPA has delegated permitting authority to the State Department of Environmental Conservation, which administers the State Pollution Discharge Elimination System (SPDES). The current SPDES permits for Bay Park and Cedar Creek are due to expire on July 31, 2016 and April 30, 2016, respectively. The Glen Cove SPDES permit is due to expire on December 31, 2012. Service Pump Stations The County operates and maintains 53 sewage pump stations, which transport sanitary wastewater where gravity is not a viable transport option. There are 22 pump stations serving the collection system that deliver sanitary wastewater to Bay Park, 15 pump stations that help deliver sanitary wastewater to Cedar Creek and 16 pump stations that help deliver sanitary wastes to Glen Cove. A dedicated pump station maintenance group at each sewage treatment plant operates and maintains the pump station structures and equipment. Sewage Collection System The System operated by the County comprises 3,000 miles of sanitary sewers (ranging in size from 8 to 108 inches in diameter), 64,000 manholes and 300,000 individual service connections. Each year, the

Department implements a sewer maintenance program designed to inspect and clean the sewers and manholes within its jurisdiction. This program includes visual inspection, remote video inspection, power flushing, biological treatments (grease control) and herbicide treatments (root control). The sewer maintenance activities are scheduled, monitored and logged using a computerized sewer maintenance program. The use of the computerized sewer maintenance program provides the Department with historical maintenance information for a pipe segment or manhole, generates work orders for scheduled routine maintenance and generates work orders for repetitive maintenance of known problem areas.

System Usage and Financial Performance

The System has exclusive access to a large customer base of approximately 1.0 million. The Systems unique position as the local monopoly providing treatment and collection services of wastewater in a large portion of Nassau County has allowed it to enjoy highly consistent historical revenues. The increased efficiency of the Operator will help to improve the Systems annual cash flows. In addition, the System is well positioned to increase revenues by potentially sharing excess capacity to neighboring communities. The following exhibits detail historical System collections; financial projections are included as Appendix B.
Exhibit 2: Sewage Collection
% of County Sewage Processed

Exhibit 3: Historical System Revenues (1)


$MM
150 $119 $104 100
1. 1

Independent Facilities 15%

$110

$116

50

Nassau County Facilities 85%


Source Department Website Source

2007

2008

2009

2010

Nassau County Comprehensive Annual Financial Reports

Notes: 1) FYE 2007-2010 data comprised of assessments received by the Nassau County Sewer and Storm Water Finance Authority

Currently, taxable properties within the District pay for the use of Services from the Facilities maintained by the District by an ad valorem tax (assessment). The County intends to include other users of the System through a revised rate structure that will be devised by using usage data, assessments, base fees or other relevant factors. Examples of such users are certain real property owners within the County who use the Services of Sewerage Facilities without charge because their real property is exempt by law from the ad valorem tax (also referred to as assessments). Additionally, certain owners or occupants of real property within the County use the services of Sewerage Facilities maintained by the District to a greater extent than others (High Water Users), such that assessments imposed upon owners are disproportionately low when compared with such owners or occupants actual use of Services of said Sewerage Facilities. The projected revenues detailed in Appendix B reflect the revisions to user charges described above.

Following the proposed imposition of charges to users described in the preceding paragraph, the County is also considering moving from levying an ad valorem tax (assessment) on taxable properties to imposing user charges on all such properties. As part of a P3 transaction, the timing and process for such a change would be carefully coordinated with a potential investor.

III.

Submission Contents

Respondents to this RFI are encouraged to provide each of the following: 1. Name and contact information (address, phone, fax and email) for the individual who will act as the respondents principal contact throughout the RFI process and description of the individual members of the respondents team with experience related to the objectives of the County as described in this RFI. A description of the respondents experience with comparable arrangements that demonstrates the respondents ability to advance the objectives of the County. An overview of the respondents financing capability to fund all payments due under the proposed P3 and the ability to secure such financing without any contingencies. Comments on the proposed P3 structure set forth in Appendix A and specific thoughts on how any changes to the proposed structure would impact value generated or the level of service provided to customers of the System. To the extent relevant, provide a description of the benefits and considerations of various transaction structure(s). A discussion of whether the respondent believes it is viable, based on the financial information set forth in Appendix B, for the County to generate in excess of $700 million in gross proceeds from a P3 of the System. In addition, please highlight the key elements of the arrangement that would impact value for the County from a P3 of the System.

2. 3. 4.

5.

IV.

Submission Instructions

Submission Deadline

Request for Information responses should be submitted by the close of business on Wednesday, July 11, 2012.

Schedule

The County will review submissions, and, at its sole discretion, may contact respondents for additional information. The County reserves the right to issue additional solicitations in the future related to strategic alternatives for the System.

Submission Requirements

An electronic copy of your response should be submitted to the following individuals. Mr. Tim Sullivan Deputy County Executive for Finance Nassau County, New York tsullivan@nassaucountyny.gov
Inquiries

Mr. Perry Offutt Managing Director Morgan Stanley perry.offutt@morganstanley.com

All questions related to this RFI should be directed to Perry Offutt at (212) 761-5135 or perry.offutt@morganstanley.com.

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Appendix A: Draft Concession Agreement Term Sheet Illustrative Closing Date Term Included Assets (as defined in Section II of the RFI) Excluded Assets and Liabilities Operator 1/1/13
50-year lease and concession Sewage treatment plants, service pump stations and sewage collection and disposal system Storm water system and any existing environmental liabilities United Water. Concessionaire will enter into an operating agreement with United Water based on the MOU, but the operating agreement can be customized

Other Key Concession Terms

Concessionaire will have the exclusive rights to operate and collect all revenues associated with the entire System over the life of the contract Concessionaire would be responsible for maintaining the System in accordance with the operating standards included in the United Water MOU, including assuming all the required operating and capital expenditures Billing based on monthly usage will not likely occur for a few years. Unless mutually agreed, the County will continue to collect the revenue and pay the Concessionaire directly. This will eliminate any risk of bad debt expense Base rates/tariffs for all users would be frozen for the first two years and then would increase at CPI (assumed 3%). These base rates will be determined for the life of the contract Unexpected, imperative capital expenditures (i.e., not in the base model agreed to with the County) would be funded by the Concessionaire. In return, the Concessionaire would be contractually allowed to charge a surcharge to customers to allow for an adequate regulated return similar to other regulated utilities in the state of New York.

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Appendix B: Illustrative Projected Financials


Key Financial Assumptions Duration of Concession 2013 Revenue Revenue Volume Growth Revenue Rate Growth 2013 Operating Expense 50 years $127MM for existing users 0.4% volume growth per year starting in 2015 No rate increase until 2015 Rate increase by CPI (assumed 3%) for remainder of lease United Water base fee of $60MM in 2013 o 3% growth per year Total operating expense in 2013+ includes interim operating fee, transition fee, program management fee and concessionaire corporate overhead $77MM in 2013 o Includes United Water base fee of $60MM, as well as transition and other overhead costs 3% growth per year for all non-transition fees Possibility for incremental fees in the long term to meet capital expenditure requirements Based on consultant and Operator projections

Operating Expense Growth

Capital Expenditures Illustrative Financial Projections (1) $MM

Fiscal Year End 31 December 2013 2014 127 0.0% 0.0% 127 0.0% 60 18 77 62 10 72 (7.1%) 50 55 11.1% 39.1% 66 43.5% 86 30.7% 51.9% (16) 67.8% (31) 2015 132 0.4% 3.0% 132 3.4% 63 11 74 2.8% 58 4.2% 43.8% 48 (44.4%) 36.5% 10 2016 136 0.4% 3.0% 136 3.4% 65 7 72 (2.6%) 64 11.2% 47.1% 40 (16.7%) 29.4% 24 2017 141 0.4% 3.0% 141 3.4% 67 7 74 3.0% 67 3.9% 47.3% 36 (11.0%) 25.3% 31

Revenue from Users % Volume Growth % Rate (Non-Volume) Total Revenue Growth Rate United Water Base Fee Transition and Other Overhead Costs Total Adjusted Opex Growth Rate EBITDA Growth Rate % Margin Total Capital Expenditure Growth Rate % Margin EBITDA Capex
1. Numbers may not add due to rounding

127 0.0% Growth 0.0% 127

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Appendix C: MOU with United Water

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FOR DISCUSSION PURPOSES ONLY

NASSAU COUNTY, NEW YORK MEMORANDUM OF UNDERSTANDING FOR OPERATION OF THE SEWER SYSTEM

January 25, 2012

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NASSAU COUNTY, NEW YORK MEMORANDUM OF UNDERSTANDING FOR OPERATION OF THE SEWER SYSTEM January 25, 2012

It is understood that no party has agreed to, nor is any party, by virtue of negotiating this Memorandum of Understanding undertaking any obligation to enter into the Transaction Documents or any other agreements or instruments in respect of the transaction described herein or any other transactions. No party is obligated to enter into any agreement with any other party with respect to these transactions or the Transaction Documents described herein until such time as the Transaction Documents have been approved and executed by the parties. Any actions taken by a party in reliance on the non-binding terms expressed herein or on statements made during negotiations in respect of this Memorandum of Understanding shall be at that partys own risk. This Memorandum of Understanding shall not be the basis for a contract by estoppel, implied contract or any other legal theory of liability.

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A.

DEFINITIONS

Capitalized terms used but not defined in this MOU are used as defined in Annex A hereto. The County is evaluating a public-private partnership transaction (the P3 Transaction) involving certain assets of the Countys Sewer System (the System). The System is responsible for the collection, treatment, and disposal of sewage throughout a substantial portion of the County, with a current customer base of approximately 1.0 million. The P3 Transaction will consist of the concession, lease, or other similar arrangement involving the System, including but not limited to a public-private partnership. Under the P3 Transaction, the County will receive an upfront payment from a special purpose entity (the Concessionaire) formed by a private investor, as compensation for transferring operations of the System to the Concessionaire. In return, the Concessionaire will be compensated by the fees and/or assessments paid by the System customers for System usage, as well as assume responsibility for all System operations, maintenance and, subject to Section F below, Capital Improvements. The County shall reserve certain necessary powers and authorities to ensure the quality, safety and public purposes of the System. The County plans to select a private operator to direct the day-to-day operations of the System under the P3 Transaction (the Operator) prior to identifying the Concessionaire. This Memorandum of Understanding (this MOU) has been developed to provide a summary of the major terms and conditions for the contract operation, maintenance, and management of the System. This MOU shall be used by the prospective Operators to assess the responsibilities and corresponding costs associated with providing the services as a subcontractor to a Concessionaire on behalf of the County.

B. P3 TRANSACTION BACKGROUND

C. MOU SUBJECT TO CONCESSION

In 2012, the County will conduct an RFP process (the P3 Transaction RFP) to select the Concessionaire. The proposal with the best value will be awarded the P3 Concession. The County and the Concessionaire will enter into a Concession Agreement (the Concession Agreement), which is anticipated to be substantially in the form attached to the P3 Transaction RFP. The Concession Agreement and related documents, as applicable, will set forth all of the terms of the P3 Transaction, including the operation and maintenance responsibilities, term and termination provisions, compensation to the Concessionaire, and the rights of the Concessionaires lenders (i.e., the parties providing a portion of the upfront payment to the County, if any). Under the Concession Agreement, the Concessionaire will be primarily responsible to the County for the operations and maintenance of the System during the term of the Concession Agreement. The initial draft of the Concession Agreement is currently being prepared by the County and its advisers. The County will use

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its best efforts to avoid any conflict between the corresponding provisions of the initial draft of the Concession Agreement and this MOU. However, it is expected that the initial draft of the Concession Agreement will be further modified during the P3 Transaction RFP process based upon the comments and inquiries from, and meetings and other interactions with, the prospective proposers for the P3 Transaction. Concurrently with the execution of the Concession Agreement, the Concessionaire will enter into a subcontract with the Operator (the Operations Contract), on terms reasonably acceptable to the Operator, subcontracting its operations and maintenance responsibilities under the Concession Agreement. It is intended that this MOU will serve as the basis of the Operations Contract; however, to the extent of any conflict between the terms of the Concession Agreement and this MOU relating to the operations and maintenance requirements and related covenants, defaults, remedies and other provisions that are intended to be passed down by the Concessionaire to the Operator, the final Operations Contract will reflect the provisions of the Concession Agreement rather than this MOU. In addition, the Operations Contract shall contain customary representations and warranties, indemnities and other customary terms, in addition to those set forth in this MOU, as well as suitable Operator-specific information and the results of negotiations between the County and the selected Operator. Upon execution, the Operations Contract will supersede this MOU in its entirety. The County reserves the right to abandon the P3 Transaction RFP process at any time. If the P3 Transaction does not close for any reason, the County shall be under no obligation to enter into an operations contract with the Operator. The operator submitting the best proposal in response to the RFP for this MOU (the Operator RFP) will be selected as the Operator. The selection criteria are specified in the Operator RFP. A number of pre-qualified entities will be invited to participate in the P3 Transaction RFP. The entity submitting the best value proposal in response to the P3 Transaction RFP will become the Concessionaire. The Concessionaire will be obligated to use the selected Operator as its subcontractor for the operations and maintenance of the system, on terms substantially similar to the terms of this MOU or, if modification of such terms is required by the corresponding provisions of the Concession Agreement, on the mutually agreed modified terms, as described above. The Operator will not be precluded from acquiring an equity interest in the Concessionaire. The County will enter into the Concession Agreement with the Concessionaire, who will, in turn, enter into the Operations Contract with the Operator. The

D. CONTRACTING PARTIES AND RELATIONSHIPS

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County does not intend to enter into any direct agreement with the Operator in connection with the transactions described herein. The Authority is the owner of certain Managed Assets constituting personal property, and will assign, lease or license such Managed Assets to the Concessionaire in connection with the execution of the Concession Agreement. The obligations of the Operator under the Operations Contract will be guaranteed by a credit-worthy entity (the Guarantor), pursuant to a guaranty in form and substance reasonably satisfactory to the Concessionaire and the County (the Guaranty). All agreements and transactions described herein are subject to the requisite approvals of the County, the Authority, the Concessionaire, the Operator, and other parties and regulatory bodies, respectively, as may be applicable E. CONTRACT TERM (DURATION) It is anticipated that the Term of the Operations Contract will be 20 years, whereas the Concession Agreement may be up to 50 years. The Operations Contract will be extended or re-procured after the initial 20-year Term, as needed, to coincide with the term of the Concession Agreement. The terms of the Operations Contract and the Concession Agreement will be subject to certain early termination provisions. The Concession Agreement will contain customary terms for termination compensation in the case of early termination other than for the Concessionaires default. The Operator will have full responsibility for the operation, maintenance and management of the System. Services include all maintenance of grounds, landscaping, buildings, and equipment comprising the System. The Operator shall operate, maintain and manage the System in accordance with Applicable Laws. The Operator shall provide uninterrupted operation of the System. The Operator shall operate the System on a continuous basis, 24 hours a day, seven days a week throughout the Operation Period. The Operator shall provide customer service, to the extent set forth in Section O.2 hereof. Specific responsibilities, without limitation, are further identified and described in this MOU. The Operator shall, at all times, keep the System in good repair and working order and shall operate, maintain and manage the System in a professional, efficient and economical manner. Operational decision making shall always be based on the following overall objectives: Protection of health and welfare of the public Protection of the health and safety of the System operating staff Preservation of the long-term capability to supply wastewater treatment services Protection of the environment Protection and preservation of the System equipment and facilities Maximization of System operational efficiency

F. GENERAL SCOPE OF SERVICES

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Preservation of the public purposes of the System.

In general, the Operator shall be required to perform the following: Operate, maintain and manage the System Treat wastewater to maintain effluent requirements Process and treat sludge to maintain Beneficial Use or Reuse requirements at a minimum, or such other higher value uses as the Operator may determine Meet all performance standards and permit, consent decree and administrative consent order requirements (other than (i) any consent decree and administrative consent order requirements relating to the defects or conditions of the System existing prior to the Operations Contract date which require Capital Improvements, unless the Concessionaire has provided funds for such Capital Improvements, (ii) any permit, consent decree and administrative consent order requiring Capital Improvements, unless the Concessionaire has provided funds for such Capital Improvements, and (iii) any performance standard requiring Capital Improvements, to the extent such Capital Improvements have been identified in the Capital Improvement Plan, unless the Concessionaire has provided funds for such Capital Improvements in accordance with the Capital Improvement Plan). Perform all corrective, predictive, preventative and ongoing maintenance of the System Perform all analytical sampling, testing and analyzing Keep all necessary records, including lab sampling and analysis results Provide emergency services as required Maintain grounds and buildings Keep facilities secure Keep facilities clean To the extent requested by the Concessionaire and subject to the availability of sufficient funds, and subject to the Countys prior approval, identify and execute any Capital Improvements to the System (it being understood that the Concessionaire will have the right to retain a third party contractor for implementation of any Capital Improvements to the System) To the extent permitted by Applicable Law, for the duration of the Operation Period, the County or the Concessionaire shall hold and maintain all permits associated with the System (other than any permits which the Operator shall be obligated to obtain and maintain in its capacity as the operator of the System). The Operator shall be obligated, pursuant to the Operations Contract, to fulfill all of the requirements of all such permits maintained by the County or the Concessionaire. The Operator shall be responsible for complying in all material respects with all applicable federal, State and local laws and regulations pertaining to the System and shall comply with all approvals, licenses, permits and certifications, governing the performance of its Services hereunder issued for or with respect to

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the System. This MOU sets forth general requirements for the operation, maintenance and management of the major System components. The provisions included are intended to address the major activities required but all specific activities that are necessary for meeting the performance requirements set forth in this MOU and subsequent Operations Contract and preserving the System may not be included in this MOU. The Operator shall be responsible for determining such specific activities and performing all necessary operation, maintenance and management activities to preserve the System. The roles and responsibilities of the County and the Concessionaire will be further specified in the Concession Agreement.

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G. MANAGED ASSETS AND SERVICE AREA DESCRIPTION

a.

Managed Assets

The Managed Assets shall include all assets that comprise the System as described in the Engineers Report and related documents provided in the Data Room and shall include all County sewer and customer services related assets in the County's service territory, including land, structures, improvements, pipes, equipment and other related assets, other than certain excluded System assets. Annex C provides a list of other Managed Assets including but not limited to vehicles, property, and buildings. b. Excluded Assets

The assets associated with the Countys stormwater management are excluded from the Operators services. The County will continue to operate and maintain the stormwater assets. In addition, other County assets, to the extent not defined as the Managed Assets above, shall be deemed to constitute excluded assets.

H. REFERENCE DOCUMENTS AND RELIANCE THEREOF

a. Accuracy of Reference Documents The County assumes no responsibility for the completeness or the accuracy of specific technical and background information provided to the Operator or otherwise distributed or made available through the Data Room or otherwise. The Operator is responsible for performing its own due diligence to satisfy itself regarding aspects of the Managed Assets. b. Reference Documents Available The County has compiled numerous reference documents for use in preparing responses to the RFP. Such reference documents are available in the Data Room.

I. ACCEPTANCE OF MANAGED ASSETS IN AS IS CONDITION

Except as otherwise set forth in this Section I, the Operator accepts the System and System Sites (including the geotechnical, climatic, hydrological, ecological, environmental and general conditions of the System Sites, the nature of the ground and subsoil, the form and nature of such System Sites, the risk of injury or damage to property near to or affecting each such System Site and to occupiers of such property, Utilities and other structures on or near the System Sites) on an as is, where is basis. Except as otherwise set forth in this Section I, the Operator shall not be excused from the performance of the Services for any reason relating to the condition of the System or the System Sites except that performance relief may be granted on occurrence of defined Uncontrollable Circumstances, pursuant to the terms of the Operations Contract, and to the extent such relief is provided to the Concessionaire in the Concession Agreement. As-is, where is risk shall not include: (a) pre-existing environmental conditions (hazardous materials), geotechnical or archaeological subsurface conditions; (b) any existing code violations; or (c) any latent defects

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of the Managed Assets. The exceptions described in clauses (a) and (b) above, and any failure of the Concessionaire to provide funding for Capital Improvements in accordance with the Capital Improvement Plan, are to be included in the definition of Uncontrollable Circumstances; the Concession Agreement will contain a mechanism for risk allocation of the costs and relief from performance requirements associated with the Uncontrollable Circumstances or Change in Law, with any compensation received by the Concessionaire with respect thereto to be passed down to the Operator. The latent defects (described in clause (c) above) will be addressed in a 5-year capital improvement plan (the Capital Improvement Plan). The initial Capital Improvement Plan will be attached to the execution version of the Concession Agreement and the Operations Contract, but will be subject to further adjustment and development by the Operator and Concessionaire, and subject to approval by the County, on the terms to be set forth in the Concession Agreement. The Concession Agreement will provide a mechanism for funding of the Capital Improvements set forth in the Capital Improvement Plan. Neither the County nor Concessionaire has made or will make any express or implied warranty to the Operator as to the accuracy and completeness of such information, and neither County nor Concessionaire shall be liable to the Operator with respect to such information. DUE DILIGENCE The Operator has concluded its preliminary due diligence prior to submitting its proposal in response to the Operator RFP, and shall have a period of time following such proposal submission (and up to the proposal submission date with respect to the RFP for the Concession Agreement) to conduct confirmatory due diligence. In performing the Services, Operator shall at all times comply (and shall cause any of its Subcontractors to comply) in all material respects with all Applicable Laws. As security for the full and timely performance of its obligations under the Operations Contract, the Operator shall provide to the Concessionaire a performance security in the form of (a) an on-demand letter of credit issued by a Qualifying Institution in the amount of the lesser of (i) $3,000,000 and (ii) 10% of one years base Service Fee, and (b) a performance bond issued by a surety reasonably acceptable to the Concessionaire in the amount equal to 25% of one year's base Service Fee (as each such amount shall be adjusted annually during each year of the Term beginning in calendar year 2012, by the percentage change in the Inflation Index from that for the immediately preceding calendar year) (collectively, the O&M Security); provided that the Operations Contract may specify different amounts and/or form of the performance security. a. Workforce Management and Compensation

J.

K. COMPLIANCE WITH APPLICABLE LAW L. O&M SECURITY

M.

PERSONNEL

The Operator will develop its proposed organizational structure necessary to

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perform the services and will interview existing County employees to fill open positions. The Operator has full discretion to hire County employees to fill these positions. The Operator shall offer employment to the selected County employees with an overall package of wages and benefits comparable overall to the Countys wages and benefits and in compliance with the Operators recruitment policies and all applicable State and local wage laws. The Operator is entitled to future changes to the organizational structure and to reduce the workforce via severance and voluntary attrition. County employees not hired by the Operator shall continue employment with the County.

b.

Key Personnel

Key personnel shall include the Operators senior on-site representative, the operations manager, and the customer service manager (to the extent applicable). The Operator may not change these key positions without prior approval of the replacements by the Concessionaire and the County. Such approvals shall not be unreasonably withheld. c. MWBE Requirements.

The Operations Contract provisions shall reflect, and the Operator shall comply with, the MWBE Requirements of the Concession Agreement (which would require using commercially reasonable efforts to reach specified goals of MWBE participation). d. State Prevailing Wage Statutes.

This clause (d) is applicable to the extent State prevailing wage statutes apply to the P3 Transaction and the Operations Contract. If required to do so, the County will prepare and file with the State Department of Labor the schedule of prevailing wages, and will provide the Operator with a copy of such filing prior to the Operator RFP proposal date. Such schedule, as approved by the State Department of Labor, will be incorporated into the final Operations Contract. If for any reason the approved schedule is different from the filed schedule, the proposal price submitted by the selected best value proposer will be subject to adjustment for any increases or decreases in the schedule. Increases to the rate schedule issued by the State Department of Labor subsequent to the date of the Operations Contract shall be reflected in the Inflation Index. N. OPERATION AND MAINTENANCE REQUIREMENTS O. LEGAL AND BUSINESS

The operations and maintenance requirements are set forth in Annex B. 1. Rate Setting. The Concession Agreement shall provide the initial rates and rate structures agreed upon between the County and the Concessionaire. The

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REQUIREMENTS

Concession Agreement shall also provide the rate setting procedures for all future rates. The rates shall be sufficient to support all management, operations, and maintenance costs of the System. In addition, the rates shall be sufficient to finance all Capital Costs, including feasibility studies, planning and permitting, documents, engineering and design documents, construction activities, and repair and replacement activities. The Operator shall seek approval from the Concessionaire and the County, as required, for all expenditures beyond the preestablished fees, as set forth in the Operations Contract, for managing, operating, and maintaining the System. Such additional expenditures shall be considered to determine the required rates as per the periodic rate-setting procedures of the Concession Agreement. The Concessionaire and the Operator shall collectively work to maximize the efficiency of the System, including the development of the Capital Improvement Plan, so that the required rates, fees and charges are within the range of typical and comparably sized wastewater system rates, fees and charges in the region. The Operator shall provide all information kept in the normal course of operating and maintaining the Managed Assets, required by the Concessionaire and the County in the rate-setting process. 2. Billings, Collections, and Customer Services. Other than during an initial period reasonably sufficient to accomplish the transition of payment for the services from the current property-tax based approach to the metered usagebased fee, the Operator will be responsible for billing and collection services for all current and future accounts of the System in accordance with the user fee system and established charges by the Concessionaire and the County and included in the Concession Agreement; provided that, to the extent permitted by Applicable Law, the County shall provide assistance to the billing services of the Operator by adding amounts (to the extent timely submitted by the Operator) as part of the annual levy by the County for taxes and similar assessments. The Operator shall (a) provide all administrative offices along with all required facilities, equipment, systems, and related items for performing all billings, collections, and customer service functions, including, as appropriate, obtaining water meter reading data on a periodic basis from water Utilities in the System service area; (b) process the sewer billing statements, process all user fees, connection fees, sewer use and benefit assessments and provide accepted accounting practices to all monies and billings (in compliance with the Concession Agreement); and (c) provide a monthly review of all outstanding accounts receivable and a summary of the bad debt reserves to the Concessionaire and the County. Unless directed otherwise by the County or the Concessionaire, the Operator shall (i) organize, publicize and participate in regularly scheduled quarterly community meetings with the customers of the System; and (ii) implement a system of regular updates by e-mail or similar means to the customers on the status of the System and other customer services matters.

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3. Compensation to Operator. The Concessionaire shall pay the Operator Service Fee (adjusted by the Inflation Factor and other customary adjustments), plus the compensation for the services as the program manager with respect to any Capital Improvement of the System requested by the Concessionaire), plus an incentive fee, to be based on performance incentive criteria. The terms for the payment of the Operator Service Fee will be set forth in the Operations Contract. 4. Taxes. The Operator shall administer and pay all sales and use taxes, and other taxes and contributions imposed by any taxing authority upon the sale, purchase or use of materials, supplies, equipment, software, services or labor incorporated in the Managed Assets or used in the Services (collectively, Taxes), including but not limited to all applicable NY state sales tax associated with operators sewer services (including to the extent applicable under 20 NYCRR 527.7 (a) and (d)). The Concessionaire will be responsible for the payment of all applicable property taxes with respect to the System. 5. Insurance. The Operator shall at its own cost provide and maintain (or cause to be maintained), the insurance coverages to be agreed upon in the Operations Contract applicable to the operation and maintenance of the Managed Assets. If the Operator fails to procure and maintain the required insurance, or any portion thereof, the Concessionaire or the County shall have the right, but not the obligation, to procure and maintain the required insurance for and in the name of the Concessionaire or the County, as applicable. If the Concessionaire or the County procures any such insurance, the Operator shall promptly pay the cost thereof and shall furnish all information necessary to acquire and maintain such insurance. Neither party shall violate or knowingly permit any violation of the coverage terms and conditions of any such insurance. The required insurance, where applicable, shall include a severability of interest clause. All such insurance shall add the County, the Concessionaire and, if applicable, the Concessionaire creditors, as additional insureds. The Operations Contract shall contain other customary insurance provisions. 6. Change in Scope of Services/Adjustment. The Operator shall be entitled to an adjustment to its operations fee as a result of an expansion of the scope of services, a Change in Law or an Uncontrollable Circumstance (including a change in Managed Assets), which materially changes its costs to manage, operate, and maintain the System. Such change or changes shall be considered material if it or they, on a cumulative basis, involve more than a certain annual threshold amount (to be specified in the Operations Contract) in increased costs as adjusted. Any adjustments to the compensation to Operator shall be pre-approved by the County, which includes consideration of such adjustments in the rate-setting procedures. In case of an adjustment exceeding certain thresholds (to be set forth in the Concession Agreement), the County shall have the right to terminate the Concession Agreement and cause the Concessionaire to terminate the

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Operations Contract. 7. Default. The Operations Contract shall contain customary Operator Events of Default, including the following: (i) a voluntary or involuntary bankruptcy or similar proceedings, which, in case of involuntary proceedings, remain undismissed and unstayed after ninety (90) days; (ii) the Operator fails to make payment of any undisputed amounts owed by the Operator to the Concessionaire under the Operations Contract, and such payment is not made in full within thirty (30) days following written notice thereof from the Concessionaire; (iii) the Operator fails to comply in any material respect with any Operations or Maintenance Requirements in the performance of the Services and such failure is not remedied within fifteen (15) days following written notice thereof from the Concessionaire or, if such failure is not capable of being remedied within such time, if the Operator has not (a) provided to the Concessionaire a remedial plan with respect to such failure within such fifteen (15) days, in substance reasonably acceptable to the Concessionaire, and (b) commenced a cure and diligently pursued the same in accordance with such remedial plan; (iv) the Operator abandons the Services; (v) the Operator fails to provide or maintain in effect the O&M Security in the amount and terms required hereunder, and such failure is not remedied within five (5) days following written notice thereof from the Concessionaire; (vi) any Guarantor fails to provide or maintain in effect the Guaranty as required hereunder, and such failure is not remedied within five (5) days following written notice thereof from the Concessionaire; (vii) the Operator fails to comply with any material insurance-related requirement of the Operations Contract (provided the relevant required coverage is available on commercially reasonable terms, as further specified in the Operations Contract); and such failure is not remedied within twenty (20) days following written notice thereof from the Concessionaire; (viii) the Operator operates the Managed Assets in a manner creating an immediate public safety hazard; (ix) the Operator operates the Managed Assets in a manner violating Applicable Law and/or endangering public safety (other than as provided in clause (viii) above), and such failure is not remedied within fifteen (15) days following receipt of a written notice from the Concessionaire or the County

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outlining such concerns or, if such failure is not capable of being remedied within such time, if the Operator has not (a) provided to the Concessionaire a remedial plan with respect to such failure within such fifteen (15) days, in substance reasonably acceptable to the Concessionaire, and (b) commenced a cure and diligently pursued the same in accordance with such remedial plan; (x) the Operator breaches its obligations under the Operations Contract in respect of assignment or change of control; (x) the Operator breaches its obligations under the Operations Contract in respect of subcontracting as defined in the Agreement, and such failure is not remedied within forty-five (45) days following written notice from the Concessionaire; provided that such cure period does not apply to any failure creating an immediate public safety hazard; (xi) Any of the Operators representations or warranties contained in the Operations Contract prove to have been materially untrue or incorrect when made to the extent that such breach of representation or warranty has a material adverse effect on the Services or the System as a whole or the interests of the Concessionaire, and such failure is not remedied within thirty (30) days following written notice thereof from the Concessionaire; and (xii) the Operator otherwise is in material default of any other provision of or has materially failed to perform obligations under the Transaction Documents that is not separately specified as an Operator Event of Default in clauses above and such failure continues for thirty (30) days after written notice from the Concessionaire or, if such failure is not capable of being remedied within such time, if the Operator has not commenced a cure within such time and thereafter diligently pursued the same until a cure is effected, not to exceed an additional thirty (30) days. It is acknowledged and agreed by the Operator that none of the cure periods allocated to the Operator for an Operator Event of Default shall exceed the cure period for the corresponding Concessionaire Termination Event under the Concession Agreement. If an Operator Event of Default has occurred and is continuing, the Concessionaire shall have customary remedies, including termination of the Operations Contract and /or replacement of the Operator. Events of Default by Concessionaire. The Operations Contract shall contain customary Concessionaire Events of Default, including the following: (i) Failure of the Concessionaire to comply in any material respect with any of its obligations (other than payment obligations) under the Operations Contract, where such failure is not remedied within thirty (30) days following written

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notice thereof from the Concessionaire or, if such failure is not capable of being remedied within such time, if the Concessionaire has not commenced a cure within such time and thereafter diligently pursued the same until a cure is effected, not to exceed an additional sixty (60) days; (ii) Failure of the Concessionaire to pay undisputed amounts owed to the Operator under the Operations Contract within thirty (30) days following the time they become due and payable; and (iii) A voluntary or involuntary bankruptcy or similar proceedings, which, in case of involuntary proceedings, remain undismissed and unstayed after ninety (90) days. A notice of default by either party shall be in writing and shall detail the specific circumstances that constitute the alleged event of default. If a Concessionaire Event of Default has occurred and is continuing, the Operator shall have customary remedies, including termination of the Operations Contract [and recovery by Operator of reasonable start-up and demobilization costs]. 8. Termination. Either party may elect, at its discretion, to terminate the Operations Contract upon an occurrence of certain events of default by the other party. In the case of such termination by the Concessionaire, the Operator shall be liable to the Concessionaire for all direct damages suffered or incurred by the Concessionaire as a result of such termination and the Operator Event of Default leading to such termination, including all costs reasonably incurred by the Concessionaire in replacing the Operator to perform the services; provided that Operators responsibility with respect to reprocurement costs shall not exceed One Million Dollars ($1,000,000). 9. Disputes. The Operations Contract will contain customary dispute resolution provisions, which may include senior executive discussion, mediation and or technical panel arbitration. To the extent not resolved pursuant to such procedures, any claim or controversy between the Concessionaire and the Operator not exceeding One Million Dollars ($1,000,000) in value shall be submitted to alternative dispute resolution by JAMS or its successor in accordance with its Streamlined Arbitration Rules, or other alternative dispute resolution provider mutually acceptable to the Concessionaire and Operator, in all cases in accordance with the Federal Arbitration Act. Unless the parties otherwise agree, all arbitration proceedings shall be held in Nassau County, New York. If the arbitrators determine that the claim or defense of either party was frivolous (i.e., without justifiable merit), they may require that the party at fault pay or reimburse the other party for costs of the arbitration in whole or in part. The parties submit to the exclusive jurisdiction of the federal and State courts in

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Nassau County, New York, with respect to all claims exceeding One Million Dollars ($1,000,000) in value. The parties waive trial by jury. If any issue in dispute between the parties to the Operations Contract is also the subject of, or relates to, a dispute subject to the dispute resolution procedures of the Concession Agreement, the parties shall seek to cause the dispute under the Operations Contract to be consolidated with the dispute resolution process occurring under the Concession Agreement. 10. Third Party Contracts.

The County shall assign to the Operator or the Concessionaire, and the Operator or the Concessionaire, as applicable, shall assume, all third party contracts relating to the operation of the System (to the extent such contracts are assignable, and to the extent they have been made available to the Operator for review prior to the deadline for the proposal submission in response to the P3 Transaction RFP). 11. Liability. The total liability of the Operator in contract, tort, equity or otherwise (including negligence, warranty, strict liability or otherwise) relative to or arising out of the Operations Contract shall be limited to an aggregate amount not to exceed 100% of the aggregate annual base compensation of the Operator, as such sum shall be adjusted annually during each year of the Term by the percentage change in the Inflation Index from that for the immediately preceding calendar year; provided that the foregoing limitation shall not apply to or include: (i) the proceeds of insurance received by the Operator;

(ii) costs, liabilities or obligations that arise from gross negligence, willful misconduct or actual fraud of the Operator; (iii) the Operators breach of its no liens or encumbrances on the managed Assets covenant; or (iv) the Operators indemnity obligations solely in respect of third party claims (which, for the sake of clarity, shall not include claims by the County or any other governmental authority, the assets of which are included in the System). The Operations Contract shall contain standard mutual disclaimers of consequential and punitive damages. With respect to any indemnifiable claim covered by insurance, the Operator's indemnification obligation shall be capped by the greater of: (i) the insurance proceeds available to the Operator with respect to its liability for such claim,

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and (ii) the cap on the Operator's liability specified above. If agreed by the Concessionaire and the Operator, the Operations Contract may contact a higher cap on Operators liability. 12. Indemnification.

The Operator will, to the fullest extent permitted by law, fully and effectively indemnify and hold harmless the County and Concessionaire Indemnitees from and against all Damages (excluding any Losses of, or Claims for, consequential or punitive damages) asserted by any third party, to the extent arising out of or resulting from any breach by the Operator or its subcontractors, agents, servants, consultants or employees of the Operations Contract or any other Transaction Document, any willful misconduct of the Operator or its subcontractors, agents, servants, consultants or employees, but only to the extent that such Loss and/or Claim does not arise as a result of the grossly negligent acts or omissions or willful misconduct of the relevant County and Concessionaire Indemnitee. Operators aforesaid indemnity is for the exclusive benefit of the County and Concessionaire Indemnitees and in no event shall inure to the benefit of any other Person. The Concessionaire will provide similar indemnities in favor of the Operator. 1. Periodic Audits. The Operator or its designated independent engineer shall conduct periodic audits and inspections approximately every year as requested by the Concessionaire or the County, to show that all necessary maintenance, repairs and replacements, including major repairs and replacements, have been undertaken, and that the System is operating in compliance with Applicable Law and the performance standards specified in the Operations Contract. Such inspection and audit will include a walk-through, inspection, and engineering audit of the machinery, equipment, vehicles, and structures constituting the System, as well as actual performance tests. The Operator shall provide written audit reports to the Concessionaire. The Operator will be responsible for all costs associated with the annual review. Any deficiencies discovered as a result of the audits shall be corrected by the Operator, subject to (i) the Operators right to contest the findings in accordance with the dispute resolution provisions of the Operations Contract, and (ii) if such correction requires a Capital Improvement, the provisions of funds for such Capital Improvement by the Concessionaire. Exit Test: Prior to the expiration of the Operation Period, the Operator shall be required to demonstrate the ability of the System to meet the requirements of an exit test designed to demonstrate that all reasonably necessary maintenance, repairs and

P. PERIODIC AUDIT/REVIEW

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replacements have been undertaken, and that the System is operating in compliance with Applicable Law and meeting all the performance standards specified in the Operations Contract (as such performance standards may be modified from time to time). If any aspect of the exit test is not successfully passed, the Operator shall, at its cost and expense, make all necessary repairs and replacements and the exit test shall be re-performed at the Operators sole cost. At the end of the Operation Period, the Operator is expected to leave the System with the same or equivalent value of equipment, supplies and materials, taking into account normal wear and tear and obsolescence. If there is a greater amount of equipment, supplies and material after the end of the Operation Period, the Operator shall be compensated for the amount of overage in accordance with the terms of the Operations Contract, subject to an agreed-upon cap. The Operator shall be responsible for all Major Maintenance of the Managed Assets (which shall be financed with the Capital Operating Costs) throughout the Operation Period, but shall not be responsible for making replacements constituting Capital Improvements, unless (a) requested by the Concessionaire and (b) funds therefore have been provided by the Concessionaire. 2. Budget; Annual Operating Reports. The Operator will assist the designated auditor in its annual audit of the Systems operations. The Operator will also be responsible for preparation, or assisting the Concessionaire in preparing, periodic budgets and annual operating reports, as required by the Concessionaire. 3. Financial Statements. The Operator shall provide or cause to be provided, annual audited (if applicable) or unaudited and quarterly unaudited financial statements of the Guarantor and, to the extent available, the Operator, in each case within the customary time periods. Q. TRANSITION REQUIREMENTS During a reasonable transition period (the Transition Period), the County and the Operator shall cooperate to provide transition services to allow the Operator to smoothly take over the operation of the System from the County in accordance with the transition plan submitted by the Operator with its proposal (the Transition Plan). Such transition includes the recruitment of County employees consistent with the requirements of this MOU. During the transition period, as part of its obligations under the Operations Contract, the Operator shall complete an inventory of System equipment, supplies and materials that are on hand when the Operation Period begins.

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Annex A DEFINED TERMS

Applicable Law means all federal, state and local laws, regulations, ordinances, rules, permits, regulatory enforcement actions, or other actions of governmental agencies that have jurisdiction over the management, operation, and maintenance of the System. Authority means the Nassau County Sewer and Storm Water Finance Authority. Base Service Payment means the amount to be determined based on the winning proposal submitted in response to the Operator RFP. Beneficial Use or Reuse means the use of final product (composted dewatered sludge cake) in accordance with applicable federal and State laws, rules, regulations, and policies for landfill cover, soil amendment, soil additives, fertilizer, land reclamation and other similar uses. Biological Toxic Substances means influent containing a biologically toxic substance or combination of substances (that individually may or may not be biologically toxic substances but which collectively qualify as a biologically toxic substance) in sufficiently high concentrations so as to materially interfere with the biological processes necessary for the removal of the organic and chemical constituents of the Influent required to meet the Performance Guarantees. Biologically toxic substances shall include heavy metals, phenols, cyanides, pesticides, herbicides and priority pollutants as listed in 40 C.F.R. Part 122, Appendix D, Tables II, III and IV by EPA. Capital Costs means, collectively, the Capital Improvements and the Capital Operating Costs. Capital Improvement Plan is defined in Section I of this MOU. Capital Improvements means (a)(i) replacement of an equipment item or replacement of directly connected components of an equipment item that has or have met or exceeded their useful life, unless such replacement was a result of the Operators failure to comply with the operating obligations under the Operations Contract (including any operation and maintenance plans adopted pursuant thereto); or (ii) items for construction and placement of new facilities (e.g., piping, equipment, including material costs) and capital purchases that significantly improve operations and/or maintenance, aesthetics, long-term capital conditions or other aspects not generally associated with ongoing operation and maintenance; and (b) with a construction, installation (including materials and labor to construct and install the Capital Improvements, but not for design assessment or oversight or other labor costs that are included in the Services to be provided under the Operations Contract) or purchase value in excess of a certain threshold amount to be set forth in the Operations Contract. A Capital Improvement shall not include operations activities or preventive, predictive, routine and/or corrective maintenance activities (including Major Maintenance involving Capital Operating Costs).

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Capital Operating Costs means all costs incurred or to be incurred by the Operator in connection with items of Major Maintenance. Change in Law to be defined in the Concession Agreement and duplicated in the Operations Contract. Claims means any claims, demands, actions, proceedings or liabilities. Concession Agreement means the agreement between the County and the Concessionaire for the complete responsibility of managing, operating, maintaining, upgrading, and financing the System. Concessionaire means the entity that is awarded the Concession Agreement. The Operator shall be a subcontractor to the Concessionaire. Concessionaire Event of Default is defined in section O.7 of this MOU. County means Nassau County, New York. County and Concessionaire Indemnitees means the County, the Authority, the Concessionaire, the Financing Parties, each of their subsidiaries and affiliates, and the directors, officers, officials, agents, employees, successors and assigns of each of them. Credit Agreement means any agreement between the Concessionaire and any Financing Party under or pursuant to which any financing is or is to be provided to the Concessionaire with respect to the P3 Transaction. Damages means Losses and/or Claims. Data Room means the virtual data room website maintained by the County for the purposes of the P3 Transaction at www.dealinteractive.com. MWBE Requirements means requirements regarding minority- and women-owned business enterprises, to be specified in the Concession Agreement. Engineers Report means the Engineering Report, dated January 2012, prepared by Malcolm Pirnie for the benefit of the County with respect to the System. Financing Parties -- means the persons, including financial insurers, financial institutions, and bondholders which are from time to time parties to, or otherwise have rights under or pursuant to, any Credit Agreements with the Concessionaire and/or who provide a financing facility or facilities (including any hedging arrangements, any financial insurance policies, lease financing, or tax benefit monetization financing) to Concessionaire in accordance with the Credit Agreements, and any trustee or agent acting on their behalf. Guarantor is defined in Section D of this MOU.

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Guaranty is defined in Section D of this MOU. Inflation Index means the annual change in the blended index which is comprised of 50% the U.S. Department of Labor, Consumer Price Index (CPI) for all urban consumers in the Northeast Area, ID CUUR0100SA0 and 50% the U.S. Department of Labor, Bureau of Labor Statistics, Employee Cost Index (ECI), Series D CIU20100000000001, Compensation Total Compensation, Northeast Sector Private Industry, Industry Occupation All Workers. Losses means any losses, damages, costs, expenses, charges, fees, fines or liabilities. Major Maintenance means all reasonably necessary major overhaul and repair (and excluding any maintenance or repair of a routine or ordinary course nature) of the elements of the System, categorized as a capital expenditure according to GAAP. Managed Assets means all assets of the System, including all ancillary and support equipment (i.e., tools, rolling stock, vehicles) that the Operator is required to manage, operate, and maintain pursuant to this MOU. O&M Security -- is defined in Section L of this MOU. Operation Date -- means the day that the Operator assumes the responsibility for the management, operation and maintenance of the System. Operation Period means the period commencing on the Operation Date and ending upon expiration of the Term or earlier termination of the Operations Contract pursuant to the terms thereof. Operations and Maintenance Manual to be defined in the Operations Contract. Operations and Maintenance Plan to be defined in the Operations Contract. Operations and Maintenance Requirements means the requirements set forth on Annex B hereto. Operations Contract means the contract between the Concessionaire and the Operator. Operator means the entity that is responsible for management, operation and maintenance of the System as a subcontractor to the Concessionaire. Operator Event of Default is defined in section O.7 of this MOU. Operator RFP -- is defined in Section D of this MOU. P3 Transaction is defined in Section B of this MOU.

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P3 Transaction RFP -- is defined in Section C of this MOU. Qualifying Institution -- means any insurance company or financial institution lawfully operating in the State of New York with a minimum credit rating of A- from Standard & Poors Rating Services, A3 from Moodys Investors Service, Inc. and/or A- from Fitch Ratings, Inc. Relevant Authority means the government of the United States of America, the State, the County, the municipalities within or forming part of the County and any other agency, or subdivision of any of the foregoing, including any federal, state, or municipal government, and any court, agency, special district, commission or other authority exercising executive, legislative, judicial, regulatory, administrative or taxing functions of, or pertaining to, the government of the United States of America, the State of New York, the County or the municipalities within or forming part of the County. State means the State of New York. System means the Nassau County, New York Sewer System. System Sites means the real property (inclusive of the estates and interests in real property, to the extent so transferred by the County) used in the operation of the System. Term means the 20-year period commencing on the Operation Date. Transaction Documents means the Concession Agreement, the Operations Contract, the agreement pursuant to which the Finance Authority assigns its Managed Assets to the Concessionaire or the Operator, the third-party contracts assigned to the Operator, and all other documents entered into by the County, the Concessionaire and/or the Operator relating to the transactions contemplated by this MOU. Transition Period is defined in Section Q of this MOU. Transition Plan is defined in Section Q of this MOU. Uncontrollable Circumstance -- means any act, event or condition that is beyond the reasonable control of the party relying thereon as justification for not performing an obligation or complying with any condition required of such party under the Transaction Documents, and that materially interferes with or materially increases the cost of performing its obligations thereunder (other than payment obligations, including (i) any payment obligations the County may have to compensate the Concessionaire for an Uncontrollable Circumstance, or (ii) subject to receipt of the corresponding payment from the County, any payment obligations the Concessionaire may have to compensate the Operator for an Uncontrollable Circumstance), to the extent that such act, event or condition is not the result of the willful or negligent act, error or omission, failure to exercise reasonable diligence, or breach of the Transaction Documents on the part of such party. Utility -- means any public or private utility and facility, including any facility relating to electrical energy, telephone and telecommunications, radio, television and public transit
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installations and the conveyance, distribution and supply of water, heat, gas, chemicals, steam, petroleum products and all piped installations, but excluding the System.

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Annex B OPERATION AND MAINTENANCE REQUIREMENTS The Operator shall operate, maintain and manage the System in accordance with the Operations Contract and Applicable Law. The Operator shall be responsible for reviewing all available information about the System and should not solely rely on the information presented in this MOU, the Operations Contract, and reference documents. The Operator shall operate, maintain and manage the System in good working order and repair and in a neat and orderly condition. The Operator shall perform maintenance of System facilities and operate the System to preserve long-term reliability and conservation of the System. The Operator shall maintain the aesthetic quality of the System as originally constructed and subsequently modified, with due allowance for reasonable wear and tear and depreciation. The Operator shall perform all predictive, preventive and corrective maintenance procedures in accordance with the Operations Contract, the Operators Operations and Maintenance Plan, and generally accepted or recommended industry maintenance practices, procedures and standards for municipal wastewater collection and treatment facilities, but in no event less frequently and comprehensively than that recommended or specified in manufacturers warranties, except where warranties have expired. The Operator shall maintain all manufacturers warranties on equipment, and shall fully cooperate and assist in enforcing existing equipment warranties and guaranties relative to the System. The Operator shall maintain documentation of all maintenance activities. The Operator shall utilize a computerized maintenance management system (CMMS) to provide predictive, preventive and corrective maintenance for all components of the System, including, but not limited to: Buildings, grounds, and structures Electrical systems and instrumentation Mechanical equipment Odor control systems Interceptor sewers and collection (lateral) sewers (except as those noted) Plant storm sewers, catch basins and outfalls Metering stations Pumping stations Vehicles and other related equipment Laboratory, monitoring and sampling equipment Heating, ventilation and air conditioning Communication equipment (i.e., telephones, facsimiles, etc.) Chemical feed systems Pumping systems Auxiliary power facilities Air pollution control devices Main treatment plant outfalls Other facilities and systems contained within the System

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Other specialized tools and equipment

The Operator is responsible for maintenance including, but not limited to the following: All equipment, both fixed and non-fixed shall be operated and maintained in accordance with manufacturers recommendations and industry best practices Sound judgment shall be used in the operation and maintenance of non-mechanical components such as pipes, tanks, and vessels Valves shall be exercised regularly in accordance with the Operators Operations and Maintenance Manual procedures and manufacturer recommendations Instrumentation and control devices shall be calibrated based on industry standards, manufacturers recommendations, and System history Surface damage and pitting of painted surfaces shall be properly prepared and touched up as soon as practical Paint and coatings on all painted/coated surfaces, including all building interiors and exteriors, equipment, tanks, etc. shall be maintained in excellent condition and re-painted as often as necessary to maintain a completely intact surface coat and to protect the item as recommended by manufacturers and in accordance with industry best practices. All equipment, valve, pipe, and tank identifications and markings shall be provided, maintained or replaced as applicable Mechanical equipment preventive maintenance shall include but not be limited to: Lubricating Maintaining oil levels Painting and maintaining applicable surface coatings Draining condensate Verifying proper operation Inspecting and replacing normal wearing parts Performing planned overhauls as required by manufacturer or past history Tanks and vessels shall be drained and inspected periodically where possible to evaluate mechanical integrity, process performance, and determine accumulation of undesirable material. These inspections shall include but not be limited to the following minimum requirements: Grit, settling and thickening tanks, annually Aeration tanks, every two years Digesters, sludge storage tanks and wet wells, regularly in accordance with the Operators Operations and Maintenance Manual procedures, but not less than every five years. The tanks and vessels listed above shall be completely cleaned of sludge, grit and other debris not less than once every five years or as necessary to maintain process performance. Sludge and chemical pipelines shall be drained and flushed and/or cleaned periodically, or when being removed from routine service, depending on the application, to prevent accumulation of material and restriction of the useable capacity of the line, and to reduce corrosion or degradation of the piping material itself. Residuals handling equipment shall be operated and maintained consistent with good housekeeping practices. Spills shall be cleaned up promptly to maintain general

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cleanliness and reduce odor generation. Equipment shall be shut down in a manner consistent with manufacturers recommendations. Turbine generators shall be tested monthly to ensure reliable operation. All maintenance shall be performed in accordance with manufacturers recommendations and industry best practices.

All of the inspection, operation and maintenance procedures, including anticipated frequency, shall be detailed in an Operator-developed operations and maintenance plan, which shall include a schedule of all maintenance activities. a. Treatment Plants

The Operator is responsible for 100% of the operation and maintenance of the System. Specific items include, without limitation: Operate, maintain and manage the System in accordance with all Applicable Laws, rules and regulations and permits (including, but not limited to SPDES permits, consent decrees, etc.) Provide, manage and maintain the workforce in accordance with NYSDEC requirements and industry best practices, and provide all labor, administrative (related to the contract services for the System) and financial functions Provide operations staff for the Cedar Creek and Bay Park plants on a 24 hour per day/ 7 day per week basis. To the extent not provided by the existing operator, provide operations staff for the Glen Cove plant on a 5 day per week, 8 hours per day basis, with on-call staff at all other times in accordance with the existing operations agreement for the Glen Cove plant. Perform all sludge and other process residuals treatment, management, and disposal services, including grit, screenings and any other process residuals Deliver sludge in accordance with sludge management and disposal contract requirements Maximize nitrogen removal within design capabilities; but no less than that required by Applicable Law and permit(s) Perform all maintenance, repair and improvement activities, including all materials and operating supplies, adjustments, calibrations, cleaning, servicing, painting, etc. Provide all laboratory sampling, testing, and analysis required for operations and permit reporting. This includes providing all necessary staff, equipment, facilities and consumables for laboratory analyses. Provide appropriate waste disposal from any laboratories in accordance with all federal, State and local regulations Maintain records in an electronic format and prepare reports necessary in accordance with regulatory and County and Concessionaire requirements Provide and manage customer services functions Cooperate with and provide access to County personnel, including any spaces to be occupied by County sewer and highway maintenance staff located at the Cedar Creek plant. Maintain inventory of consumable supplies required for operation and maintenance of System, including consumable office supplies for County sewer and highway maintenance staff located at the Cedar Creek plant, and including all chemicals utilized at

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the treatment plants, and for odor control and other functions. Properly store and inventory all consumable supplies Obtain, manage and maintain all insurance coverages Provide repair and replacement of facilities, systems, structures and equipment, etc. associated with the System In addition to the County equipment, provide any additional equipment as needed to perform services in accordance with the Concession Agreement Provide maintenance, repair, and insurance for all vehicles and provide any additional vehicles required to perform the services in accordance with the Concession Agreement Perform collection system maintenance and repair, including removal and disposal of all material cleaned Perform all landscaping, pest control, buildings and grounds maintenance, and janitorial services, including any spaces to be occupied by County sewer and highway maintenance staff located at the Cedar Creek plant Provide all data, reports and any other documentation to support Concessionaire efforts to obtain, manage and maintain all permits necessary for the operations of the System Pump Stations and Collection System

b.

The Operator shall maintain all components of the collection system in good operating condition. The Operator shall perform collection system maintenance in accordance with prudent and best industry practices that shall include cleaning and TV inspection of all collection system components on a three-year minimum cycle (minimum 1,000 miles per year) or as agreed to by the County, manhole/chamber inspection, marking of sewer lines on the surface as required by law, and collection system I/I inspection (completed within 1 year). The Operator shall also support the Countys geographic information system (GIS) initiative by providing the County with a report detailing the location (latitude/longitude) of any and all maintenance, repair, cleaning and inspection activities conducted. This information will be provided to the County in an electronic format to be developed by the County. The Operator is responsible for all maintenance of the pump stations and collection system, including, without limitation, removal of grease from system components, marking of sewer lines for purposes of identification to Utilities and contractors in accordance with the States call before you dig requirements and providing emergency response services on the collection system. The Operator is responsible for eliminating any sewer blockage in a collector sewer and investigating a report of a collapsed sewer pipe. The Operator shall also provide all maintenance and inspection of the collection system in accordance with any consent agreements, consent decrees and/or administrative orders and maintain all operating logs and maintenance records for review and inspection by the Concessionaire, NYSDEC and the County. All maintenance activities shall be funded from the annual service fee payment. The collection system includes any and all pumps, pipes, appurtenances, and systems utilized for the conveyance of sanitary sewerage. The Operator at a minimum shall perform the following maintenance and inspection service of the collection system: Catch Basin Inspection

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and Cleaning (Treatment Plant sites only): Line Televising and Cleaning:

Once per year; clean, remove and dispose of debris

Minimum of 1,000 miles of sewer pipe per year based on annual prioritization established in conjunction with County so that all sewer lines are cleaned on a three-year cycle basis; clean, remove and dispose of all debris

Siphon Inspection and Cleaning: Pump Station Inspection:

Twice per year Daily

The Operator shall perform emergency repair services for the collection system, including but not limited to repairs to broken, clogged, or damaged lines and repairs to damaged manholes, (CSOs, catch basins, regulators, siphons, etc.) including any required repair of streets, curbs and sidewalks. The Operator shall operate and maintain the Countys pump stations (including ejector stations) to provide uninterrupted, economical flow of wastewater through the collection system. The Operator shall be responsible for inspecting and conducting maintenance of the pump stations to ensure their uninterrupted functioning. This pump station maintenance shall include, but not be limited to the following: Perform all residuals treatment, management, and disposal services Perform all maintenance, repair and improvement activities, including all materials and operating supplies, adjustments, calibrations, cleaning, servicing, painting, etc. as recommended by the Operators Operations and Maintenance Manual procedures and manufacturer recommendations and in accordance with industry best practices Maintain records in an electronic format and prepare reports necessary in accordance with regulatory and County and Concessionaire requirements Maintain inventory of consumable supplies required for operation and maintenance of the pump stations, including all chemicals utilized for pump station operations, odor control and other functions Obtain, manage and maintain all insurance coverages Provide repair and replacement of facilities, systems, structures and equipment, etc. associated with the pump stations In addition to the County equipment, provide any additional equipment as needed to perform services in accordance with the Operations Contract Perform all landscaping, pest control, buildings and grounds maintenance, and janitorial services. Maintain the aesthetics of the pump stations The Operator shall ensure the pump stations are up to full operating status, in compliance with all existing codes, and in accordance with prudent industry practices, equipment warranties, and

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Applicable Law to provide uninterrupted flow of wastewater through the collection system. If the Operator desires to modify existing equipment, operations procedures, or other aspects of the pump stations, the Operator will be required to submit the proposed alternative to the County for review and approval prior to any modification activities. During emergencies due to power failure or equipment repair or replacement, the Operator shall provide temporary pumping and other necessary services as needed. All HVAC and odor control equipment located at the pump stations shall be maintained and operated in a manner consistent with the design intent and as required for the appropriate number of air changes, safety, and corrosion protection. c. Biosolids (Sludge) Management

The Operator shall at all times maintain sludge in the System consistent with the intent of the design basis and at levels required for optimum System performance. Sludge from the System shall be delivered to the sewage treatment plant sludge loadout facilities on a daily basis. The Operator will be responsible for hauling and disposal of the grit and screenings in accordance with the existing sludge disposal contract. The County or the Concessionaire will retain title to sludge generated by the System. The existing sludge disposal contract shall be assigned to, and assumed by, the Operator. The Operator may choose to extend the sludge disposal contract at the end of its term or enter into a different successor contract at its own discretion. Upon expiration of the existing contract, the Operator may extend or enter into a new sludge disposal contract. The Operator shall obtain at least three proposals from qualified sludge disposal contractors. The Operator is required to continue to beneficially use the sludge from the System throughout the Term. The County shall have the right to approve the selected disposal contractor, such approval not to be unreasonably withheld or delayed. d. Grit and Screenings

Grit and screenings from the System shall be collected, processed, hauled and disposed of by the Operator on a daily basis (7 days per week), except holidays, at its expense at disposal sites identified by the Operator and in compliance with Applicable Law. The County or the Concessionaire will retain title to grit and screenings from the System. The County shall have the right to approve the selected disposal sites, such approval not to be unreasonably withheld or delayed. e. Utilities

As of the Operation Date, the Operator shall be responsible for supplying and paying for all Utilities required for operating and maintaining the System, including, but not limited to, natural gas, heating, fuel oil, fuel for standby power generators, telephone, internet, electricity and water. f. Chemicals

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The Operator shall be responsible for supplying and paying for all chemicals required for the operation and maintenance of the System. g. Repair and Replacement

The Operator will be responsible for providing all routine, preventative and predictive maintenance, including major repairs and replacements, of the machinery, equipment, systems, structures, pump stations and improvements constituting the System and the collection system during the Operation Period in compliance with the operation and maintenance manual, the Operations and Maintenance Plan, and otherwise or necessary so as to permit the System to be operated in accordance with prudent industry practices, Applicable Law, manufacturers warranties, and guarantees. For each contract year, the Operator shall prepare and submit to the Concessionaire (with a copy to the County) an annual repair and replacement plan detailing its repair and replacement activities as part of an update to the Operations and Maintenance Plan for the subsequent contract year. The repair and replacement plan shall be consistent with the Capital Improvements Plan, shall prioritize repair and replacement activities for the long-term preservation of the System and shall include sufficient back-up information to support the repair and replacement approach. The plan shall be submitted sixty (60) days prior to the anniversary of the contract year. The repair and replacement plan shall specifically detail all repair and replacement activities and the respective costs per item. h. Equipment and Vehicles

The County will provide the Operator with, or with the use of, vehicles and equipment to be identified in an attachments to the Operations Contract. The Operator shall maintain and operate such vehicles and equipment in the most cost-effective manner and in accordance with all warranties and manufacturers recommendations. The Operator is responsible for providing insurance to name the County as additionally insured for the vehicles used by the Operator. The Operator shall provide any additional equipment and vehicles necessary to perform the services required by the Operations Contract. The Operator shall be responsible for replacing such vehicles as necessary to maintain a proper fleet of modern vehicles in accordance with industry best practices. i. Emergency Response

The Operators personnel shall respond to System emergencies and problems in the Countys service area related to the System within two hours of notification and in a reasonable manner. The emergency response capability shall be provided relative to the System, including the sewage treatment plants, pumping stations, collection system or any related problem. The Operator shall maintain a toll-free 24-hour telephone number throughout the Operation Period so that problems and emergencies can be reported. The Operator shall, at a minimum, provide emergency services for repairs to broken, clogged or damaged lines, and repairs to damaged manholes, CSOs and catch basins including required repair of streets, curbs and sidewalks.

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j.

Pavement

The Operator shall maintain all paved areas within the System to properly provide for vehicular and pedestrian traffic. Structural failures shall be repaired promptly, but no later than thirty (30) days from discovery as weather permits. The Operator shall repair cracks, erosions, depressions and potholes in paved areas, including curbs, gutters and sidewalks as necessary. In areas that require only localized repair, the Operator shall perform the following: Saw cut the existing pavement adjacent to the defect. Remove damaged materials as required to restore the sub base. Install sub base, level, and wearing courses at the required thicknesses based on the pavement design for the site.

Asphalt and concrete paving and restoration work shall be performed in accordance with the current American Association of State Highway and Transportation Officials (AASHTO) or the successor organization and New York State Department of Transportation standards. The Operator shall furnish all required labor, materials and appurtenances to complete the work. k. Landscaping

The Operator shall provide buildings and grounds services for the System. The Operator is responsible for performing the appropriate services to maintain the current condition of the facilities throughout the Term. The grounds, facilities and facilities structures shall be maintained at a level adequate for the efficient, long-term reliability and preservation of the capital investment pertaining to the specified services. l. Snow Removal

The Operator shall conduct continuous and proactive snowfall removal activities to maintain System accessibility during snowfall events. The Operator shall include a snow emergency plan element in the Operators emergency plan that identifies procedures and accommodations in the event staff are not able to access or leave the sites in the event of a snow emergency. The Operator shall remove snow from all areas to the point where concrete or asphalt is exposed and is wet but no snow or ice is present, including sidewalks, entryways, parking areas, etc. The Operator shall spread deicers in a quantity to prevent ice formation on road and walkway surfaces. m. Janitorial Services

The Operator shall be responsible for providing comprehensive janitorial services to the various facilities and offices at the System. The term clean as used shall mean free from dust, dirt, soil, liquids and all other foreign particles. It is intended that all equipment and buildings surfaces shall be cleaned in areas specified whether specifically mentioned or not.

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n.

Rolling Stock

The Operator shall assume responsibility for operating, maintaining, insuring, repairing, and replacing all rolling stock transferred or leased to the Operator as part of the Managed Assets, if any o. Septage Waste

The Operator shall receive septage from County customers via licensed haulers at the Bay Park and Glen Cove Treatment Plants. The Operator is responsible for receiving, accepting, controlling, monitoring and checking all septage trucks and recreational vehicles between the hours of 7:30 AM to 3:15 PM, Monday to Friday, excluding holidays, that utilize the System. The Operator shall check the quality of the incoming septage, insure that the septage receiving area is kept neat and shall ensure that all septage haulers follow proper payment procedures. p. Odor Control

The Operator shall operate and maintain the System in a manner that minimizes odors at the site boundaries and so that odors carried off-site do not prompt public complaints. The Operators goal shall be to achieve zero odor complaints for the System. The odor control efforts, at a minimum, shall include: Facility O&M procedures to minimize off-site odor impacts Procedures for certifying and documenting odor complaints O&M procedures related to minimizing odors generated by the collection system Operation and maintenance of all mechanical odor control equipment consistent with its intended use and design, including replacing all consumables when necessary Cleaning and monitoring of wet scrubber packing and condition

The Operator shall be responsible for controlling odors at the sewage treatment plants, pump stations and throughout the System through the continuous O&M of the odor control equipment in accordance with established operating performance criteria for the various systems and equipment. The Operator shall be responsible for optimizing the operation of existing and future odor control equipment so that it performs to its designated capacity and capability. The Operator shall maintain a separate, published 24-hour odor complaint telephone line. A record of the number of calls received and documenting information of the odor or foam complaints shall be maintained using a log form that shall include, at a minimum, the following information: Complaint and contact information Date, time of complaint and location Wind speed and direction, temperature, relative humidity Action taken in response Source of complaint (cause)

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q.

Restrictions on Outside Lights and Noise at the Facilities

Noise Major noise producing construction activities shall be limited to the working hours permitted by the County. Noise-attenuating equipment shall be implemented on all portable engine-driven equipment. Such portable engine-driven equipment shall include air compressors, generators, pumps and other diesel and gasoline powered equipment. The Operator shall implement ways to reduce noise from existing equipment to the extent possible. Construction and operations noise levels shall comply with the County and local noise ordinances. During the Operating Period, noise levels shall not exceed 60-65 decibels day/night/evening level (DNEL) during normal operation of the sewage treatment plants. The Operator shall enclose or otherwise sound-attenuate all pumps and emergency backup generators to comply with the County and noise ordinances at the site boundaries of the sewage treatment plants. Noise restrictions shall not apply during periods of declared emergency. Lighting All permanent and temporary lighting shall comply with County and local requirements and lighting shall not create a disturbance to adjacent residences and/or businesses or cause interference to drivers on nearby streets, other than during a declared emergency. r. Emergency Management

The Operator shall prepare an emergency response plan that sets forth the emergency procedures to address, at a minimum, the following hazards and emergencies: Sanitary sewer overflows Chemical spills Personnel emergencies Fire and explosions Pipe, valve or pump failure Equipment and process failure Power failure Acts of God (i.e., hurricanes, wind storms and floods) Wastewater bypass discharges Interceptor sewer or force main collapse At a minimum, the emergency response plan shall be developed in accordance with the Countys Emergency Response Plan and Applicable Laws, to include at a minimum the following: Persons and their responsibilities including the chain-of-command Coordinating instructions with public safety agencies Outside service respondents listing Emergency telephone numbers, procedures for their proper usage and posting of numbers in critical areas of the sewage treatment plants and pump stations

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Emergency equipment inventory Records preservation procedures Hazardous chemicals inventory (location and quantities with Emergency Hazardous Chemical Inventory forms) Hazardous chemical spills and clean-up procedures Preventive measures Troubleshooting guides Site maps Evacuation locations Action plans for disasters and terrorism Repeated preparedness training Communications protocols that will be used to notify the County (including equipping Company personnel with cellular phones and pagers to keep the County fully apprised of System problems or emergencies and what is being done to resolve such situations) Follow-up and closure procedures Conduct, at a minimum, annual emergency preparedness drills with local and regional organizations. Activities supporting emergency response, training and mutual aid agreements. Frequency of testing security-related alarm and warning systems. Use of adequate sampling and analysis (and communication) programs along with process control guidelines to readily identify and address system anomalies. Effluent Guarantee

s.

The County has established, and the System currently performs in accordance with, standards exceeding the SPDES permit requirements (the enhanced standards) to ensure that the Operator maintains a level of performance at the Bay Park Sewage Treatment Plant, Cedar Creek Sewage Treatment Plant and Glen Cove Sewage Treatment Plant better than the SPDES permit requirements and within the plants design and capabilities based on historic operating levels. The Operator shall comply with the effluent guarantee, which is comprised of the enhanced standards required for the plants and the SPDES permit levels for all other effluent parameters throughout the Term, to the extent that the installed equipment is reasonably capable of achieving such enhanced standards in the normal course of operations. If the Operator is unable to meet the enhanced standards, other than due to the Operators negligence or breach of the Operations Contract, or expects being unable to meet the enhanced standards in the future, the Operator shall provide a notice of such inability to the Concessionaire, stating the reasons for such shortfall and providing any back-up information reasonably requested by the Concessionaire. Thereafter, the parties shall negotiate in good faith, and promptly implement, a remedial action plan to ensure that the System meets the enhanced standards. The plant effluent guarantee consists of 1) the enhanced standards listed in Table B(r) below and 2) the SPDES permit requirements for all other SPDES effluent parameters.

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TableB(r):EffluentStandardsforPlants CBOD5 (monthlyaverage) Plant Total(mg/l) (maximum) BayPark CedarCreek GlenCove 10 10 10 Removal% (minimum) 90 90 95

TSS (monthlyaverage) Total(mg/l) (maximum) 10 10 10 Removal% (minimum) 90 90 95

Total Nitrogen (monthly average)

FecalColiform (30daymean)

Lbs/day (maximum) n/a n/a 225

No./100ml (maximum) 30 15 30

t.

Operations Monitoring and Reporting

The Operator shall provide and maintain reasonably documented records of operation, maintenance, laboratory analysis, personnel training, safety, process control, daily inspections, materials, alarms, and other significant operational events on a daily, weekly, monthly and yearly basis throughout the Operation Period. All such records and reports shall be electronically recorded and accessible to the Concessionaire and the County upon request in real-time and/or on a periodic schedule, in addition to the forms specified. In addition, the Operator shall provide monthly reports and annual summaries to the Concessionaire and the County as to all complaints received and how each complaint was addressed by the Operator. u. Asset Management and Computerized Maintenance Management System (CMMS)

The CMMS shall at a minimum provide a detailed record of repair and replacements, maintenance schedules, equipment status (i.e., online), predictive, preventive and corrective maintenance activities and routine operations. The CMMS shall also be used to generate work and purchase orders, maintaining the spare parts inventory and repair priority reports. The Operator utilizing the CMMS shall provide the County with documentation that allows the efficient monitoring of Operators compliance with maintenance obligations of the Operations Contract. All work performed relative to the System shall be entered into the CMMS including: maintenance, inspections, sewer pipe cleaning, test results, repair replacement, and work performed by subcontractors. The Operator shall record costs and results of maintenance at the lowest level of asset detail in CMMS. Documentation for work completed shall include as a minimum a specific definition of the work scheduled and completed, all parts and materials used, costs associated with performing the work, broken down by material and labor including all work performed by subcontractors. The work performed for a specific task or repair (including parts, labor and maintenance tasks) shall be included in one (1) record.
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v.

Transfer and Compliance with Permits

The County or the Concessionaire shall maintain all permits associated with the System (other than any permits required to be obtained by the Operator in its capacity as the operator of a sewer system) throughout the Operation Period as outlined in the MOU. The Operator shall provide all services required in connection with the maintenance of such permits. The Operator shall be responsible for obtaining and complying with all applicable federal, State and local laws and regulations pertaining to the System and shall secure and comply with all approvals, licenses, permits and certifications, governing the performance of its Services hereunder issued for or with respect to the System. w. Capital Improvements

To the extent requested by the Concessionaire with respect to any Capital Improvement to the System, the Operator shall be responsible for serving as the program manager for such Capital Improvement. Note that all Capital Improvements of the System are subject to the Countys prior approval. The procedure for review and approval will be set forth in the Concession Agreement. The Operator shall be paid a markup of [__]% (as proposed in Appendix A of the RFP) for all construction-related professional service contracts and [__]% (as proposed in Appendix A of the RFP) for all construction contractor contracts as compensation for performing program management services. Such capital project-related contracts shall be a pass-through cost to the Concessionaire. The Operator shall prepare the Capital Improvement Plan in accordance with Section I of this MOU. The Operator shall also provide an annual Capital Operating Costs budget and cash flow needs to the Concessionaire for review and approval. The Operator shall procure professional services and construction contracts competitively, consistent with industry practice. x. Industrial Pretreatment Program

The Operator shall provide uninterrupted services to the Countys industrial users. The Operator may be notified by an industrial user of the intent to discharge wastewater into the collection system. The Operator shall comply with the Countys Industrial Pretreatment Program (IPP) and all other governing requirements. The Operator shall perform all sampling, testing, and reporting for the IPP. The IPP has been previously approved by the USEPA. Any changes to the IPP proposed by the Operator shall be subject to USEPA approval. y. Analytical Services

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The Operator shall perform sampling, testing, and any other analytical procedures of Sewage Treatment Plant influent and effluent to demonstrate compliance with the requirements of the Concession Agreement and Operations Contract, applicable regulatory requirements, permit provisions, Applicable Law and all other governing requirements as amended from time to time. Additional sampling required by any regulatory agency shall be subject to the Change in Law provision. The Operator shall also perform all applicable testing related to process control at its own expense. All testing and analytical procedures, with the exception of process control testing, shall be performed by a laboratory certified by the State. Furthermore, the Operator shall be responsible for maintaining the laboratory equipment in a condition that meets all State certifications. The Operator shall prepare laboratory data for all applicable regulations, permits monitoring, and operating reports and shall forward the results from the laboratory to the appropriate State and regulatory agencies, including the County, and to the Concessionaire. To the extent additional testing, sampling and analytical procedures are required by a Change in Law applicable to the System including, but not limited to, any revisions to the SPDES permit or other enforceable instrument, the Operator shall be responsible for such activities and any changes to the Capital Operating Costs shall be submitted to the Concessionaire for review and approval. All data collected or produced consequent to laboratory activities remains the property of the County and will be maintained as a permanent record by the Operator. z. Security and Safety of Personnel and Property

The Operator shall perform security services in accordance with this MOU and subsequent Operations Contract. The Operator shall take all reasonable precautions necessary to guarantee safety to all people for protection to the buildings, grounds and equipment associated with the System. Security services provided by the Operator shall include any offices and/or work areas occupied by County personnel. The Operator is responsible for coordinating security services with the County. Security services include touring the buildings, grounds and equipment of the System and conducting conformance checks to secure windows, doorways and stairwells in accordance with all fire regulations. The Operator shall maintain a log book in a format approved by the Concessionaire and the County for all facilities. The Operator shall record in the log book the time and results of inspections conducted during each evening or day shift (i.e., specifically note if there were any deficiencies or incidents identified while performing inspections). aa. Safety and Health Regulations

The Operator shall comply with all current U.S. Department of Labor Safety and Health Regulations under the Occupational Safety and Health Act, 1972 (PL 91-596) and Section 107, Contract Work Hours and Safety Standards Act (PL91-54) and other Applicable Law. Specific consideration shall be given, but not limited to, the following major areas:

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1)

2) 3)

4) 5) 6) 7)

Maintenance safety procedures: guards and shields on dynamic equipment, guards, railings, electrical lockouts, vehicle wheel blocks, audio vehicle backup alarms, vehicles wheel clocks, etc. Employee safety orientation, education, training, first-aid training, CPR, etc. Noise and dust control, ear protection, respirators, hard hats, safety shields, glasses, protective clothing, sanitary facilities, and all other required personnel protective equipment. Fire and explosion preventions, control, equipment (fire blankets, fire extinguishers, first aid, hoses, etc.) and personnel escape alternatives. Traffic flow control patterns. Accident or injury reporting system (the Concessionaire shall receive copies of all reports and immediate verbal notification). Employee health safeguards.

The Operator shall prepare/update the Systems safety and emergency response manual which shall be submitted to the County for review and approval at a minimum of 120 days prior to the Operation Date. bb. New Connections

The Operator shall be responsible for providing new connections to the System as set for the in the Concession Agreement. All costs associated with the new connections shall be treated as a Capital Improvement. New connections are to be implemented by the Operator in accordance with the Countys procedures and ordinances. The Operator shall not be entitled to additional compensation or change in its fee as a result of a new connection, unless the new connection extends the Managed Assets and the Operator can demonstrate a material change as depicted in the MOU.

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Annex C Managed Assets

Sewage Treatment Plants The Operator shall be responsible for the operation, maintenance, repair, rehabilitation, reconstruction, etc. for the Countys three (3) sewage treatment plants, including all of the equipment, vehicles, materials, etc. contained therein. The Operator shall operate the Glen Cove plant to the extent the existing operator no longer provides such services.
Name Location Section Block Lot(s)

1 Bay Park Sewage Treatment Plant 2 Cedar Creek Water Pollution Control Plant 3 Glen Cove Sewage Treatment Plant

East Rockaway - Marjorie Lane 42

Wantagh - Merrick Road

63

261

p/o 50, p/o 51, 52, 53, 54, & p/o 55 p/o 765H

Glen Cove - Morris Avenue

21

110 & p/o 9

The Operator should be aware that they shall not have exclusive use of the Cedar Creek and Bay Park sewage treatment plants. The County Department of Public Works maintains offices (within the Sewer Maintenance Building), stock piles materials (sand and/or salt), and stores equipment (snow plows and heavy equipment) on each plant site. The Operator and the Department shall work cooperatively to ensure that each such partys activities do not negatively impact the activities of the other.

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Sewage Pumping Stations The Operator shall be responsible for the operation, maintenance, repair, rehabilitation, reconstruction, etc. for the Countys fifty-four (54) sewage pumping stations, including all of the equipment, vehicles, materials, etc. contained therein.
Name Location Section Block Lot(s)

1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9

Inwood Pump Station Bayview Avenue Pump Station East Avenue Ejector Station Doughty Boulevard Pump Station Longacre Avenue Pump Station Mill Road Pump Station Woodmere Boulevard Pump Station Ocean Avenue Pump Station Boden Avenue Pump Station Fox Road Pump Station Felix Court Pump Station Grand Avenue Pump Station Northern Boulevard Pump Station Mott Street Pump Station Millar Street Pump Station Royal Avenue Ejector Station

Inwood - Bay Blvd Inwood - Bayview Avenue and Avenue A Meadowmere Pk - East Ave and Rockaway Tpk Inwood - Inip Dr and Doughty Boulevard Woodmere - Longacre Ave and Peninsula Blvd Valley Stream - Mill Road Hewlett Neck Woodmere Boulevard North Woodmere Rosedale Road Valley Stream - Fir Street and Boden Ave Baldwin - Fox Road at Garden Place Baldwin - Felix Court Baldwin - Grand Ave

40 40 40 40 39 39 41 39 37 54 54 54 54 43

A 157 M A 178 447 106 502 682 524 8 564 380 192

1195 621 8 1085 157 130 18 71 3 128 700 33 1759 417

Baldwin - Northern Blvd and Milburn Avenue Oceanside - Mott Street and Oceanside Road Oceanside - Knight Street and Millar Street Oceanside - Royal Avenue at Murdock Avenue Long Beach Road Oceanside - Long Beach Pump Station Road Lido Boulevard Pump Lido Beach - Regent Station Drive at Reynolds Drive Stratford South Albertson - Stratford Ejector Station South -39-

within Knight St ROW (@ Freeman Ave), Oceanside 43 3 648 8 0 43 399 270 60 7 69 259 2 3

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2 0 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 3 0 3 1 3 2 3 3 3 4 3 5 3 6 3 7 3 8 3 9 4 0 4 1

Roslyn Road Pump Station East Williston Ejector Station Falmouth Avenue Ejector Station Biltmore Pump Staion Alhambra Pump Station Newbridge Road Pump Station Wantagh Pump Station Whitewood Pump Station Cedar Drive Pump Station Roosevelt Pump Station Merrick Road Pump Station Mallard Road Pump Station Coldspring Road Pump Station Pelican Pond Ejection Station East Hills Pump Station Roslyn Village Pump Station Ray Street Pump Station Bernice Drive Ejector Station Central Homes Pump Station Dana's Island Highway Pump Station Dock Place Pump Station Franklin Avenue Pump Station

Albertson - Roslyn Road East Williston - East Williston Avenue New Hyde Park - Gould St and Falmouth Ave Massapequa - Merrick Road Massapequa - Merrick Road Bellmore - Merrick Road Wantagh - Merrick Road Massapequa - Merrick Road Massapequa - Merrick Road Massapequa - Merrick Rd at Roosevelt Blvd Merrick - Merrick Road Carle Place - Mallard Road and Holle Place Syosset - Coldspring Road at Calvert Drive Syosset - Pelican Court Roslyn Heights Powerhouse Road Roslyn Harbor Skillman Street Freeport - Atlantic Avenue at Ray Street East Meadow Bernice Drive Meadowfield Lane Dana's Island Highway

9 9 8

545 525 182

33 339 92

within Biltmore Rd ROW (@Beverly Pl), Massapequa 65 95 1 63 63 65 66 66 B 305 264 57 147 168 49 29 124 7

10 25 25 7 20 62 51

within Merrick Rd ROW (@ Clubhouse Rd), Merrick 33 19 38 G 301 A 83 469 1 335 33 539 6 26

30 30

72 42

7A 586

Dock Pl (near 30/34/1116) Franklin Avenue

within Dock Place Right-Of-Way 23 6 260

OHSEAST:160953429.14

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4 2 4 3 4 4 4 5 4 6 4 7 4 8 4 9 5 0 5 1 5 2 5 3 5 4

Garvies Point Road Pump Station Glengariff Drive Pump Station Harwood Drive Pump Station Knott Drive Pump Station Long Meadow Pump Station Morgan Park Pump Station Shore Road Pump Station Southland Drive Pump Station Southridge Drive Pump Station Titus Road Pump Station Viola Drive Pump Station Woodland Road Pump Station Locust Valley Pump Station

Garvies Point Road Welwyn Preserve Hardwood Drive (adjacent to City SWB) Knott Dr. (adjacent to 21/N01/69) Long Meadow Lane Morgan Memorial Park Shore Road Southland Dr. (adjacent to 30/42/507) Southridge Drive Titus Rd. (adjacent to 23/G/156) Viola Drive Woodland Road Locust Valley - Meleny Road

21 31 31

A J 71

p/o 12 p/o 7 12

within Knott Drive Right-Of-Way 30 91 p/o 54

within Morgan Memorial Park 21 A p/o 56

within Southland Drive Right-Of-Way 23 42 49

within Titus Road Right-Of-Way 23 31 29 61 67 68 4 81 16

OHSEAST:160953429.14

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Sewage Collection System The Operator shall be responsible for the operation, maintenance, repair, rehabilitation, reconstruction, etc. for the Countys sewage collection system, including all of the equipment, vehicles, materials, etc. contained therein. The sewage collection system is comprised of approximately 3,000 miles of sanitary sewer pipes (ranging in size from 8 to 108 inches in diameter), approximately 64,000 manholes, and approximately 300,000 individual service connections. The geographic region served by the Countys sewage collection system is depicted below by the area shaded in yellow. Note that the sewage collection system(s) within the cross hatched area(s) are not owned and/or operated the County and are not part of the Managed Assets.

OHSEAST:160953429.14

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