$75,000,000 SANITATION DISTRICT NO

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1 NEW ISSUE Book-Entry-Only Moody's: "Aa2" S&P: "AA" (See "RATINGS" herein) In the opinion of Bond Counsel for the Series 2010 Bonds, interest on the Series 2010 Bonds is exempt from Kentucky income tax and the Series 2010 Bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky and any of its political subdivisions. HOWEVER, INTEREST ON THE SERIES 2010 BONDS IS NOT EXCLUDIBLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. See "TAX MATTERS" herein. Dated: Date of Delivery $75,000,000 SANITATION DISTRICT NO. 1 SANITATION DISTRICT REVENUE BONDS, TAXABLE BUILD AMERICA BONDS SERIES 2010 (CAMPBELL, KENTON AND BOONE COUNTIES, KENTUCKY) Due: August 1, as shown on the inside cover page The Bonds captioned above (the "Series 2010 Bonds") are issued pursuant to a Trust Indenture dated as of April 1, 1998 by and between Sanitation District No. 1 (the "District") and The Huntington National Bank, Columbus, Ohio, as Trustee (the "Trustee"), as amended by a Supplemental Indenture No. 1 dated as of February 1, 2001, by a Supplemental Trust Indenture No. 2 dated as of July 1, 2005 and by a Supplemental Trust Indenture No. 3 dated as of October 1, 2006 (the Trust Indenture, as amended, the "Indenture") and a Series 2010 Resolution (the "Series 2010 Resolution"). The holders of the Series 2010 Bonds shall, on a parity basis with the holders of all bonds outstanding under the Indenture (the "Bonds"), have a priority lien on and security interest in the Pledged Receipts of the District and other special funds derived from the operations of the works and facilities of the District (the "System"). The District reserves the right to issue additional Bonds on a parity with the outstanding Bonds subject to satisfaction of the conditions of the Indenture. See "SECURITY FOR THE SERIES 2010 BONDS " herein. The Series 2010 Bonds will be fully registered bonds in denominations of $5,000 or any integral multiple thereof without coupons, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Series 2010 Bonds. Individual purchases will be made in book-entry-only form in the principal amount of $5,000 and integral multiples thereof. Purchasers will not receive certificates representing their interests in the Series 2010 Bonds purchased. Principal and interest are payable by the Trustee, to DTC, which will in turn remit such principal and interest to the Beneficial Owners of the Series 2010 Bonds through DTC's Participants, as described herein under the caption "Book-Entry-Only Provisions." Interest on the Series 2010 Bonds is payable from their dated date on each February 1 and August 1, beginning August 1, The Series 2010 Bonds will mature on August 1 of the years, in the amounts, bear interest at the annual rates, have the yields and CUSIP numbers, as sets forth on the inside cover: The Series 2010 Bonds will be secured solely by the Pledged Receipts, certain funds and accounts created by the Indenture and the other special funds derived from the operations of the System. The Series 2010 Bonds will not constitute general obligations of or be an indebtedness of the District or of Campbell County, Kenton County or Boone County, Kentucky, or of the Commonwealth of Kentucky within the meaning of the Constitution of Kentucky and neither the faith and credit nor the taxing power of the District or of Campbell County, Kenton County or Boone County, Kentucky or the Commonwealth of Kentucky will be pledged to the payment of the Series 2010 Bonds. See "SECURITY FOR THE SERIES 2010 BONDS" herein. The Series 2010 Bonds are offered when, as, and if issued subject to the approving legal opinion of Peck, Shaffer & Williams LLP, Covington, Kentucky, Bond Counsel. Certain matters will be passed upon for the District by its General Counsel, Amanda Waters, Esq. It is expected that delivery of the Series 2010 Bonds, in definitive form, will be made to DTC in New York, New York on or about May 7, The District deems this Official Statement to be final for purposes of Securities and Exchange Commission Rule 15c2-12(b)(3). Dated: April 29, 2010 Financial Advisor

2 $75,000,000 SANITATION DISTRICT NO. 1 SANITATION DISTRICT REVENUE BONDS, TAXABLE BUILD AMERICA BONDS SERIES 2010 (CAMPBELL, KENTON AND BOONE COUNTIES, KENTUCKY) MATURITY SCHEDULE Year (August 1) Amount Rate Yield CUSIP $1,620, % 0.900% EV ,635, EW ,655, EX ,685, EY ,715, EZ ,750, FA ,795, FB ,845, FC ,900, FD ,360, FF ,445, FG ,535, FH ,630, FJ6 $12,700, %, Term Bonds due August 1, 2025, yield 4.700%, CUSIP FE7 $8,525, %, Term Bonds due August 1, 2032, yield 5.850%, CUSIP FK3 $16,575, %, Term Bonds due August 1, 2037, yield 5.900%, CUSIP FL1 $11,630, %, Term Bonds due August 1, 2040, yield 6.000%, CUSIP FM9 1 The District takes no responsibility for the accuracy of the CUSIP numbers, which are included solely for the convenience of the Bondholders and Beneficial Owners of the Series 2010 Bonds. i

3 SANITATION DISTRICT NO. 1 (CAMPBELL, KENTON AND BOONE COUNTIES, KENTUCKY) Board of Directors Bob Elliston Fran Reitman Bob Rothert John Hill President Vice President Treasurer Secretary Jan Steinman David Noran Jay Weber Bob Schroder * * * * Management Jeffery A. Eger General Manager Chris Novak Assistant General Manager/Director of Capital Improvement Program Thomas A. Wiechman Assistant General Manager/Director of Administration and Human Resources Mark W. Wurschmidt, P.E. Assistant General Manager/Director of Engineering Ron Schmitt Director of Finance and Account Services Debbie Vinson Accounting Manager Michael Apgar Director of Governmental Affairs Peggy Casey Director of Public Relations Jim Gibson Director of Water Resources Micheal Kendall Director of Regulatory Compliance John L. Penick Director of Collection Systems Amanda Waters Legal Counsel Consultants Ross, Sinclaire & Associates, LLC Lexington, Kentucky Financial Advisor * * * * Peck Shaffer & Williams LLP Covington, Kentucky Bond Counsel ii

4 REGARDING USE OF THIS OFFICIAL STATEMENT This Official Statement does not constitute an offer to sell any security other than the original offering of the Series 2010 Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. No dealer, salesman or any other person has been authorized to give any information or make any representation, other than those contained herein, in connection with the offering of the Series 2010 Bonds, and if given or made, such information or representation must not be relied upon. Neither the delivery of this Official Statement nor the sale of any Series 2010 Bonds implies that there has been no change in the matters described herein since the date hereof. All quotations from and summaries and explanations of provisions of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. The information in this Official Statement has been obtained from sources which are considered reliable and which are customarily relied upon in preparation of similar official statements, but such information is not guaranteed as to accuracy or completeness. Insofar as the statements contained in this Official Statement involve matters of opinion or estimates, even if not expressly stated as such, such statements are made as such and not as representations of fact or certainty, no representation is made that any of such statements have been or will be realized, and such statements should be regarded as suggesting independent investigation or consultation of other sources prior to the making of investment decisions. Certain information may not be current; however, attempts were made to date and document sources of information. Neither this Official Statement nor any oral or written representations by or on behalf of the District preliminary to sale of the Bonds should be regarded as part of the District's contract with the successful bidder or the holders from time to time of the Bonds. References herein to provisions of Kentucky law, whether codified in the Kentucky Revised Statutes ("KRS") or uncodified, or to the provisions of the Kentucky Constitution or the District's resolutions, are references to such provisions as they presently exist. Any of these provisions may from time to time be amended, repealed or supplemented. The Series 2010 Bonds will not be registered under the Securities Act of 1933, as amended, and will not be listed on any stock or other securities exchange, and neither the Securities and Exchange Commission nor any federal, state, municipal or other governmental agency will pass upon the accuracy, completeness or adequacy of this Official Statement. iii

5 TABLE OF CONTENTS TABLE OF CONTENTS...iv INTRODUCTORY STATEMENT...1 PURPOSE OF FINANCING...1 DESCRIPTION OF THE SERIES 2010 BONDS...2 General Description...2 Optional Redemption...2 Mandatory Sinking Fund Redemption...2 Extraordinary Optional Redemption...3 Redemption Provisions...3 BUILD AMERICA BONDS...3 SECURITY FOR THE SERIES 2010 BONDS...4 General...4 Funds and Accounts...4 Mandatory Connection and Termination of Water Service...5 Rate Covenant...5 Additional Parity Bonds...6 BOOK-ENTRY-ONLY SYSTEM...6 SOURCES AND USES OF SERIES 2010 BOND PROCEEDS...9 THE DISTRICT...9 THE INDENTURE...9 General Application of Bond Proceeds - Cost of Issuance Account; Construction and Acquisition Account...10 Other Funds and Accounts...10 General Operating Fund...10 Debt Service Fund...10 Debt Service Reserve Fund...11 Self-Insurance Fund...11 Improvement, Repair and Replacement Fund...11 Rebate Fund...12 Investment of Funds...12 Issuance of Notes, Additional Bonds and Other Obligations...12 Issuance of Parity Bonds...13 Issuance of Refunding Bonds...13 Modifications of Indenture, Series Resolutions and Outstanding Bonds...13 Certain Covenants of the District...13 Default and Remedies...16 No Individual Liability...17 TAX MATTERS...17 General...17 Original Issue Premium...17 Backup Withholding...18 Nonresident Owners...18 Circular LEGAL MATTERS...18 CONTINUING DISCLOSURE UNDERTAKING...19 RATINGS...20 LITIGATION...20 UNDERWRITING...22 FINANCIAL ADVISOR...22 REFERENCE TO DOCUMENTS...22 CONCLUSION...22 APPENDIX A - The District APPENDIX B - Demographic Information APPENDIX C - The Series 2010 Bonds and Outstanding Bonds APPENDIX D - Financial Statements of the District Audited Ending June 30, 2008 APPENDIX E - Form of Legal Opinion of Bond Counsel iv

6 SUMMARY The following information is furnished solely to provide limited introductory information regarding Sanitation District No. 1 (the "District") and the Series 2010 Bonds (defined below) and does not purport to be comprehensive. Such information is qualified in its entirety by reference to the more detailed information and descriptions appearing elsewhere in this Official Statement and should be read together therewith. The terms used in this Summary and not otherwise defined shall have the respective meanings assigned to them elsewhere in this Official Statement. The offering of the Series 2010 Bonds is made only by means of the entire Official Statement, including the Appendices hereto. No person is authorized to make offers to sell, or solicit offers to buy, the Series 2010 Bonds unless the entire Official Statement is delivered in connection therewith. The District The Offering Authority Use of Proceeds Features The District is a sanitation district created under the laws of the Commonwealth of Kentucky, pursuant to KRS et. seq. (the "Act"). The District is located in the region of Kentucky that is bordered by Cincinnati, Ohio to the north and is comprised of most of the area within Boone, Campbell and Kenton Counties, Kentucky. The District is part of the greater Cincinnati Consolidated Metropolitan Statistical Area ("CMSA"). See "THE DISTRICT" and "APPENDIX A " herein. The District is offering its Sanitation District Revenue Bonds, Series 2010 (the "Series 2010 Bonds") in a total amount of $75,000,000. See "DESCRIPTION OF THE SERIES 2010 BONDS." The Series 2010 Bonds are being issued pursuant to the Act, a Resolution adopted by the District on March 23, 2010 (the "Resolution"), and the Trust Indenture dated as of April 1, 1998, between the District and The Huntington National Bank, Columbus, Ohio, as trustee and paying agent (the "Trustee" and "Paying Agent"), as amended by Supplemental Trust Indenture No. 1 dated as of February 1, 2001, by Supplemental Trust Indenture No. 2 dated as of July 1, 2005, and by Supplemental Trust Indenture No. 3 dated as of October 1, 2006 (the Trust Indenture as amended, the "Indenture"). The proceeds from the sale of the Series 2010 Bonds, together with other available funds, will be used to (i) provide funds to pay certain capital construction costs of the District, (ii) fund the Debt Service Reserve Fund, and (iii) pay the necessary costs and expenses incident to the issuance and delivery of the Series 2010 Bonds. The Series 2010 Bonds are being offered in the authorized denominations of $5,000 or any integral multiple thereof, at the interest rates, yields or purchase prices set forth on the inside cover hereof. The Series 2010 Bonds are issuable only as fully registered Series 2010 Bonds, without coupons. The Series 2010 Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Series 2010 Bonds. Purchasers will not receive certificates representing their ownership interest in the Series 2010 Bonds purchased. So long as DTC or its nominee is the registered owner of the Series 2010 Bonds, payments of the principal of, premium, if any, and interest due on the Series 2010 Bonds will be made directly to DTC. The Series 2010 Bonds will bear interest payable on each August 1 and February 1 in the years set forth on the cover hereof, commencing on August 1, v

7 It is expected that delivery of the Series 2010 Bonds will be made on or about May 7, 2010, in New York, New York, against payment therefor. Redemption The Series 2010 Bonds maturing on and after August 1, 2021 are subject to optional redemption prior to maturity, at the option of the District, in whole or in part on any date, on or after August 1, 2020, at par plus accrued interest to the date fixed for redemption. See "DESCRIPTION OF THE SERIES 2010 BONDS Optional Redemption." The Series 2010 Bonds maturing on August 1, 2025, August 1, 2032, August 1, 2037 and August 1, 2040 are subject to mandatory sinking fund redemption as described herein. See "DESCRIPTION OF THE SERIES 2010 BONDS Optional Redemption." The Series 2010 Bonds are further subject to extraordinary optional redemption at the option of the District. See "DESCRIPTION OF THE SERIES 2010 BONDS Extraordinary Optional Redemption." Security The District has previously issued its Sanitation District Revenue Bonds, as described herein, which, together with the Series 2010 Bonds are hereinafter referred to as the "Bonds." The holders of the Series 2010 Bonds shall, on a parity basis with the holders of outstanding Bonds, have a priority lien on and security interest in the Pledged Receipts of the District, certain funds and accounts created by the Indenture and other special funds derived from the operations of the works and facilities of the District. See "SECURITY FOR THE SERIES 2010 BONDS " herein. The District reserves the right to issue additional Bonds ranking on a basis of parity with the Bonds, pursuant to the terms of the Indenture and satisfaction of certain conditions set forth therein. See "SECURITY FOR THE SERIES 2010 BONDS Additional Parity Bonds" herein. The Series 2010 Bonds, when, as and if issued, will not constitute general obligations of or be an indebtedness of the District or of Campbell County, Kenton County or Boone County, Kentucky, or of the Commonwealth of Kentucky within the meaning of the Constitution of Kentucky and neither the faith and credit nor the taxing power of the District or of Campbell County, Kenton County or Boone County, Kentucky or the Commonwealth of Kentucky will be pledged to the payment of the Series 2010 Bonds. Tax Status The Series 2010 Bonds have been designated by the District as taxable "Qualified Build America Bonds" (as defined herein) under the American Recovery and Reinvestment Act of 2009 (the "Recovery Act"), the credits with respect to which will to be payable to the District, and not available as tax credits to the Beneficial Owners (as defined below) of the Series 2010 Bonds, as discussed in "TAX MATTERS." Interest on the Series 2010 Bonds is exempt from Kentucky income tax and the Series 2010 Bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky and any of its political subdivisions. HOWEVER, INTEREST ON THE SERIES 2010 BONDS IS NOT EXCLUDIBLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. See "TAX MATTERS" herein. vi

8 Continuing Disclosure General Information Rule 15c2-12 under the Securities and Exchange Act of 1934, as amended, generally prohibits an underwriter from purchasing or selling municipal securities in an initial offering unless it has determined that the issuer of such securities has committed to provide certain information, including audited financial information, and notice of various events, if material. To enable the purchaser to comply with the provisions of Rule 15c2-12. The District will enter into a Continuing Disclosure Agreement with the Trustee. See "CONTINUING DISCLOSURE UNDERTAKING." This Official Statement speaks only as of its date, and the information contained herein is subject to change. All summaries of documents and agreements in the Official Statement are qualified in their entirety by reference to such documents and agreements, copies of which are available from the District. Information regarding the Series 2010 Bonds is available by contacting the District, 1045 Eaton Drive, Fort Wright, Kentucky (859) , or, during the initial offering period, Ross, Sinclaire & Associates, LLC, 325 West Main Street, Suite 300, Lexington, Kentucky (800) vii

9 OFFICIAL STATEMENT $75,000,000 SANITATION DISTRICT NO. 1 SANITATION DISTRICT REVENUE BONDS, SERIES 2010 (CAMPBELL, KENTON AND BOONE COUNTIES, KENTUCKY) INTRODUCTORY STATEMENT This Official Statement including cover page and appendices, is furnished in connection with the offering of $75,000,000 principal amount of Sanitation District Revenue Bonds, Series 2010 (the "Series 2010 Bonds") of Sanitation District No. 1, situated in and providing wastewater collection, transmission and treatment services to Campbell, Kenton and Boone Counties, Kentucky (the "District"). The Series 2010 Bonds are being issued pursuant to a Trust Indenture dated as of April 1, 1998, by and between the District and The Huntington National Bank, Columbus, Ohio, as Trustee, as amended by Supplemental Trust Indenture No. 1 dated as of February 1, 2001 ("Supplemental Indenture No. 1"), by Supplemental Trust Indenture No. 2 dated as of July 1, 2005 ("Supplemental Indenture No. 2"), and by Supplemental Trust Indenture No. 3 dated as of October 1, 2006 ("Supplemental Trust Indenture No. 3") (the Trust Indenture, as amended, the "Indenture"), and a resolution of the Board of the District authorizing the issuance and sale of the Series 2010 Bonds adopted on March 23, 2010 (the "Series 2010 Resolution"). The District has previously issued its Sanitation District Revenue Bonds, which are described in APPENDIX C hereto (together with the Series 2010 Bonds, the "Bonds"). The holders of the Series 2010 Bonds shall, on a parity basis with the holders of all outstanding Bonds, have a priority lien on and security interest in the Pledged Receipts of the District, certain funds and accounts created by the Indenture and other special funds derived from the operations of the works and facilities of the District. See "SECURITY FOR THE SERIES 2010 BONDS" herein. The Series 2010 Bonds do not constitute a debt, liability or general obligation of the District or of Campbell, Kenton or Boone Counties, Kentucky, or of the Commonwealth of Kentucky or a pledge of the faith and credit or the taxing power thereof, but are payable solely and only from Pledged Receipts, as defined in the Indenture. There follows a brief description and history of the District, the District's existing wastewater collection, transmission, treatment and disposal system (the "System"), the Series 2010 Bonds, the proposed major wastewater improvement program of the District and other data, together with the Appendices, containing financial and other information with respect to the District. This Official Statement includes descriptions of, among other matters, the Series 2010 Bonds and the Indenture, which descriptions are qualified by reference to the entire text of the related instruments, including the Indenture and the form of the Series 2010 Bonds. Copies of the Indenture and the Series 2010 Resolution may be obtained from the District and, during the initial offering period, Ross, Sinclaire & Associates, LLC, Lexington, Kentucky. Copies will also be available for inspection at the principal corporate trust office of the Trustee after delivery of the Series 2010 Bonds. References herein to provisions of Kentucky and federal law, whether codified in the Kentucky Revised Statutes, or the Kentucky Constitution, or the Internal Revenue Code of 1986, as amended, are references to such provisions as they presently exist. Any of those provisions may from time to time be amended, repealed, or supplemented. PURPOSE OF FINANCING The proceeds from the sale of the Series 2010 Bonds, together with other available funds, will be used to (i) provide funds to pay certain capital construction costs of the District, (ii) fund the Debt Service Reserve Fund, and (iii) pay the necessary costs and expenses incident to the issuance and delivery of the Series 2010 Bonds.

10 DESCRIPTION OF THE SERIES 2010 BONDS General Description The Series 2010 Bonds will be dated and shall bear interest at the rates set forth on the inside cover page of this Official Statement. The Series 2010 Bonds are being issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. The Series 2010 bonds will initially be issued in book-entry-only form. See "BOOK-ENTRY-ONLY PROVISIONS." Interest on the Series 2010 Bonds will be payable semi-annually on August 1 and February 1, commencing August 1, Interest on all Series 2010 Bonds is payable by check or draft mailed to the registered Bondholder by the Trustee. At the written request of a Holder of $1,000,000 or more in principal amount of the Series 2010 Bonds, which written request must be received by the Trustee no later than the Regular Record Date, interest payments will be made by wire transfer by the Trustee to a bank or trust company designated by such Holder. Principal is payable when due to the registered Holder upon surrender of the Series 2010 Bonds at the principal corporate trust office of the Trustee. In the event that Book-Entry-Only system is discontinued, the Series 2010 Bonds may be transferred by presentation and surrender of such Series 2010 Bonds at the office of the Trustee, together with an assignment duly executed by the Bondholder or by his duly authorized attorney-in-fact in a form satisfactory to the Trustee. Upon any such transfer, the Trustee shall deliver a new registered Series 2010 Bond, registered in the name of the transferee, in the denomination of $5,000 or any integral multiple thereof. As a precondition to the exchange or transfer of any Series 2010 Bond, the Trustee may charge the Bondholder for any tax or excise required to be paid with respect to the exchange or transfer. The Trustee shall not be required to make any transfer during the 15 days immediately preceding the mailing of a notice of redemption and ending at the close of business on the day of such mailing or to transfer any Series 2010 Bond selected for redemption in whole or in part or during the period following a Record Date through the day preceding the ensuing Interest Payment Date. Optional Redemption The Series 2010 Bonds maturing on and after August 1, 2021 are subject to optional redemption prior to maturity, at the option of the District, in whole or in part (and by lot within a maturity) on any date, on or after August 1, 2020, at par plus accrued interest to the date fixed for redemption. Mandatory Sinking Fund Redemption The Series 2010 Bonds maturing on August 1, 2025, August 1, 2032, August 1, 2037 and August 1, 2040 are subject to mandatory sinking fund redemption on the dates and at the redemption price of par plus accrued interest to the Redemption Date as set forth below: Maturing August 1, 2025 Maturity August 1, 2032 Redemption Date Principal Amount Redemption Date Principal Amount August 1, 2020 $1,960,000 August 1, 2030 $2,735,000 August 1, ,020,000 August 1, ,840,000 August 1, ,080,000 August 1, 2032* 2,950,000 August 1, ,145,000 *Maturity August 1, ,215,000 August 1, 2025* 2,280,000 *Maturity 2

11 Maturing August 1, 2037 Maturity August 1, 2040 Redemption Date Principal Amount Redemption Date Principal Amount August 1, 2033 $3,065,000 August 1, 2038 $3,720,000 August 1, ,185,000 August 1, ,875,000 August 1, ,310,000 August 1, 2040* 4,035,000 August 1, ,440,000 *Maturity August 1, 2037* 3,575,000 *Maturity Extraordinary Optional Redemption The Series 2010 Bonds are further subject to redemption at the option of the District, in whole or in part on any date, at a redemption price equal to the principal amount of Series 2010 Bonds to be redeemed, plus accrued interest to the date of redemption, if Section 54AA or 6431 of the Code is modified, amended or interpreted in a manner pursuant to which the District's Credit Payments and RZEDBs Payments, from the United States Treasury are reduced or eliminated. Redemption Provisions The Indenture provides that, whenever Bonds are to be redeemed, the Trustee shall give written notice in the name of the District, not less than 30 days prior to the redemption date, to each registered Bondholder for the redemption of such Bonds, which notice shall specify the Series and maturities of the Bonds to be redeemed, the Redemption Date and place or places where amounts due upon such redemption will be payable and, if less than all Bonds of any Series and maturity are to be redeemed, the letters and numbers or other distinguishing marks of such Bonds to be redeemed and, in case of any registered Bonds to be redeemed in part only, such notice shall also specify the respective portions of the principal amount thereof to be redeemed. After such notice has been given, the Bonds or portions thereof so called for redemption shall become due and payable on the Redemption Date so designated at the Redemption Price, plus interest accrued and unpaid to the Redemption Date, if, on the Redemption Date, moneys for the redemption of all the Bonds or portions thereof of any Series and maturity to be redeemed, together with interest to the Redemption Date, shall be held by any paying agent so to be available therefor on such date and if notice shall have been published as aforesaid, then, from and after the Redemption Date, interest on such Bonds or portions thereof shall cease to accrue and coupons for interest maturing subsequent to the Redemption Date shall be void. If less than all outstanding Bonds of a Series and maturity are to be redeemed, the Trustee shall select by lot each $5,000 of the principal amount of Bonds to be redeemed. BUILD AMERICA BONDS As part of the American Recovery and Reinvestment Act of 2009 ("the Recovery Act"), Congress added Sections 54AA and 6431 to the Internal Revenue Code of 1986, as amended (the "Code"), which permit states and local governments to issue two types of taxable obligations, referred to as Build America Bonds, or "BABs," with federal subsidies to offset a portion of their interest costs, as an alternative to issuing traditional tax-exempt obligations. Interest on Build America Bonds is includable in gross income for federal income tax purposes. In order to qualify as Build America Bonds, the obligations must comply with certain requirements specified in the Code. If the obligations also comply with certain additional requirements specified in the Code, the Build America Bonds may constitute "Qualified Bonds" under Section 54AA of the Code, in which case an amount equal to 35% of the interest payable on such Qualified Bonds (the "Credit Payments") is payable to the issuer by the U.S. Treasury upon compliance by the issuer with certain procedural requirements provided in the Code and Treasury Regulations. This direct payment to the issuer is in lieu of the tax credits otherwise allowed to owners of Build America Bonds under Section 54AA of the Code. 3

12 The District designated the Series 2010 Bonds both as Build America Bonds and as Qualified Bonds and in the event that the Bonds are issued as Build America Bonds, the District intends to apply for Credit Payments pursuant to Section 6431 of the Code. The Credit Payments are to be deposited to the credit of the Interest Account of the Debt Service Fund hereinafter described. The Credit Payments will be paid to the District only to the extent that the Series 2010 Bonds remain Qualified Bonds, which requires the District to comply with certain covenants and to establish certain facts and expectations with respect to the Series 2010 Bonds, the use and investment of proceeds thereof and the use of property financed thereby. Also, credit payments may be subject to offset against certain amounts that may, for unrelated reasons, be owed by the District to an agency of the United States of America. See also "TAX MATTERS" herein. General SECURITY FOR THE SERIES 2010 BONDS The Bonds, together with any additional parity bonds which may be issued from time to time pursuant to the Indenture, are secured by and payable solely from the (i) proceeds of the Bonds, (ii) Investment Obligations (as defined in the Indenture) acquired by proceeds of the Bonds, (iii) the Pledged Receipts derived from the collection of rates, rentals and charges for the services rendered by the System, (iv) the Debt Service Fund, and (v) the Debt Service Reserve. "Pledged Receipts" as defined in the Indenture (i) means the totality of all sanitary sewer, drainage or stormwater rates, rentals and charges of any and all types and varieties imposed, enforced and collected by the District for the services rendered by the sanitary and drainage works and facilities of the District; (ii) shall not mean any State appropriations or Federal Grants specified for use by the District for capital construction purposes in connection with the District's sewer and drainage system; (iii) shall also include all interest earned and gains realized on Investment Obligations in the Funds and Accounts established by the Indenture, unless the Indenture specifically requires such interest earned or gains realized to remain in a particular Fund or Account or be applied to purposes other than payment of debt service; and (iv) shall also include any and all income or operating subsidies, if any, received by the District from any agency of government, Federal or State, to the extent not otherwise required to be treated and applied. Funds and Accounts Except for Credit Payments that may be deposited directly in the Interest Account of the Debt Service Fund, all moneys received by the District as Pledged Receipts will be deposited in a General Operating Fund held by the District. In addition, the Improvement, Repair and Replacement Fund and Self-Insurance Fund will be maintained by the District as an Improvement, Repair and Replacement Reserve and Self-Insurance Reserve. On or prior to the first day of each month, the District will cause amounts to be transferred from the General Operating Fund and deposited to the following Accounts and Funds in the indicated amounts and order of priority: (1) To the Interest Account within the Debt Service Fund an amount equal to (i) the interest on each Series of Outstanding Bonds accrued and unpaid in respect of the next Interest Payment Date for each Series of Bonds Outstanding, or to reimburse a provider of a Credit Facility for its direct payment of such interest under an agreement with such provider, (ii) divided by the number of months preceding the next Interest Payment Date for the related Series of Bonds. 4

13 (2) To the Principal Account within the Debt Service Fund an amount equal to (i) the Principal Installments accrued and unpaid in respect of the next Principal Installment Date for each Series of Bonds Outstanding, or to reimburse a provider of a Credit Facility for its direct payment of such principal under an agreement with such provider, (ii) divided by the number of months preceding the next Principal Installment Date for the related Series of Bonds. (3) To the Debt Service Reserve Fund such amount as with sums then on deposit therein will equal the Aggregate Debt Service Reserve Requirement, or to pay amounts due with respect to a Debt Service Reserve Credit Enhancement. (4) To the Self-Insurance Reserve such amount as with sums then on deposit therein will equal the Self-Insurance Reserve Requirement, but only if such amount is not required to pay current Operation and Maintenance Costs or to maintain a balance (reserve) in the General Operating Fund that is no less than the amount required to pay for three (3) months (i) reasonable and necessary Operation and Maintenance Costs in accordance with the Annual Budget and (ii) the amounts required to be transferred from the General Operating Fund in accordance with (1) and (2) above. (5) To the Improvement, Repair and Replacement Reserve, such amount, as determined from time to time by the Board, to be held therein as a reserve for the purposes for which such Fund was created, but only if such amount is not required to pay current Operation and Maintenance Costs or to maintain the balance (reserve) as may be deemed necessary by the Board. Amounts remaining in the General Operating Fund shall be used (i) to pay the reasonable expenses of operating, maintaining and repairing the System; (ii) for paying Operation and Maintenance Costs; (iii) to make unforeseen major repairs and replacements of the System; and (iv) to pay the costs of constructing additions, extensions, betterments and improvements to the System which will either increase income and revenues or provide a higher degree of service. Mandatory Connection and Termination of Water Service KRS (3) and KRS authorize the District to (i) mandatorily require every property to which sewer facilities are made available to connect to and use such sewer facilities for disposal of sewage wastes and (ii) require the provider of water service (whether public or private) to property receiving sewer service that is delinquent as to payment of sewer service rates, to terminate water service to such property until the delinquent sewer service charges (plus a reasonable water disconnection and reconnection fee) are paid in full. Rate Covenant The District covenants in the Indenture at all times to establish, enforce, and collect rates, rentals and charges for the services and facilities afforded by the System, the same to be adequate to operate and maintain the facilities of the District, to provide necessary allowances for depreciation and for extensions and additions thereto, to maintain reserves required by the Indenture, and to retire all outstanding Bonds and the interest thereon. Such rates must be adequate to accumulate and maintain all reserves as provided in the Indenture, and after fulfillment of all contractual obligations required of the District, including accumulation and maintenance of all reserves, and after payment of operating and maintenance costs of the System, to provide 1.25 times coverage of annual principal, interest and sinking fund requirements on all Bonds. Rates, rentals and charges must be adjusted from time to time to comply with the Indenture. The District also covenants that it will not at any time make any reduction in the prevailing schedule of rates, rentals and charges without first obtaining the written determination of a consulting engineer in the 5

14 field of sanitary engineering that any such proposed reduction will not materially affect the ability of the District to meet all the requirements and covenants of the Indenture. Additional Parity Bonds The District reserves the right to issue additional Bonds ranking on a basis of parity with the outstanding Bonds (i) to reconstruct, repair and improve the facilities of the District, (ii) to make additions, extensions, betterments or improvements thereto, (iii) to acquire existing sewer and drainage systems, or (iv) to refund outstanding Bonds. No such additional parity Bonds shall be issued unless, among other things: the facilities to be acquired, repaired, reconstructed or improved with the proceeds of such proposed additional Bonds shall be made an integral part of the System and revenues therefrom are pledged as additional security for all outstanding Bonds and the proposed additional Bonds, and also provided the District is in compliance with all covenants in the Indenture, and the Net Revenues of the District (adjusted under certain circumstances as provided in the Indenture) for a period of 12 consecutive months of the 15 months immediately prior to the issuance of said parity bonds are certified by an independent firm of Certified Public Accountants to have been equal to 1.25 times the maximum annual debt service requirement coming due in any future Bond Fiscal Year (ending June 30) on all outstanding Bonds, together with the parity Bonds then proposed to be issued. "Net Revenues", as defined in the Indenture, means (i) the totality of all sanitary sewer service and/or drainage, stormwater or other service rates, rentals and charges of any and all types and varieties imposed, enforced and collected by the District or legally required to be paid by any entity to the District for the services rendered by the sanitary, drainage, stormwater and other works and facilities of the District, together with any other income received by the District, if any, from any agency of government, both federal and state, as representing income or operating subsidies, as distinguished from capital grants, to the extent not otherwise required to be treated and applied, less (ii) the District's operation and maintenance costs. BOOK-ENTRY-ONLY SYSTEM The Series 2010 Bonds initially will be issued solely in book-entry form to be held in the bookentry-only system maintained by The Depository Trust Company ("DTC"), New York, New York. So long as such book-entry system is used, only DTC will receive or have the right to receive physical delivery of Series 2010 Bonds and, except as otherwise provided herein with respect to tenders by Beneficial Owners of beneficial ownership interests, each actual purchaser of each Series 2010 Bond (a "Beneficial Owner") will not be or be considered to be, and will not have any rights as, owner or holder of the Series 2010 Bonds under the Indenture. The following information about the book-entry-only system applicable to the Series 2010 Bonds has been supplied by DTC. Neither the District nor the Trustee makes any representations, warranties or guarantees with respect to its accuracy or completeness. DTC will act as securities depository for the Series 2010 Bonds. The Series 2010 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2010 Bond certificate will be issued for each maturity of the Series 2010 Bonds and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with 6

15 DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series 2010 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2010 Bonds on DTC's records. The ownership interest of each Beneficial Owner is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial owners will not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2010 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial owners will not receive certificates representing their ownership interests in Series 2010 Bonds, except in the event that use of the book-entry system for the Series 2010 Bonds is discontinued. To facilitate subsequent transfers, all Series 2010 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2010 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2010 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2010 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial owners of Series 2010 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2010 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2010 Bond documents. For example, Beneficial Owners of Series 2010 Bonds may wish to ascertain that the nominee holding the Series 2010 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Trustee and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2010 Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7

16 Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2010 Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Series 2010 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and interest payments on the Series 2010 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the District or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Series 2010 Bonds held for the accounts of customers in bearer form or registered in "street name" and will be the responsibility of such Participant and not of DTC or its nominee, the Trustee or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Series 2010 Bonds at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series 2010 Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2010 Bond certificates will be printed and delivered. NEITHER THE DISTRICT NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATION BOOKS OF THE TRUSTEE AS BEING A HOLDER WITH RESPECT TO: (1) THE BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PURCHASE PRICE OF TENDERED BONDS OR THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO BONDHOLDER; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS HOLDER. Each Beneficial Owner for whom a Direct Participant or Indirect Participant acquires an interest in the Series 2010 Bonds, as nominee, may desire to make arrangements with such Direct Participant or Indirect Participant to receive a credit balance in the records of such Direct Participant or Indirect Participant, to have all notices of redemption, elections to tender Series 2010 Bonds or other communications to or by DTC which may affect such Beneficial Owner forwarded in writing by such Direct Participant or Indirect Participant, and to have notification made of all debt service payments. 8

17 Beneficial owners may be charged a sum sufficient to cover any tax, fee, or other governmental charge that may be imposed in relation to any transfer or exchange of their interests in the Series 2010 Bonds. The District cannot and does not give any assurances that DTC, Direct Participants, Indirect Participants or others will distribute payments of debt service on the Series 2010 Bonds made to DTC or its nominee as the registered owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC, Direct Participants or Indirect Participants will serve and act in the manner described in this Official Statement. SOURCES AND USES OF SERIES 2010 BOND PROCEEDS Bonds: The following table sets forth the estimated sources and uses of funds relating to the Series 2010 Sources: Principal Amount of Series 2010 Bonds $75,000, Original Issue Premium 608, Total Sources $75,608, Uses: Deposit to Debt Service Reserve Fund $5,151, Deposit to Project Construction Fund 69,670, Underwriter's Discount 608, Deposit to Costs of Issuance Fund 177, Total Uses $75,608, THE DISTRICT The District is a sanitation district created under the laws of the Commonwealth of Kentucky, pursuant to KRS et. seq. (the "Act"). The District is located in the region of Kentucky that is bordered by Cincinnati, Ohio to the north and is comprised of most of the area within Boone, Campbell and Kenton Counties, Kentucky. The District is part of the greater Cincinnati Consolidated Metropolitan Statistical Area ("CMSA"). For a detailed description of the District, see APPENDIX A hereto. For demographic information regarding the District see APPENDIX B hereto. Outstanding Bonds of the District are described in APPENDIX C hereto. Financial statements of the District are included in APPENDIX D hereto. THE INDENTURE The District entered into the Indenture as of April 1, 1998, which has been amended by Supplemental Indenture No. 1, Supplemental Indenture No. 2 and Supplemental Indenture No.3. The Indenture authorizes and provides for the issuance of Sanitation District Revenue Bonds in Series from time to time pursuant to resolutions adopted by the Board of Directors of the District, provides trust duties, makes covenants with Bondholders and provides generally for the collection, enforcement and application of revenues of the District. Bonds may be issued under the Indenture to acquire, construct and improve the System. The Indenture contains various covenants and security provisions, certain of which are summarized below. Reference should be made to the Indenture for a full and complete statement of its provisions. All defined terms herein shall have the meaning assigned by the Indenture. 9

18 General Application of Bond Proceeds - Cost of Issuance Account; Construction and Acquisition Account Under the Indenture, the Trustee is required to establish within the Bond Proceeds Fund established by the Indenture a Cost of Issuance Account and a Construction and Acquisition Account for each Series of Bonds issued. From the proceeds of the sale of a Series of Bonds, there will be deposited in the Cost of Issuance Account the costs of issuing the Series. Moneys received by the District from any other source, unless otherwise provided by the Indenture, may also be deposited in the Cost of Issuance Account. So much of the remainder of the Bond proceeds as is required by the applicable Series Resolution (except for accrued and capitalized interest, if any, which shall be deposited in the Interest Account, and any premium over the principal amount of the Series, which is applied as provided in such Series Resolution) are deposited in the Construction and Acquisition Account. The Cost of Issuance and the Construction and Acquisition Account constitute all the Accounts within the Bond Proceeds Fund. Moneys in the Construction and Acquisition Account shall be applied by the Trustee upon written direction of the District only for the making of disbursements and payments required to be made by the District pursuant to construction and acquisition contracts relating to its Capital Improvement Program and its constituent parts. Pending their disbursement the Trustee shall invest moneys in the Construction and Acquisition Account in Investment Obligations (see "Investment of Funds" below) having maturities consistent with the anticipated needs for such moneys. Other Funds and Accounts In addition to the Bond Proceeds Fund and Accounts therein described above, the Indenture establishes the following special trust Funds and Accounts: (1) General Operating Fund (held by the District) (2) Debt Service Fund (held by the Trustee) (a) Interest Account (b) Principal Account (3) Debt Service Reserve Fund (held by Trustee) (a) Series Accounts (4) Self-Insurance Reserve (held by District) (5) Improvement, Repair and Replacement Reserve (held by District) (6) Rebate Fund (held by Trustee) From the General Operating Fund, the District is required to transfer funds on a monthly basis to the various other funds and accounts to meet the needs and requirements thereof. Only the Debt Service Fund and the Debt Service Reserve Fund are pledged to the security and payment of the Bonds. See also "SECURITY FOR THE SERIES 2010 BONDS Funds and Accounts". General Operating Fund All moneys received by the District as Pledged Receipts will be deposited in a General Operating Fund. Moneys in the General Operating Fund are not pledged to the payment of principal of or interest on the Bonds. The District is required to apply amounts in the General Operating Fund in the manner described under the heading "SECURITY FOR THE SERIES 2010 BONDS Funds and Accounts." Debt Service Fund Interest Account. The District is required to pay moneys from the Interest Account for the purpose of paying interest on the Bonds when due and payable as well as interest on Bonds to be redeemed to the extent not otherwise provided for in monthly amounts at least equal to one-sixth of the 10

19 amount of interest on Outstanding Bonds to become due and payable on the next Interest Payment Date. Direct Payments relating to Qualified Build America Bonds will be deposited by the Trustee directly into the Interest Account or deposited into the General Operating Fund. Principal Account. The District is required to pay moneys from the Principal Account for the purpose of paying the principal of the Bonds when due and payable in monthly installments at least equal to one-twelfth of the amount of the next Principal Installment of Bonds to become due and payable. In addition, the Trustee may, and if so directed by the District shall, apply amounts accumulated in the Principal Account for each Sinking Fund Installment (plus amounts accumulated in the Interest Account for interest on Bonds for which the Sinking Fund Installment was established), before the forty-fifth day preceding the due date of such Sinking Fund Installment, to (i) the purchase of Bonds of the Series and maturity for which the Sinking Fund was established at prices (including brokerage and other charges) not exceeding the Redemption Price payable from Sinking Fund Installments for such Bonds when such Bonds are redeemable by application of such Sinking Fund Installments plus unpaid interest accrued to the date of purchase, or (ii) to the redemption of such Bonds if then redeemable by their terms at the Redemption Price referred to in clause (i). The Trustee is required to pay from the Principal Account the amount required to redeem such Bonds as may be necessary (after taking into account Bonds purchased as aforesaid) to complete the retirement of the Principal amounts specified by any Series Resolution for the Sinking Fund Installments. Debt Service Reserve Fund Amounts deposited in the Debt Service Reserve Fund are to be used solely for the payment of Principal Installments of and interest on Bonds as to which there would otherwise be a default in payment. Amounts in excess of the Aggregate Debt Service Reserve Requirement are required to be transferred to the Debt Service Fund, Interest Account, and used to pay next maturing interest on the Bonds. The Aggregate Debt Service Reserve Requirement is equal to the maximum principal and interest requirement on the Bonds of all Series occurring in any Bond Fiscal Year. The Debt Service Reserve Fund may alternatively be funded by the delivery to the Trustee of a Debt Service Reserve Fund Credit Enhancement pursuant to the terms of the Indenture, which may consist of an irrevocable letter of credit, insurance policy, surety bond or other like credit enhancement issued to satisfy the applicable Debt Service Reserve Requirement. Self-Insurance Fund The District is required, after making the identified monthly payments to the Debt Service Fund and the Debt Service Reserve Fund to transfer to the Self-Insurance Fund such amount of Pledged Receipts as is required to maintain or accrue the Self-Insurance Fund Requirement (being the greater of $5,000,000 or such other amount as shall be annually certified to the District by an Independent Insurance Consultant as being the proper level of funding to protect the District from the risks insured against). The Self-Insurance Fund is available for the payment of all liability claims against the District and to pay defense counsel and other defense fees and costs of the District in connection therewith. Moneys in the Self-Insurance Fund shall not be considered moneys held under the Indenture and are not pledged to the payment of the Bonds and shall not constitute part of the trust estate held for the benefit of the holders of the Bonds. See also "SECURITY FOR THE SERIES 2010 BONDS Funds and Accounts." Improvement, Repair and Replacement Fund The Improvement, Repair and Replacement Fund is available and is to be utilized to balance depreciation, to make unforeseen major repairs and replacements and to pay the cost of construction of additions, extensions, betterments and improvements to the System, which will either increase income and revenues or provide a higher degree of service. In addition to any amounts required by any Series Resolution and the Indenture to be set aside and deposited therein, there shall be transferred and deposited 11

20 to the Improvement, Repair and Replacement Fund any other moneys (a) received by the District from any other source and duly ordered to be deposited therein (unless required to be otherwise applied), (b) for which the District has exercised a discretion to so deposit or transfer as permitted in the Indenture, and (c) ordered to be so deposited from the proceeds of any Series of Bonds. Within 30 days following the end of each Bond Fiscal Year, all amounts in the Improvements, Repair and Replacement Fund in excess of the amount reasonably required to be maintained therein by the District may be expended and applied by the Trustee upon written direction of the District for (i) transfer to the Operation and Maintenance Fund, or (ii) accrual in the Improvement, Repair and Replacement Fund or (iii) any other lawful purpose of the District. See also "SECURITY FOR THE SERIES 2010 BONDS Funds and Accounts." Rebate Fund The Rebate Fund is created to enable the District to comply with the provisions of Section 147 of the Code. The District has covenanted to deposit in the Rebate Fund annually all moneys representing excess earnings on funds and accounts created by the Indenture and to rebate such funds to the United States as required by law. Moneys held in the Rebate Fund shall not be considered moneys held under the Indenture and shall not constitute part of the trust estate held for the benefit of holders of the Bonds. The Rebate Fund is not subject to the lien of the Indenture. Investment of Funds The Indenture requires or permits investments of moneys in each Fund, consistent with the contemplated uses of such moneys, in Investment Obligations. Investment Obligations are restricted to direct obligations of the United States or obligations guaranteed by the United States, interest-bearing time deposits or certificates of deposit secured by direct obligations of, or obligations guaranteed by, the United States to the extent not insured by Federal Deposit Insurance Corporation, obligations of certain federal agencies and instrumentalities, public housing bonds or project notes issued by public housing authorities secured by a pledge of annual contributions under contribution contracts with the United States or by requisition or payment agreements with the United States and certain tax-exempt obligations. Investment Obligations are deemed to be part of the Fund or Account for which purchased, and income, interest, gains and losses on an Investment Obligation are credited or charged to the Fund or Account for which such Investment Obligation was purchased. Issuance of Notes, Additional Bonds and Other Obligations The Indenture provides that the District may issue notes in anticipation of an authorized issuance of a Series of Bonds. Notes are payable from any moneys of the District available therefor and not pledged under the Indenture for the benefit of the Bonds and from the proceeds of the sale of any authorized Series of Bonds in anticipation of which notes were issued. Such proceeds may be pledged for payment of the principal of the notes and such pledge will have priority over any pledge created by the Indenture. Variable Rate Demand Obligations may also be issued pursuant to the Indenture. Variable Rate Demand Obligations must also be secured by a Credit Facility, and the parity Bond test requires that at the time of issuance of Variable Rate Demand Obligations, the proposed issue of Bonds be calculated for purpose of the formula as bearing interest at the maximum rate permitted. The Indenture provides that the District may issue notes, bonds and other obligations having such terms and secured by a pledge of such funds as the resolution authorizing the issue provides, but any pledge to the holders of such notes, bonds or other obligations of a Fund or Account created under the Indenture is required to be subordinate in all respects to the pledge created under the Indenture for the benefit of the holders of Bonds, except that proceeds of the sale of Bonds may be pledged for the payment of notes issued in anticipation thereof as aforesaid and additional Series of Bonds may be issued on a 12

21 parity with the initially issued Bonds and secured equally by the revenues and assets pledged under the Indenture and payable equally therefrom, as herein described. Issuance of Parity Bonds The Indenture provides that from and after the issuance and delivery of any Bonds thereunder, the Indenture shall constitute the sole and exclusive method for the issuance of any further Bonds by the District. See "SECURITY FOR THE SERIES 2010 BONDS Additional Parity Bonds". Issuance of Refunding Bonds Bonds of one or more Series may be issued to refund outstanding Bonds subject to the following provisions and limitations. A series of Refunding Bonds may be delivered without complying with the parity Bond provisions described above only upon receipt by the Trustee of: (a) either (i) moneys in an amount sufficient to effect payment at the applicable Redemption Price of the Bonds to be refunded, together with accrued interest thereon to the date of redemption, or (ii) Investment Obligations, the principal of and interest on which, when due, will provide moneys which, together with any moneys deposited with the Trustee at the same time, will be sufficient to pay the principal or Redemption Price of and interest due or to become due on the Bonds to be refunded, and (b) instructions to the Trustee to give due notice of redemption, by publication or otherwise, of all Bonds to be refunded on a specified redemption date, and (c) all other documents required to be delivered to the Trustee as a condition precedent to delivery of Bonds of any Series under the Indenture and any Series Resolution. In addition, the Trustee is required to deliver to the District at the time of delivery of the Series of Refunding Bonds a certificate stating that it holds in trust the moneys and/or Investment Obligations required to effect the aforesaid redemption on the date specified in such Resolution. The date of redemption may be changed by the District under certain conditions. Modifications of Indenture, Series Resolutions and Outstanding Bonds The Indenture provides procedures whereby the District may amend the Indenture or a Series Resolution by adoption of a Supplemental Trust Indenture. Amendments that may be made without the Bondholders must be for purposes of further securing the Bonds, imposing further limitations on or surrendering rights of the District or curing ambiguities. Amendments of the respective rights and obligations of the District and the Bondholders may be made with the written consent of the holders of not less than a majority in principal amount of the outstanding Bonds affected by such amendment. No such amendment shall permit a change in the terms of redemption or maturity of the principal of any outstanding Bond or of any installment of interest thereon or reduce the percentages or otherwise affect the classes of Bonds the consent of the holders of which is required to effect such amendment. Certain Covenants of the District Among other covenants made by the District in the Indenture are those related to the following matters: Rates and Charges. The District has covenanted to at all times establish, enforce, and collect rates, rentals and charges for the services and facilities afforded by the District's System, provide 13

22 necessary allowances for depreciation and for extensions and additions, and to timely retire all outstanding Bonds and interest thereon. Such rates must also be adequate to accumulate and maintain all reserves as provided in the Indenture, and to provide, after fulfillment of all contractual obligations required of the district incident to the Bonds, including accumulation and maintenance of all reserves, Net Revenues at least equal to 1.25 times annual principal, interest, and sinking fund requirements on all Bonds. If necessary, such rates, rentals and charges must be adjusted from time to time in order to comply with the Indenture. No Decrease in Rates, Rentals and Charges. The District has covenanted that it will not voluntarily at any time make any reduction in any prevailing schedule of rates, rentals and charges without first obtaining the written determination of a Consulting Engineer that any such proposed reduction will not materially affect the ability of the District to meet all the requirements of the Indenture. General Compliance. The District has covenanted to faithfully and punctually perform all duties with reference to the Districts System required by the Constitution and laws of the Commonwealth of Kentucky and by the provisions of the Indenture. System Not to Be Sold or Disposed of. The District has covenanted and agreed that so long as any Bonds are outstanding, it will not voluntarily sell, mortgage or otherwise dispose of or surrender control of any of the facilities of the District' s System, except as provided in the Indenture. Accounts and Reports. The District shall keep complete and accurate books of record and account relating to the District's System, and all Funds and Accounts established by the Indenture, which are subject at reasonable times to the inspection of the Trustee and the holders of an aggregate of not less than 5% in principal amount of the Bonds then outstanding or their representatives duly authorized in writing. Annual Audit. The District has covenanted that it will, within 180 days after the end of each Bond Fiscal Year ending June 30, cause an audit to be made of the books of record and account pertinent to the District's System, and an opinion to be issued by an independent state licensed Certified Public Accountant reflecting in reasonable detail the financial condition and results of operations of the District's System, including the status of the several Funds created by the Indenture, the status of required insurance and fidelity bonding as provided by the Indenture, and the current rates, rentals and charges, with comments concerning compliance with the Indenture, all in accordance with generally accepted governmental accounting principles. A copy of such audit must be submitted by December 31 of each Bond Fiscal Year to the Trustee and to the Board of Directors of the District, and a copy of same shall be filed in the office of the District where it will be available for public inspection. Budgets. The District shall adopt an Annual Budget for the District's System covering its fiscal operations for the succeeding Bond Fiscal Year not later than July 1 of each year and file it with the Trustee. Copies of same shall be furnished to any Bondholder upon request. The District may file with the Trustee amendments of the Annual Budget for the remainder of the Bond Fiscal Year. The District shall not incur Current Expenses in excess of the amounts provided therefor in the Annual Budget as originally prepared or as amended, except upon resolution determining that such expenses are necessary in order to operate and maintain the District's System. Tax Covenant. The District has covenanted to do and perform all acts and things permitted by law and necessary or desirable in order to assure that interest paid by the District on certain parity Bonds issued as tax exempt bonds shall, for the purposes of federal income taxation, be exempt from income taxation under any valid provision of law. The District shall not permit at any time or times any of the proceeds of the Bonds or other funds of the District to be used directly or indirectly to acquire any securities or obligations the acquisition of which would cause any Bond to be an "arbitrage bond" as defined in the Code as then in effect and to be subject to treatment under the Code as an obligation not 14

23 described in Code, under any valid provision of law hereafter enacted, the interest paid by the District on the Bonds issued as tax exempt bonds, shall be excludable from the gross income of a recipient thereof for federal income tax purposes without regard to compliance with the provisions of such Code. [The Series 2010 Bonds are being issued as Build America Bonds and interest on the Series 2010 Bonds is includible in gross income for federal income tax purposes. Therefore, the covenant described in the paragraph is only applicable to the Series 2010 Bonds to the extent compliance is required to maintain their status as Build America Bonds.] In order to assure compliance with such covenant, the District, from the date of adoption of the Indenture, has covenanted that it shall not: (a) make any investment that produces a yield in excess of such applicable maximum yield as may be permitted by such Code, and (b) invest or direct the Trustee to, and the Trustee shall not, invest moneys in any such Fund or Account in Investment Obligations that produce a yield in excess of such applicable maximum yield as may be permitted such Code. The District further covenants that prior to the issuance of any Series of Bonds the District shall certify that on the basis of the facts, estimates, and circumstances in existence on the date of issue of such Series it is not expected that the proceeds thereof will be used in a manner that would cause such obligations to be arbitrage bonds. The District has also created the Rebate Fund and has covenanted to remit to the United States any earnings on "gross proceeds" of the Bonds which are required to be so remitted by the Code. The District has also covenanted that it will take no action which would cause the Series 2010 Bonds to become private activity bonds. Insurance of Facilities and Fidelity Bonding of Personnel. The District covenants that it will implement and fund its Self-Insurance Plan. To the extent recommended by the Independent Insurance Consultant in the annual report of such consultant, the District has covenanted to keep all buildings, machinery and equipment constituting any part of the District's System insured as provided in the Indenture, and to cause each officer or other person having custody of any moneys administered under the provisions of the Indenture to be bonded at all times. The District has further covenanted to carry public liability, vehicular insurance and property damage insurance as recommended by the Independent Insurance Consultant. The District may make modifications to the insurance coverage hereinabove provided, including use of a captive insurance company in whole or in part for any such coverage. In making its decision whether to make such modifications, the District shall consider the availability of commercial insurance, the terms upon which such insurance is available, the cost of such available insurance and the effect of such terms and such costs upon the District's costs and charges for its services. No such modification shall be made unless the District has received (i) a written recommendation with respect to such modification from the District's Independent Insurance Consultant and (ii) an unqualified opinion of nationally recognized bond counsel to the effect that such modification will not adversely affect the exclusion from gross income of interest on the Bonds. Termination of Water Services to Delinquent Users. The District has covenanted that pursuant to KRS and any other applicable provisions of law, it will, to the maximum extent authorized by law, enforce and collect the schedule of rates, rentals and charges imposed upon users of the District's System, and will promptly cause water service to be discontinued to any premises where such District bill is not paid in full. 15

24 Statutory Mortgage Lien. Pursuant to the provisions of KRS , the District has recognized and asserted for the further protection of the holders of the Bonds authorized to be issued by the Indenture a statutory mortgage lien upon the District's System, which statutory mortgage lien shall take effect immediately upon the delivery of any Bonds authorized to be issued pursuant to the provisions of the Indenture. Waiver of Laws. The District has covenanted not to insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force which may affect the covenants and agreements contained in the Indenture or in any series resolution or Supplemental Indenture or in the Bonds, and all benefits or advantage of such law or laws has been expressly waived by the District. Personnel and Servicing of Pollution Abatement Program. The District has covenanted to at all times appoint, retain and employ competent personnel for the purpose of carrying out its System. Default and Remedies The Indenture declares each of the following events to be an "Event of Default": (1) default by the District in the payment of any Principal Installment or Redemption Price, if any, on any Bond when due; (2) default by the District in the payment of any installment of interest on the Bonds, when due;. (3) failure or refusal by the District to comply with the Act pursuant to which the District was created, or default in the performance or observance of any other of the covenants, agreements or conditions contained in the Indenture, any series resolution, any Supplemental Indenture or the Bonds, and such failure, refusal or default shall continue for a period of 45 days after written notice thereof by the holder of not less than 5% in principal amount of the outstanding Bonds. The Indenture provides that upon the happening and continuance of any event described in the foregoing clauses (1) and (2), the Trustee shall proceed, or upon the happening and continuance of an event described in clause (3) the Trustee may proceed, and upon written request of holders of 25% or more in principal amount of the outstanding Bonds, the Trustee shall proceed, in its own name, to protect and enforce its rights and the rights of the Bondholders by such of the following remedies as the Trustee, being advised by counsel, shall deem most effectual: (a) enforce by mandamus or other suit, action or proceedings at law or in equity all rights of the Bondholders, including the right to require the District to enforce, collect and receive sewer rates, rentals and charges adequate to carry out the covenants and agreements of the District as to production of income, and to require the District to carry out any other covenant or agreement with Bondholders and to perform its duties under KRS Chapter 220; (b) bring suit upon the Bonds; (c) require the District by action or suit to account as if it were the trustee of an express trust for the holders of the Bonds; (d) enjoin by action or suit any acts or things which may be unlawful or in violation of the rights of the holders of the Bonds; 16

25 (e) declare all Bonds due and payable, and if all default shall be made good (excepting acceleration provisions), then with the written consent of not less than 25% in principal amount of the holders of outstanding Bonds, to annul such declaration and its consequences; and (f) in the event that all Bonds are declared due and payable, to sell all Investment Obligations and all other assets of the District (to the extent not theretofore set aside for redemption of Bonds for which call has been made), and take over the District's System and operate same in the name of the District for the use and benefit of the Bondholders. The Indenture further provides that no holder of any Bond shall have any right to institute any action unless such holder shall have given to the Trustee written notice of the Event of Default or breach of duty, and unless the holders of not less than 25% in principal amount of the Bonds then outstanding shall have made written request of the Trustee and shall have afforded the Trustee a reasonable opportunity to proceed to institute action and unless also, there shall have been offered to the Trustee reasonable security and indemnity, and the Trustee shall have refused or neglected to comply with such request within a reasonable time. Nothing in the Indenture shall affect or impair the right of any Bondholder to enforce the payment of principal of and interest on his Bonds. No Individual Liability All covenants, stipulations, promises, agreements and obligations of the District in the Indenture shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the District and not of any member, officer, director or employee of the District in his individual capacity, and no recourse shall be had for the payment of the principal or Redemption Price of or interest on the Bonds or for any claim based thereon or on the Indenture against any member, officer, director or employee of the District or any natural person executing the Bonds. General TAX MATTERS In the opinion of Bond Counsel for the Series 2010 Bonds, interest on the Series 2010 Bonds is exempt from income taxation by the Commonwealth of Kentucky under the laws of the Commonwealth of Kentucky as presently enacted and construed. HOWEVER, INTEREST ON THE SERIES 2010 BONDS IS NOT EXCLUDIBLE FROM GROSS INCOME OF THE HOLDERS OF THE SERIES 2010 BONDS FOR FEDERAL INCOME TAX PURPOSES. OWNERS OF THE SERIES 2010 BONDS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE SERIES 2010 BONDS. Original Issue Premium "Acquisition Premium" is the excess of the cost of a bond over the stated redemption price of such bond at maturity or, for bonds that have one or more earlier call dates, the amount payable at the next earliest call date. The Series 2010 Bonds that bear an interest rate that is higher than the yield (as shown on the cover page hereof), are being initially offered and sold to the public at an Acquisition Premium (the "Premium Bonds"). For federal income tax purposes, the amount of Acquisition Premium on each bond the interest on which is excludable from gross income for federal income tax purposes ("tax-exempt bonds") must be amortized and will reduce the bondholder's adjusted basis in that bond. However, no amount of amortized Acquisition Premium on tax-exempt bonds may be deducted in determining bondholder's taxable income for federal income tax purposes. The amount of any Acquisition Premium paid on the Premium Bonds, or on any of the Series 2010 Bonds, that must be amortized during 17

26 any period will be based on the "constant yield" method, using the original bondholder's basis in such bonds and compounding semiannually. This amount is amortized ratably over that semiannual period on a daily basis. Holders of any Series 2010 Bonds, including any Premium Bonds, purchased at an Acquisition Premium should consult their own tax advisors as to the actual effect of such Acquisition Premium with respect to their own tax situation and as to the treatment of Acquisition Premium for state tax purposes. Backup Withholding General information reporting requirements will apply to payments of principal and interest made on a Bond and the proceeds of the sale of a Bond to non-corporate holders of the Bonds, and "backup withholding" at a rate of 28% will apply to such payments if the owner fails to provide an accurate taxpayer identification number in the manner required or fails to report all interest required to be shown on its federal income tax returns. A beneficial owner of a Bond that is a U.S. owner can obtain complete exemption from backup withholding by providing a properly completed IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Nonresident Owners Under the Code, interest and OID on any Bond whose beneficial owner is a nonresident alien, foreign corporation or other non-united States person (Nonresident) are generally not subject to United States income tax or withholding tax (including backup withholding) if the Nonresident provides the payor of interest on the Bonds with an appropriate statement as to its status as a Nonresident. This statement can be made on IRS Form W-8BEN or a successor form. If, however, the Nonresident conducts a trade or business in the United States and the interest or OID on the Bonds held by the Nonresident is effectively connected with such trade or business, that interest or OID will be subject to United States income tax but will generally not be subject to United States withholding tax (including backup withholding). Circular 230 THE FOREGOING DISCUSSION OF TAX MATTERS WAS NOT INTENDED OR WRITTEN BY BOND COUNSEL TO BE USED, AND IT CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON AN OWNER OF THE BONDS. THE FOREGOING DISCUSSION OF TAX MATTERS WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE BONDS. EACH PROSPECTIVE OWNER OF THE BONDS SHOULD SEEK ADVICE BASED ON THE PROSPECTIVE OWNER'S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. LEGAL MATTERS Certain legal matters incident to the authorization, sale and issuance of the Series 2010 Bonds are subject to the approval of Peck Shaffer & Williams LLP, Bond Counsel to the District. Certain legal matters will be passed upon for the District by its General Counsel, Amanda Waters, Esq. The approving opinion of Bond Counsel to the District will be printed on the Series 2010 Bonds substantially in the form attached to this Official Statement as APPENDIX E. The information contained in this Official Statement under the headings "Introductory Statement," "Purpose of Financing," "Description of the Series 2010 Bonds," "Security for the Series 2010 Bonds," "The Indenture," "Tax matters" and "Legal Matters" has been reviewed by Bond Counsel to determine that such information conforms in substance to the proceedings and laws relating to the issuance of the Series 2010 Bonds that are summarized in such information (see "Reference to Documents" hereinafter); but Bond Counsel has not undertaken to review the accuracy or completeness of 18

27 statements and data otherwise contained in this Official Statement, including the Appendices, and expresses no opinion thereon and assumes no responsibility in connection therewith. CONTINUING DISCLOSURE UNDERTAKING The District will agree in a Continuing Disclosure Agreement with the Trustee dated as of the date of issuance of the Series 2010 Bonds (the "Continuing Disclosure Agreement"), to provide or to cause to be provided, in accordance with the requirements of Rule 15c2-12 (the "Rule") promulgated by the Securities and Exchange Commission, the following: (i) To the Municipal Securities Rulemaking Board ("MSRB") audited financial statements, generally consistent with the audited financial statements contained in APPENDIX D. Such information is expected to be available on or before December 31 of each year (commencing December 31, 2009) for the fiscal year ending on the preceding June 30 and will be made available, in addition to the MSRB, to the Trustee and to each holder of Series 2010 Bonds who makes written request for such information. (ii) In a timely manner, to the MSRB, notice of the occurrence of any of the following events with respect to the Series 2010 Bonds: (a) principal and interest payment delinquencies, (b) non-payment related defaults, (c) unscheduled draws on debt service reserves reflecting financial difficulties, (d) unscheduled draws on credit enhancements reflecting financial difficulties, (e) substitution of credit or liquidity providers, or their failure to perform, (f) adverse tax opinions or events affecting the tax-exempt status of the Series 2010 Bonds, (g) modifications to rights of holders of Series 2010 Bonds, (h) Series 2010 Bond calls, (i) defeasances, (j) release, substitution or sale of property securing repayment of the Series 2010 Bonds and (k) rating changes. (iii) In a timely manner, to the MSRB, notice of a failure by the District to provide the required financial information on or before the date specified in the Continuing Disclosure Agreement. The District may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if, in the judgment of the District, any such other event is material with respect to the Series 2010 Bonds; but the District does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above. The District reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information, to the extent necessary or appropriate in the judgment of the District; provided that the District agrees that any such modification will be done in a manner consistent with the Rule. The District reserves the right to terminate its obligation to provide annual financial information and notices of material events as set forth above, if and when the District no longer remains an obligated person with respect to the Series 2010 Bonds within the meaning of the Rule. The District acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit of the holders (including beneficial owners) of the Series 2010 Bonds and shall be enforceable by the Trustee on behalf of such holders and by any holder of Series 2010 Bonds; provided that the Trustee's and a Bondholder's right to enforce the provisions of this undertaking shall be limited to a right to obtain specific performance of the District's obligations pursuant to the provisions of this undertaking, and any failure by the District to comply with the provisions of this undertaking shall not be an event of default with respect to the Series 2010 Bonds under the Indenture. Purchase of the Series 2010 Bonds shall be conditioned upon the receipt by the initial purchaser of the Series 2010 Bonds, at or prior to the delivery of the Series 2010 Bonds, of evidence that the District 19

28 has made the continuing disclosure undertaking described above, in the form of the Continuing Disclosure Agreement, for the benefit of the holders of the Series 2010 Bonds. The District has entered into disclosure agreements under the Rule in connection with the issuance of Bonds under the Indenture since the issuance of such Bonds began in In addition to 1998, the District issued Bonds in 2001, 2005 and in 2007 and filed the official statements for those Bonds with each nationally recognized municipal securities information repository ("NRMSIR"), thereby filing the information required by the Rule. In all other years from 1998 through October 5, 2006, the District failed to satisfy its undertaking under the Rule. Those failures were corrected by filing, on October 5, 2006, the District's audited financial statements with each NRMSIR for each year since Other than the failure to file annual information as described in this paragraph, no material events have occurred that required reporting under the Rule. The District has implemented procedures to assure compliance with the Rule in the future and has remained in compliance with the Rule. RATINGS The ratings of Moody's and S&P reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody's Investors Service, Inc., 7 World Trade Center at 250 Greenwich Street, Public Finance Group - 23rd Floor, New York, New York 10007; and Standard & Poor's Ratings Services, 25 Broadway, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2010 Bonds. The rating assigned to the Series 2010 Bonds by S&P was issued on S&P's global rating scale. scale. The rating assigned to the Series 2010 Bonds by Moody's was issued on Moody's global rating LITIGATION To the knowledge of the District, there is no controversy or litigation of any nature now pending or threatened to restrain or enjoin the issuance, sale, execution or delivery of the Series 2010 Bonds, or in any way contesting or affecting the validity of the Series 2010 Bonds, any proceedings of the District taken with respect to the issuance or sale thereof, the pledge or application of any moneys or security provided for the payment of the Series 2010 Bonds. The District routinely faces legal challenges in connection with the improvement of its system. The District has historically prevailed in such challenges or has reached settlements with other parties that have enabled it to continue with its modernization and improvements program. An adverse determination in such legal proceedings could delay the District's programs and/or increase costs. The District completed negotiations with the Kentucky Energy and Environment Cabinet ("EEC") and U.S. EPA to resolve claims that combined sewer overflows ("CSOs") and sanitary sewer system overflows ("SSOs") that exist in the District's collection system are not being properly addressed under the Clean Water Act. In October 2005, the District signed a negotiated Consent Decree with EPPC and U.S. EPA to fully resolve the alleged violations. The Consent Decree was entered by a federal judge in April It requires investigations and remedial measures for the CSOs and SSOs over approximately a 20-year period. Total costs to upgrade the wastewater infrastructure and address all 20

29 requirements of the Consent Decree is expected to cost in excess of $1.1 billion over the next twenty years, which includes the cost of planned capital projects. There are legal proceedings currently pending that relate to the District's proposed construction of a new regional wastewater treatment plant and related system upgrades. The plans for the plant and system improvements were included in the District's Regional Facilities Plan that was approved by the EEC. Alliance for Kentucky's Future, Inc., et al.("alliance"), challenged the portion of the Plan that authorizes the construction of the Western Regional Wastewater Treatment Plant and an administrative hearing officer of the EPPC issued a ruling in favor of the District with certain minor conditions. The hearing officer's ruling was affirmed by the Secretary of EPPC, but that decision was appealed to the Franklin Circuit Court. On May 8, 2007, the Franklin Circuit Court ruled in favor of the District and that decision was upheld by the Kentucky Court of Appeals on October 10, Alliance filed a motion for discretionary review with the Kentucky Supreme Court on March 23, The parties are currently awaiting the court's decision as to whether the case will be heard. On December 1, 2008, Alliance filed a Petition for Hearing to challenge the Kentucky Division of Water's reaffirmation of the State Planning and Environmental Assessment Report ("SPEAR") that was conducted as a five-year review of the original SPEAR for the Western Regional Wastewater System. A SPEAR reaffirmation was conducted because the construction of the Western Regional Water Reclamation Facility ("WRWRF") has been conditionally approved for a State Revolving Fund ("SRF") loan. Through their Petition, Alliance is raising the same types of claims that were previously raised in the original challenge to the Regional Facilities Plan for the Western Regional Wastewater System. The Brennans, property owners in the vicinity of the new plant, also intervened in the case. On April 20, 2009, the Hearing Officer granted the District's motion to dismiss the petition. This matter is now submitted to the Secretary of the Kentucky Energy and Environment Cabinet. The parties are awaiting the Final Order from the Cabinet Secretary. On July 8, 2009, the District was served with a summons and complaint filed in Franklin Circuit Court challenging the Kentucky Infrastructure Authority's June 4, 2009, conditional commitment of approval of the District's application for state revolving loan funds in the amount of $70,000,000 for the Western Regional Water Reclamation Facility and environmental reviews related to the Kentucky Division of Water's approval of plans for that facility. The plaintiffs are the Brennans, who are also intervening petitioners in the above-mentioned SPEAR litigation. The litigation involves similar claims regarding the sufficiency of environmental reviews as were raised in two other litigation challenges to the planning process for the Western Regional Water Reclamation Facility, which were finally resolved in the District's favor. There has been no activity in the case since the District filed its answer. On August 26, 2009, two private individuals, Tim Guilfoile and Betsy Bennett (the "Petitioners"), filed an administrative Petition for Hearing with the EEC Office of Administrative Hearings challenging the Kentucky Pollutant Discharge Elimination System wastewater discharge permit issued to the District for the operation of the Western Regional Water Reclamation Facility. The District has received summary judgment on all but two issues in the case. On the remaining issues, Petitioners have not come forward with expert testimony and this District believes Petitioners cannot carry their burden of proof without such testimony. The matter is currently scheduled for a formal evidentiary hearing on April 23, A recommended decision in the case is due on or before May 10, Thereafter, the Cabinet Secretary will consider the recommended decision and issue a Final Order regarding the claims. On March 5, 2010, two individuals challenged a water quality certification for a project along Banklick Creek that involves stream stabilization activities to protect a major sewer line. The District has moved to dismiss the claims. To the extent any defects exist in the water quality certification, such defects could be addressed by the Kentucky Division on Water. The claims seek to stop the project from taking place because of their concerns that it would impact their property. Assuming the District's pending motion to dismiss is not granted, the Hearing Officer will set a discovery and hearing date. 21

30 On August 12, 2009, the City of Cold Spring, Kentucky (the "City") filed a complaint against the District seeking to invalidate an Interlocal Agreement between the City and the District regarding stormwater services and seeking the refund of storm fees paid by the City's residents. The City also claims the District breached the Interlocal Agreement. The District disagrees with the City's claims. The Court ruled on summary judgment motions that the only issue to be heard in the case is the breach of contract claims. Plaintiffs seek to recover their costs for performing stormwater management duties that they contend the District was required to assume. If the District does not prevail on summary judgment on its interpretation of the agreement, a trial will be held this summer on the issues of breach and, if necessary, damages. The agreement provides for all stormwater work to be funded by a stormwater surcharge, which would need to be increased in the event the Court finds the District must handle additional obligations under the agreement. UNDERWRITING The Bonds are being purchased for reoffering by Robert W. Baird & Co., Inc. (the "Underwriter"). The Underwriter has agreed to purchase the Bonds at an aggregate purchase price of $75,000,000 (reflecting the par amount of the Bonds, plus premium of $608,775.55, less underwriter's discount of $608, The initial public offering prices, which produce the yields set forth on the cover page of this Official Statement, may be changed by the Underwriter and the Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and others at prices lower than the offering prices which produce the yields set forth on the cover page. FINANCIAL ADVISOR Ross, Sinclaire & Associates, LLC, Lexington, Kentucky, which intends to submit a bid for the Series 2010 Bonds at public sale with the consent of the District, has acted as Financial Advisor to the District in connection with the issuance of the Series 2010 Bonds and will receive a fee from Series 2010 Bond proceeds, for its services as Financial Advisor. REFERENCE TO DOCUMENTS All foregoing summaries and descriptions of provisions set forth in the Indenture and all references to other documents and materials not purported to be quoted in full are brief outlines of certain provisions thereof; and reference to such documents, copies of which are obtainable from the District upon written request, is hereby made. CONCLUSION Sanitation District No. 1, acting by and through its Board of Directors has approved this Official Statement and caused this Official Statement to be executed and delivered by its President. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or holders of any of the Series 2010 Bonds herein described. This Official Statement, including the Appendices, has been duly approved, executed and delivered by the District. SANITATION DISTRICT NO. 1 Dated: April 29, 2010 By /s/ Bob Elliston President 22

31 APPENDIX A THE DISTRICT

32 THE DISTRICT History and Overview Sanitation District No. 1 (the District) was established by the Director of the Division of Sanitary Engineering of the Kentucky Department of Health in 1946 in accordance with its enabling legislation, Kentucky Revised Statutes (KRS) 220 (the Act). The District's original service area contained 17 municipalities and covered 25 square miles. Until 1995, each municipality was responsible for the operation and maintenance of its own wastewater collection system and the District was responsible for the transportation and treatment of the wastewater including the operation and maintenance of 124 miles of main interceptor lines. As a result of increasing environmental regulations, the Act was revised in 1995, allowing 28 cities in Northern Kentucky to turnover ownership of their sanitary sewer systems to the District. The Act gives the District the power to prevent and correct the pollution of streams, regulate the flow of streams for sanitary purposes, clean and improve stream channels for sanitary purposes and provide for the collection and disposal of sewage and other liquid wastes produced within the District's service area. The District has power under the Act to construct, operate, repair and maintain sewers, trunk sewers, laterals, intercepting sewers, siphons, pump stations, treatment and disposal works and other appropriate facilities. Originally, the District's construction needs included a sewage treatment plant and a collection system to convey sewage from the various municipalities to the treatment plant. To provide financing for the original construction program, the District issued revenue bonds in The District completed construction of its first wastewater treatment plant in 1954 in the city of Bromley, Kentucky. Serving the river cities in Campbell and Kenton counties, the Bromley plant provided primary sewage treatment, removing about 45 percent of solids in the wastewater before discharging into the Ohio River. Once the first treatment plant and collection system were in place, many communities expressed interest in becoming a part of the District's service area in order to obtain proper sewage treatment services. The District steadily annexed new territories. During this period, the financing of facilities was generally carried out by the District through application of moneys internally generated from operations. In 1969, the District began planning for future wastewater collection and treatment needs. The goal was to ensure that the region's growing population had access to efficient wastewater services and that these services were in full compliance with new water quality standards set forth in the Federal Water Pollution Control Act, which subsequently became the Clean Water Act. Water quality standards and sewage treatment requirements established by the Ohio River Valley Water Sanitation Commission (ORSANCO), as adopted in 1970, required secondary treatment of sewage for all waters ultimately flowing to the Ohio River. The Bromley treatment plant provided only primary treatment of wastewater. The District determined that a new treatment facility was needed in order to meet this requirement. Ten years later, the $68 million state-of-the-art Dry Creek Wastewater Treatment Plant began operation, eliminating the need for the Bromley Plant. Seven interceptor sewers, two force mains, two new pump stations and a 60-inch diffuser system to disperse the treated wastewater into the Ohio River were constructed to help serve the new plant. The plant was designed as a secondary or biological treatment facility, reducing the amount of pollution entering the Ohio River. It originally had a design capacity of 30 million gallons of wastewater per day (mgd), but in 1993, the plant was upgraded to a design capacity of 46.5 mgd. On December 31, 1995, Boone County officially merged with the District. Subsequent to that date the cities of Independence and Alexandria transferred ownership of their sewer lines. As a result, the District became responsible for the collection and treatment of all of Northern Kentucky's wastewater, A-1

33 serving 33 communities in Boone, Campbell and Kenton counties, with the exception of the cities of Florence and Walton. However, the District is under contract to accept and treat the wastewater from the city of Florence. To meet the challenges of operating a regional utility, the District has made significant investments into its operations. The District operates a networked system of over 260 computers. Many departments utilize state-of-the-art technology including a Graphics Imaging System (GIS) to maintain sewer map layers and a GBA computerized maintenance management software which is integrated with the GIS system to track inventory and inspection of the sanitary sewers. The District also utilizes Supervisory Control and Data Acquisition (SCADA) telemetry to monitor pump station operation throughout the region. The District has also purchased state-of-the-art equipment to help field crews effectively handle their workloads. The District owns a total of eight combination jet and vacuum trucks to aid in the cleaning of sewer lines, seven tele-inspection trucks which produce live video from cameras that are placed into sewer lines, one off-road T.V. system and two stedt trucks to assist in the cleaning of the 3,800 catch basins within the combined portions of the District's sewer system. In addition, the District utilizes an 800-megahertz communications tower to enhance communications and improve safety for District employees. The District is a member of the National Association for Clean Water Agencies (NACWA). The Dry Creek Wastewater Treatment Plant has received NACWA Silver Peak Performance Awards for having fewer than five National Pollutant Discharge Elimination System (NPDES) violations for the years 1994, 1995, 1996, 2001, 2002, 2003, 2004, 2005, 2006 and The plant has received NACWA Gold Peak Performance Awards for having no violations for the years 1997, 1998 and Also in 2008, the Kentucky-Tennessee Water Environment Association awarded Dry Creek with the Operations Excellence Award. In 1995, both the Rivershore Farms and Walton No. 1 Wastewater Treatment Plants received the Gold Peak Performance Award and the Alexandria and Southern Campbell County Industrial Park Wastewater Treatment Plants received the Silver Peak Performance Award. Additionally, in 2008, the Eastern Regional Water Reclamation Facility received the Silver Peak Performance Award. Regional Storm Water Utility The Northern Kentucky Regional Storm Water Management Program was designed to comply with U.S. EPA's Phase II Storm Water Regulations and prepare the District to take over ownership and maintenance of the public storm sewer systems in 30 local cities and unincorporated portions of three counties. The cities and counties required to comply with these new regulations determined that the most cost-effective and efficient approach for addressing local storm water management issues, including compliance with federal Phase II storm water requirements, was to develop and implement a regional approach under the guidance of the District. Although designated as a Phase II community, the city of Florence has opted to develop and implement its own storm water management program and will not be a part of the regional program managed by the District. In 2003, the District entered into Interlocal Agreements with the 33 local governments in Northern Kentucky giving the District the responsibility to undertake permitting requirements and other related services regarding the Storm Water Phase II Management Program, while the ownership and maintenance responsibilities for the public storm water system remained with the local government. These Interlocal Agreements contemplated that at some point the District would assume the ownership and maintenance of storm water drainage facilities owned by the local government. A-2

34 Beginning in 2009, storm water infrastructure transfer agreements were developed and approved by a majority of the cities and counties in Northern Kentucky, accomplishing the shift of ownership and maintenance responsibilities relating to the public storm water drainage system. Service Area The District's sanitary sewer system and storm water service area now covers approximately 229 square miles and serves a residential population of 347,188, producing approximately 99,000 customer accounts. The District owns, operates and maintains approximately 1,600 linear miles of combined and separated sewers, two regional wastewater treatment plants, four small wastewater treatment plants, 129 pump stations,15 flood pump stations, 253 miles of storm sewers and 17,800 storm structures. The District is the second largest public sewer utility in Kentucky. As the following table demonstrates, both sewer line mileage and related responsibilities have increased substantially since Approximate Service Population 144, * Miles of Sewer Line 69 1,600 Employees Average Water Treated (mgd) Pump Stations Flood Pump Stations 0 15 Population data for 2008 from the Kentucky State Data Center Management and Organization Name and Office Expiration of Term Biography Robert N. Elliston President July 12, 2012 Mr. Elliston has served on the Board since June 2000 representing Boone County. He served as President from August 2003 to July 2005 and began a new term as President in July He has also served Vice President and Treasurer of the Board. Frances Reitman Vice President July 14, 2012 Mr. Elliston is currently the president of Turfway Park. Previously, he served as vice president for economic and community development for the Kentucky Chamber of Commerce before becoming a vice president for U.S. Bank. Mr. Elliston has served on the boards of U.S. Bank, Port Authority, the Boone County Conservancy and the Northern Kentucky Chamber of Commerce. Ms. Reitman has served on the Board since January 2009 and was appointed to the position of Vice President in July She, along with her husband Randy, owns and operates Reitman Auto Parts & Sales in Melbourne, KY. She currently serves on the Campbell County Board of Adjustments, the Campbell County Planning & Zoning Commission and the Campbell County Leadership Action Group at Northern Kentucky University. She is an active A-3

35 member of the Automotive Recyclers Association, serving on their Educational Foundation Board as secretary and is also active on the Salvage Solutions Committee and the Collision Industry Electronic Commerce Association (CIECA) Board for the recycling industry. John A. Hill Secretary December 31, 2010 Mr. Hill has served on the Board since July 2007 representing Boone County and was appointed to the position of Secretary in July He is a registered professional engineer in Kentucky and currently holds a leadership position in the Environmental, Health and Safety Group at Duke Energy. Prior to joining Duke Energy, he worked as a consulting engineer and a project manager for a water utility. Mr. Hill has served on several local and regional boards, including the Telecommunications Board of Northern Kentucky and the Boone County Water District and is a member of the Leadership Northern Kentucky Class of Robert Rothert Treasurer David K. Noran Director July 15, 2012 December 12, 2010 Mr. Rothert has served on the Board since February 2007 representing Kenton County and was appointed to the position of Treasurer in July He is vice president and part owner of Abercrombie and Associates, Inc., a civil engineering and land surveying firm. Mr. Rothert is a member of the American Society of Civil Engineers and the American Planning Association. He serves as a director on the board of the Ohio Valley Development Council and is a member of the Devou Park Advisory Board. Mr. Noran has served on the Board since January 2003 representing Campbell County. He was appointed President in June 2005 and served in that capacity through June He is the president and principal engineer of Cardinal Engineering Corporation. Mr. Noran is a member of the Kentucky and National Societies of Professional Engineers. He is a registered engineer in Kentucky, Ohio and Indiana and professional land surveyor in Kentucky. He has an engineering degree and M.S. in Engineering from the University of Cincinnati. He is a member of the Campbell County Board of Health, the director of the Citizens Bank of Northern Kentucky and an avid antique car collector. Jan Steinman Director July 15, 2012 Ms. Steinman has served on the Board since July 2004 representing Kenton County. She served two terms as President from July 2007 to June She is a certified public accountant and is a past president of Provident Travel Service. Ms. Steinman is deeply involved in community activities with organizations A-4

36 Justin "Jay" Weber, Jr., Director Bob Schroder Director December 15, 2010 December 15, 2013 such as the Children's Home of Northern Kentucky, Summit Country Day School, the Children's Theatre Board and the Northern Kentucky Symphony. Mr. Weber has served on the Board since February 2007 representing Kenton County, where he has been a resident since He is currently the executive vice president and partial owner of Batesville Products, Inc., a local manufacturer. He has served on various boards and committees for a number of different organizations. Mr. Schroder was appointed to the District Board in January 2010 representing Kenton County. He is a graduate of the University of Kentucky where he earned a Bachelor of Science, a Masters of Business Administration and a Law degree. He has taught at both Eastern Kentucky University and Northern Kentucky University and was a practicing attorney from 1973 until He has been the vice president of Arlinghaus Builders since 1991 and is also the current vice president of the Northern Kentucky Home Builders Association. He is a lifelong resident of Northern Kentucky and now resides in southern Kenton County. Management, Organization and Staff The District is made up of six main areas of operation: Plant Operations & Maintenance, Field Technical Services, Collection Systems, Human Resources and Administration, Engineering and Water Resource Management. As of April 13, 2010, the District employs 278 full and part-time personnel. The District's principal management personnel include: Name and Title Jeffery A. Eger Executive Director Summary of Experience Mr. Eger has served as Executive Director of Sanitation District No. 1 since March The District serves over 300,000 customers in Boone, Campbell and Kenton counties in Northern Kentucky. As Executive Director, he oversees more than 270 employees, the operation and maintenance of 1,600 miles of sewer line, 129 pump stations, 15 flood pump stations and 6 treatment plants, with the largest being the Dry Creek Wastewater Treatment Plant, which has an average daily flow of 36 million gallons per day. During his tenure, he has supervised the regionalization of Northern Kentucky's sanitary sewer system; created a regional storm water utility to comply with Phase II regulations in conjunction with 33 local governments in Northern Kentucky; initiated the design and construction of two new regional water reclamation facilities; and negotiated a watershed-based Consent Decree with state and federal officials that outlines a strategic 20- year plan for addressing sewer overflows in Northern Kentucky. A-5

37 Mr. Eger was formerly executive vice president and chief operating officer of the Kentucky Chamber of Commerce, where he served as interim president on two occasions and is a former small business owner and regional sales representative. Active in community affairs, Mr. Eger serves on the Northern Kentucky Chamber of Commerce's Board of Directors, and the Northern Kentucky Leadership Foundation. In 2003, he was elected to the Gateway Community and Technical College Foundation Board and serves on their nominating committee. In 2005, Governor Ernie Fletcher appointed Mr. Eger to represent the state of Kentucky as a commissioner on the Ohio River Valley Water Sanitation Commission (ORSANCO) and was recently reappointed to a second term by Governor Steven Beshear. Mr. Eger currently serves as the Chair of the Commission. In 1997, Mr. Eger was named the "Outstanding Public Works Director" by the Northern Kentucky Area Development District (NKADD). He is a graduate of Leadership Northern Kentucky and in 2004 was honored as one of the "Leaders of Distinction" by the Leadership Northern Kentucky Alumni Association for his civic service and accomplishments in his profession. In 2004, Mr. Eger was awarded the "Intergovernmental Unity of Effort Award" by the NKADD for his efforts in uniting local government and public service officials on many issues facing the Northern Kentucky community. A native Northern Kentuckian, Mr. Eger graduated from Northern Kentucky University with a B.A. in Communications. He resides in Taylor Mill with his wife, Ruth. Chris Novak Deputy Executive Director Operations Mr. Novak was appointed Deputy Executive Director of Operations in July 2005 after having served as Program Manager for the Capital Improvements Program since joining the District in June This department oversees all of the infrastructure improvements of the District, which includes sewer lines, treatment plants and pump stations. The department staff includes engineers, technicians and inspectors. Prior to his appointment with the District, Mr. Novak was employed by the City of Newport, Kentucky for ten years serving as the director of community services and zoning administrator. During his tenure at the City, Mr. Novak was highly involved in the development of the Newport Aquarium and the Newport on the Levee project. He served as an alternate on the Executive Committee and the Board of Trustees for OKI and was on several committees for the Southbank Partners. After receiving his education from the University of Cincinnati in 1980, Mr. Novak operated his own construction and development firm for ten years, focused on residential development and light commercial construction. He is a member of the Water Environment Federation, a past member of Building Officials Code Administrators (BOCA) and Code Administrators Association of Kentucky (CAAK) and enjoys the distinction of being a Kentucky Colonel. Thomas A. Wiechman, Mr. Wiechman was appointed as Deputy Executive Director in July A-6

38 SPHR Deputy Executive Director Administration Prior to this appointment, he served as the District's Director of Human Resources. He is responsible for managing all aspects of the District's Human Resources operations including staffing, employee benefits, payroll, regulatory compliance and employee development. He also oversees the District's Account Services, Safety, Information Technology, and Purchasing and Facilities Management Departments. From 1976 until he joined the District in 1994 he served in several capacities at PNC Bank including bookkeeping manager, customer service group manager and manager of human resources for the Northern Kentucky division of the Bank. Mr. Wiechman earned a Bachelor of Science degree in Economics in 1976 from Northern Kentucky University. He received certification in 1999 as a Public Human Resource Administrator from the Kentucky Public Human Resources Association and in 2009 was certified as a Senior Professional in Human Resources through SHRM. Mr. Wiechman is a current board member and past president of the Kentucky Public Human Resources Association, is a charter member of the Northern Kentucky chapter of the Society of Human Resources Managers and is a member of the American Payroll Association and the Water Environment Federation. He is past president of the American Institute of Banking, Cincinnati chapter; past president and life member of the Covington-Kenton County Junior Chamber of Commerce and current president of the Steinford Toy Foundation. Mark W. Wurschmidt, BCEE Deputy Executive Director Engineering Mr. Wurschmidt was appointed as Deputy Executive Director in July Prior to this appointment, he served as the Director of Engineering since joining the organization in The engineering staff consists of engineers, technicians and inspectors. All sewer line and treatment plant projects are completed under the supervision and coordination of the Engineering Department. Mr. Wurschmidt also oversees the Treatment Plant Operations, Field Technical Services, Water Resources and Plan Review Groups. From 1980 until his appointment, he was employed by Malcolm Pirnie, Inc., Consulting Engineers, Cincinnati, Ohio. In 1989, he assumed responsibility for Malcolm Pirnie's Cincinnati branch office. From 1977 to 1980, Mr. Wurschmidt was employed by Franklin Consultants, Inc., Consulting Engineers, Columbus, Ohio. He received a Bachelor of Science degree in Civil Engineering from The Ohio State University in He is a registered professional engineer in Kentucky and Ohio and is a Board Certified Environmental Engineer under the American Academy of Environmental Engineers. He is also a member of the Water Environment Federation, the American Water Works Association and is a Director on the Board for the Northern Kentucky Society of Professional Engineers. A-7

39 Ron Schmitt, Jr. Director of Finance and Account Services Mr. Schmitt joined the District in 2000 as Manager of Account Services and was promoted to Director of Finance and Account Services in He is responsible for overseeing the Customer Billing, Customer Service Purchasing and Accounting Departments. Prior to joining the District, Mr. Schmitt spent nearly ten years in management in the hospitality industry working at the Drawbridge Inn and Marriott RiverCenter. Mr. Schmitt is a current member of the Government Finance Officers Association (GFOA). Mr. Schmitt received his Bachelor of Science degree in Accounting from Northern Kentucky University where he was an honor student. Mr. Schmitt enjoys being active in his children's activities by having coached knothole baseball and assisting in coaching volleyball Debbie Vinson Accounting Manager Ms. Vinson joined the District in August of 2009 as an Accounting Manager. She is responsible for overseeing the operations of the Accounting Department and assuring proper accounting controls and procedures are in accordance with generally accepted accounting principles, as well as compliant with regulatory accounting requirements. Prior to joining the District, Ms. Vinson was employed by the City of Newport, Kentucky for 15 ½ years. She began her career with the City in 1994 as an accountant and was promoted over the years to Treasurer, Financial Officer and last held position as Chief Financial Officer. Ms. Vinson received her Bachelor of Science degree in Management and Finance in 1993 from Northern Kentucky University. She is currently a member of the Government Finance Officers Association (GFOA). She resides in Fort Thomas, Kentucky with her husband and three children. Ms. Vinson enjoys spending her free time being active in her children's activities and school functions. Mike Apgar Senior Advisor Director of Governmental Affairs Mr. Apgar joined the District in June 2001 as the Director of Plant Operations. He held that position through September He now serves as the Director of Governmental Affairs. Mr. Apgar is responsible for the management of the District's involvement with community leaders on initiatives of common interest at the local, state and national levels. From 1974 until his appointment, Mr. Apgar was employed by Cincinnati Bell Telephone. He was involved with their select and emerging technologies in the areas of team building, project management and leadership development. Mr. Apgar received an Associates of Applied Science degree from Cincinnati Technical College in 1974 and a Bachelor of Arts degree from Xavier University in He is a member of the Water Environment Federation, the National Association of Clean Water Agencies (NACWA) and serves as chairman of the Ohio River Valley Water Sanitation Commission (ORSANCO) Publicly Owned Treatment Works Advisory Committee and co-chairman of the Kentucky/Tennessee WEA A-8

40 Governmental Affairs Committee. Mr. Apgar is also involved in his community serving as a member of Florence City Council and as a Commissioner on the Boone Florence Water Commission. He is a graduate of Leadership Northern Kentucky "Class of 2006". In addition he is an active member of the Northern Kentucky Chamber of Commerce serving on the Transportation/Infrastructure and Business Advocacy committees. Peggy Casey Senior Manager Public Information Ms. Casey is the Senior Manager of Public Relations for the District and is responsible for overseeing the District's public information and outreach efforts. These responsibilities include developing and implementing the District's public relations strategies; production of all written publications; coordinating public hearings, workshops and focus groups; and managing the District's website. Ms. Casey began her career with the District in 1996 as Special Projects Coordinator where her responsibilities included developing in-house training programs and creating audiovisuals for various public presentations. She received a Bachelor of Arts degree in Speech Communication from Northern Kentucky University in She is a graduate of the Leadership Northern Kentucky class of 2001 and currently serves as vice-chair of the program. She also serves on the Leadership Northern Kentucky Alumni Association steering committee. John Clark Director of Treatment and Pump Operations Mr. Clark joined the District in May of 1996 and was appointed the Director of Operations in 2009, overseeing the Field Tech Operations and Maintenance and Dry Creek Operations and Maintenance departments. Prior to his appointment he served as lab technician, lab supervisor, environmental manager and plant manager for the District. Mr. Clark is an avid bodybuilder and was named the Kentucky State Bodybuilding Champion in He has also placed in the top five in several professional-qualifying national bodybuilding competitions held in Las Vegas, NV, Charlotte, NC, Birmingham, AL and Columbus, OH. Mr. Clark received his Bachelor of Science degree in Chemistry from Northern Kentucky University in He and his wife Billie reside in Edgewood, Kentucky with their daughter, Tori. James P. Gibson, Jr. Director of Water Resources Mr. Gibson joined the District in May of 2000 and was appointed the Director of Water Resources in The department coordinates and implements Northern Kentucky's regional storm water management plan, as well as a regional water quality and biological monitoring network. The team consists of a multidisciplinary staff of biologists, communicators, educators and scientists. Prior to joining the District, Mr. Gibson was employed for six years with the Ohio River Valley Water Sanitation Commission (ORSANCO). Located in Cincinnati, Ohio, ORSANCO is an interstate regulatory agency representing eight states and the federal government concerning water pollution control, primarily for the Ohio River. A-9

41 Mr. Gibson earned his Bachelor of Science degree in Natural Resources and Environmental Science in 1993 from Purdue University in West Lafayette, Indiana. In 2003, he was recognized as the "Young Scientist of the Year" by Engineers and Scientists of Cincinnati (ESC). Micheal Kendall Senior Advisor to Engineering Mr. Kendall has been employed by the District since Prior to his employment, he served in the Army Security Agency from 1970 to He began his District career as a utility worker at the Bromley Wastewater Treatment Plant and was promoted to Chief Operator of the plant in Since then, he has held many positions with the District ranging from Superintendent of Operations to his current position of Senior Advisor to Engineering. He is currently responsible for overseeing treatment plant operation and maintenance, both large and small; field pump station operation and maintenance, including all flood pumping stations; flow monitoring, including assessment of the condition of our collection system's infrastructure relating to wet weather issues; and combined sewer overflow inspections. In 1980, he was appointed by Governor John Y. Brown to the Kentucky State Board of Wastewater Certification, serving one year. He is a member of the Water Environment Federation and he is the 2002 recipient of the "William D. Hatfield Award," given to him by the Kentucky/Tennessee Water Environment Association. John L. Penick Senior Advisor to Operations Mr. Penick was appointed as Director of Collection Systems in October 1997 and is responsible for overseeing the District's Collection Systems Department comprised of the construction and customer service teams. He coordinates the use of nearly 80 pieces of major equipment and supervises sewer maintenance of over 1,600 miles of sewer line in Northern Kentucky. He began his career with Sanitation District No. 1 in 1979 as a plant operator and in 1985 was promoted to shift foreman in the Operations Department. In 1987 he was transferred to the Field Department as foreman. He has held a Kentucky Class IV Wastewater Plant Operators License for 20 years and has also functioned as a qualified Confined Space Entry Trainer for 10 years. In 1998, he received the "Golden Manhole Award" given by the Kentucky/Tennessee Water Environment Association. Amanda Waters General Counsel Ms. Waters was appointed as Legal Counsel for the District in November She is responsible for coordinating and managing the District's legal matters, providing staff with legal support and advice, interpreting and enforcing the District's Rules & Regulations, assuring compliance with state and federal law and working closely and cooperatively with outside counsel. Prior to her appointment, Ms. Waters served as deputy director for the Office of Legal Services of the Kentucky Environmental and Public Protection Cabinet and as policy advisor to the Cabinet Secretary. She worked as a staff attorney for the West Virginia Department of A-10

42 Environmental Protection prior to her employment with Kentucky state government. Ms. Waters received her law degree and Environmental Law Certificate in May 2000 from Pace Law School in White Plains, New York. She is licensed to practice law in Kentucky, West Virginia, New York and Connecticut. She received a B.S. in Biology from Eastern Kentucky University in THE DISTRICT SEWER SYSTEM Introduction The District maintains two major water reclamation facilities, 129 pump stations, 1,600 miles of sewer line and other facilities, as described below. The District has historically financed its major sanitary sewer facilities by applying the proceeds of District bonds and federal grants. Major Wastewater Treatment Facilities Dry Creek Wastewater Treatment Plant and Eastern Regional Water Reclamation Facility The District owns and maintains the award-winning Dry Creek Wastewater Treatment Plant (Dry Creek). Dry Creek is a regional wastewater treatment plant that began operation in It treats an average of 36 million gallons per day (mgd) and then discharges into the Ohio River under its KPDES permit. It utilizes both primary and secondary treatment processes and an activated sludge process to ensure adequate protection of our water resources Dry Creek receives flows from both the combined and separate sewer systems. The plant's permitted design flow is 46.5 mgd, but during wet weather events the flows from the combined system exceed this capacity. In accordance with Dry Creek KPDES permit KY , the plant blends flows exceeding 55.5 mgd. When blending, all flows receive primary treatment at the plant, but to protect the plant's biological secondary treatment process, flows beyond 55.5 mgd bypass secondary treatment and are recombined prior to the disinfection process. All blended flows are disinfected with liquid chlorine and dechlorinated prior to discharge. The Eastern Regional Water Reclamation Facility (Eastern) began accepting flow on September 24, 2007 after nearly three years of construction. It was constructed to eliminate recurring SSOs due to deteriorated infrastructure and replace and receive the combined flows of the existing Alexandria, Southern Campbell County Industrial Park and Pond Creek treatment plants. Beyond eliminating these package plants, it will also accommodate future growth in Campbell County. The District's fiscal year is from July 1 to June 30. The following table provides data on the number of customers served by the District for each fiscal year from 1996 through The table also shows the average daily wastewater flow (in mgd) treated at the Dry Creek Wastewater Treatment Plant for each fiscal year. Since fiscal year 1996, the number of customers has increased approximately 25.8%. A-11

43 Fiscal Year Number of Customer Accounts at Fiscal Year End* Average Daily Wastewater Flow (mgd) for Fiscal Year , , , , , , , , , , , , , , * For the years , the fiscal years of the District ended on July 31 of each year. The District adopted a July 1-June 30 fiscal year. All sewage treatment facilities are maintained and operated by state certified operators. A detailed training program is in effect to assist plant operators in preparation for the state certification examinations. Separate programs are also in effect for maintenance and safety. In 1996, Woolpert LLP, consulting engineers, conducted a detailed review and stress test of the Dry Creek Wastewater Treatment Plant, which concluded that during dry weather flow the facility obtains excellent solids and Biochemical Oxygen Demands (BOD) removals. The plant's effluent is of high quality and meets permit limits with a margin of safety. As is normal, wet weather flows cause the most problems at the plant. High wet weather flows are largely caused by the existence of the combined sewer system and inflow and infiltration in the separate sewer system. The volume of wet weather flow has a major detrimental effect on the quality of effluent being discharged into the Ohio River. In wet weather, not only are there more combined sewer overflows, which bypass the treatment system entirely, but the performance of the plant also tends to be reduced, thus lowering effluent quality. Woolpert LLP also conducted a detailed review of a major portion of the collection system and identified serious inflow and infiltration problems responsible for compromising effluent quality at Dry Creek. The District began an aggressive repair and rehabilitation effort to decrease the amount of inflow and infiltration. This resulted in significant decreases in average daily flows seen at the treatment plant in fiscal years 1998 and 1999 and helped contain an increase in average daily flows for fiscal year 2000 that resulted primarily from increased customers and a relatively dry year. While these efforts have decreased the threat to the plant from a wet weather flow issue, it is now experiencing effluent quality problems from a BOD loadings standpoint. The plant is currently approaching its BOD capacity. The District is researching and evaluating various treatment process alternatives to provide additional BOD capacity. Average Performance of Dry Creek Wastewater Treatment Plant for Fiscal Year 2006 NPDES Permit Limit Monthly Avg. Results Suspended Solids (ppm) CBOD (ppm) Ammonia as (N) (ppm) Fecal Coliform (No. per 100 ml) 200 (Summer) 1,000 (Winter) Dissolved Oxygen (ppm) Shall not be less than Total Residual Chlorine (ppm) Shall not be more than <0.051 Biomonitoring (atu) Shall not exceed 1.2 ATUs <1.0 A-12

44 Small Wastewater Treatment Plants The District owns and operates the following smaller treatment plant and package plants located in Boone and Campbell Counties: Rivershore Farms Wastewater Treatment Plant Charles H. Kelly Elementary Wastewater Treatment Plant Ethans Glen Wastewater Treatment Plant Verona Commons Wastewater Treatment Plant The District's Small Plants Crew is responsible for inspecting these facilities on a regular basis. The District also operates, by contract, three other facilities in Northern Kentucky. The District plans to ultimately phase out of service these smaller treatment plants and package plants, as major new water reclamation facilities are built. The Collection and Transport System Wastewater is conveyed to Dry Creek through an extensive system of interceptor sewers, pumping stations, and force mains. There are three main sections to the transport system, all of which carry flow to Dry Creek. The three sections are identified as (i) the Bromley Pump Station and force main, (ii) the Taylorsport Pump Station and force main and (iii) the Dry Creek interceptor. The District's collection system consists of both combined sewers and separate sewers. The combined sewers are located primarily in the river cities of Dayton, Bellevue, Newport, Covington, Ludlow, and Bromley. However, a number of separate sewer systems discharge into the combined sewer system. There are 129 pump stations and 15 flood pump stations in Boone, Campbell and Kenton counties under the jurisdiction of the District as of June These flood control systems prevent river water from entering the sanitary sewer system when the river is at flood stage. If river water does intrude the system, the river cities would experience flooding and backups. Storm Water System In 2009, the District began assuming responsibility for the public storm sewer systems in Northern Kentucky. Prior to 2009, the cities and counties maintained their own public storm water systems. To meet storm water regulations and to assist in the transfer of infrastructure, the District completed responsibility delineations for the open and closed storm drainage systems in Northern Kentucky. The District currently manages over 17,800 structures and approximately 250 miles of closed storm sewer pipe. Currently, the storm water program generates approximately $10.5 million in revenue, approximately $2.5 million of which is budgeted annually for operation and maintenance expenses, including KPDES Phase II storm water permit compliance. The remaining $8 million is budgeted annually for capital improvement projects, such as storm sewer improvements, "green" infrastructure projects and storm water master planning. Selected Historical Financial Information The following pages present selected historical financial information regarding the operations of the District over a period of five fiscal years. The audit firm of Van Gorder, Walker Company, Inc. has audited the District's financial information. Van Gorder Walker & Co., Inc. and previous Auditors have A-13

45 reviewed the following selected historical financial information, which was extracted from the annual audits, and found it to be in agreement with the firm's audits of the District. DISTRICT SANITARY SEWER CHARGES AND RATES Major Source of Revenue Customer Billing The District derives the majority of its revenues from sewer charges levied against customers pursuant to the District's approved rate schedule. Charges are based upon metered water consumption records as obtained from the three water utilities serving the service area of the District. Customers who do not have meters are charged by the District on a flat rate schedule. The following is the breakdown of gross revenues of the District: Sewer Service Charges approximately 71.2% Storm Water Revenues 16.1% Capacity Connection fees 4.6%, and Other Income 8.1%. The District follows a monthly cycle based on a winter factor usage for all residential customers. Non-Residential customers follow a quarterly billing cycle format, with approximately one-third of the meter readings billed each month. Accounts receivable and related sewer service revenues are recorded when billed and provisions are made to accrue unbilled cycles at the year-end. The District has the power under Kentucky Revised Statutes (K.R.S.) 220 to establish, enforce, and collect sanitary sewer rates, rentals and charges for the services and facilities of its sewer system. Under federal regulations, user charges are required to result in distribution of the system operation and maintenance costs to each user in approximate proportion to his contribution to the total wastewater loading on the treatment works. The surcharge, hereinafter described under "Surcharge for High Concentration Effluent", is the principal method used by the District to achieve this equity in billing. The industrial customers are required to pay additional costs above the normal rates if their wastewater strength is above that of the typical domestic user. Chapter 220 of the Kentucky Revised Statutes provides that the District may, in the event of nonpayment of District rates by any sewer user, notify the municipality, firm, person or corporation providing water service to such user to shut-off water service to such user's premises until such time as District sewer rates have been paid in full. The District has been advised by counsel that the right to water service may be deemed to be protected by the United States Constitution against arbitrary or unreasonable termination. The District's collection methods, including the use of shut-off notices under certain circumstances, have been in effect for over 30 years, and the District believes its methods are reasonable and appropriate. Rate History The District implemented a rate increase in fiscal year Based on the low debt service burden, strong operating cash flow results, and ample debt service coverage, the District reduced rates in fiscal year In 1994, the District's mission broadened to include serving retail customers, which expanded the infrastructure requirements and led to the development of a long-term capital improvement program. To provide additional revenues to meet the District's capital and operating needs, the District authorized the following rate increases to take effect: A-14

46 35% effective May 1, % effective May 1, % effective May 1, % effective May 1, % effective April 1, % effective April 1, % effective April 1, % effective April 1, % effective April 1, % effective April 1, 2011 [The remainder of this page is intentionally left blank.] A-15

47 Sanitation District No. 1 Sanitary Sewer Rate History For Normal Sewage Dec. 1, 1973 Dec. 13, 1979 Feb. 10, 1986 Aug. 1, 2000 Aug. 1, 2001 Aug. 1, 2002 Aug. 1, 2003 July 1, 2006 July 1, 2007 through through through through through through through through through Dec. 12, Feb. 9, July 31, July 31, July 31, July 31, June 30, June 30, June 30, Metered Water Usage (Per HCF): Cubic Feet: $0.83 $1.20 $1.13 $1.53 $1.75 $2.01 $2.30 $2.65 $ ,000 Cubic Feet: $0.67 $1.14 $1.06 $1.44 $1.65 $1.89 $2.17 $2.50 $3.00 5,000-25,000 Cubic Feet: $0.55 $1.02 $0.95 $1.29 $1.48 $1.70 $1.95 $2.24 $ , ,000 Cubic Feet: $0.40 $0.87 $0.81 $1.10 $1.26 $1.45 $1.66 $1.91 $2.30 All over 100,000 Cubic Feet: $0.32 $0.79 $0.74 $1.00 $1.15 $1.32 $1.51 $1.74 $2.09 Quarterly Minimum Bill: $6.64 $9.60 $9.04 $12.24 $14.00 * $12.06 * $13.80 * $15.90 *$19.08 Unmetered Service (Quarterly Rate): 1 or 2 Room House: $8.00 $11.00 $10.25 $13.84 $15.83 $18.11 $20.71 $23.82 $ , 4, 5 or 6 Room House: $10.00 $18.00 $16.83 $22.83 $26.00 $29.74 $34.01 $39.11 $46.94 More than 6 Rooms: $14.00 $24.00 $22.28 $30.08 $34.40 $39.34 $44.99 $51.74 $62.09 Surcharge Strength Beyond Normal Sewage Type of effluent Suspended solids? (over 300 parts per million) Biological Oxygen Demand? (over 240 parts per million) Total Kjeldahl nitrogen? (over 30 parts per million) $.079 per lb. $.073 per lb. $.064 per lb. $.074 per lb. $.069 per lb. $.059 per lb. $.120 per lb. $.210 per lb. $.804 per lb. $.120 per lb. $.210 per lb. $.804 per lb. $.120 per lb. $.210 per lb. $.804 per lb. $.120 per lb. $.210 per lb. $.804 per lb. $.138 per lb. $.231 per lb. $.925 per lb. $.115 per lb. $.274 per lb. $.771 per lb. * The District Board of Directors reduced the minimum consumption from 8 HCF to 6 HCF. A-16

48 Sanitary Sewer Service Rates Effective April 1, 2009 and implemented on July 1, 2009 Sanitary Sewer Customers will be divided into either a Residential Class or Non-Residential Class. Sewer Service Charge Residential Class The sewer service charge for normal strength sewage shall be calculated upon a usage factor determined annually based on the highest water usage occurring completely during the previous October 1st through April 30th period for quarterly bills or the previous October 15th through March 15th period for monthly bills as measured by the public water supply meter or meters. This usage factor will be used for billing the time frame beginning April 1st through March 30th and reset annually. The basic sewer service charge shall be calculated based upon the usage factor and at rates as provided by the District's fee schedule approved by resolution of the Board of Directors of Sanitation District No. 1. New or existing customers where a usage factor has not or can not be established, will be billed at a factor of seven hundred (700) cubic feet of water per month, until such factor has been established. The rate per Hundred Cubic Feet (HCF) of usage for Residential Customers effective for consumption that occurs on or after April 1, 2009 is $4.40 per HCF. The rate per Hundred Cubic Feet (HCF) of usage for Residential Customers effective for consumption that occurs on or after April 1, 2010 is $5.06 per HCF. Sewer Service Charge Non-Residential Class The sewer service charge for normal strength sewage is based on the water usage as measured by the public water supply meter or meters, and/or by any supplementary meter, meters, or other means as hereinafter provided. The basic sewer service charge shall be determined upon the metered flow and at rates as provided by the District's fee schedule approved by resolution of the Board of Directors of Sanitation District No. 1. Sewer Rates July 1, 2008 though Present Sanitary Sewer Rates Residential Monthly Water Usage (Cubic Feet) "Winter Factor" Water Usage ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Effective Approved Effective Rates/HCE Date Rates/HCE Date Flat Rate Per HCF of Usage $4.40 *04/01/2009 $5.06 *04/01/2010 Minimum Bill (2HCF) Per Month 8.80 *04/01/ *04/01/2010 Unmetered Service Number of Rooms ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Effective Approved Effective Rates Date Rates Date 1 or 2 Room House $13.15 *04/01/2009 $15.12 *04/01/ to 6 Room House *04/01/ *04/01/2010 More than 6 Rooms *04/01/ *04/01/2010 A-17

49 Sanitary Sewer Rates Non-Residential (Monthly) Monthly Water Usage (Cubic Feet) Actual Water Usage ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Effective Approved Effective Rates/HCE Date Rates/HCE Date $4.40 *04/01/2009 $5.06 *04/01/2010 1,800-8, *04/01/ *04/01/2010 All Over 8, *04/01/ *04/01/2010 Minimum Bill (2 HCF) Per Month 8.80 *04/01/ *04/01/2010 Sanitary Sewer Rates Non-Residential (Quarterly) Quarterly Water Usage (Cubic Feet) Actual Water Usage ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Effective Approved Effective Rates/HCE Date Rates/HCE Date $4.40 *04/01/2009 $5.06 *04/01/ , *04/01/ *04/01/2010 All Over 25, *04/01/ *04/01/2010 Minimum Bill (6 HCF) Per Quarter *04/01/ *04/01/2010 Ten Largest Industrial/Commercial Users by Revenue in FY 2009 Company Name Sewer Service Surcharges Other Sales Tax Total Louis Trauth Dairy $262,892 $360,776 $0 $37,420 $661,088 Sara Lee Foods 360, , , ,723 Lyons-Magnus 95, , , ,928 L'Oreal USA Florence 127, , , ,617 Club Chef 291, , , ,247 Tastemaker 185, , , ,858 Kenton County Airport (CVG) 429, ,853 Global Supply Chain 208, , , ,480 Wild Flavors, Inc. 109, , , ,760 St. Elizabeth Medical Center 263, ,240 Totals: $2,333,639 $2,171,369 $0 $228,784 $4,733,794 Surcharge for High Concentration Effluent For treatment and disposal of sewage loads in excess of normal sewage and to compensate for the increased cost of maintenance and operation occasioned thereby, a schedule of rates, rentals and charges has been established, as well as a schedule of surcharges. The schedule of surcharges for other than normal sewage services is computed and based, insofar as practicable, upon the quantity of water used or supplied as determined by water meter readings, and upon the presence within the effluent on an average A-18

50 daily basis, in volume, of Suspended Solids, BOD and total Kjeldahl Nitrogen. Surcharges and additional sources of District Revenue are set forth in the following table: Surcharge Rates Dry Creek Waste Water Treatment Plant ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Rates/HCE Effective Date Approved Rates/HCE Effective Date Suspended Solids $0.159 *04/01/2009 $0.183 *04/01/2010 (over 300 parts per million) B.O.D. $0.378 *04/01/2009 $0.435 *04/01/2010 (over 240 parts per million) Total Kjeldahl Nitrogen $1.064 *04/01/2009 $1.224 *04/01/2010 (over 30 parts per million) Additional Fees Sanitary Services ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Effective Approved Effective Rates Date Rates Date Plan Review $375 07/01/2009 $430 07/01/2010 Sewer Construction Inspection /01/ /01/2010 (per foot) Unusual Discharge $50 / 1,000 07/01/2009 $50 / 1,000 07/01/2008 Gal. Gal. Long-Term 2.88 / HCF 07/01/ / HCF 07/01/2008 ph re-sampling cost, per week /01/ /01/1998 Surcharge re-sampling cost /01/ /01/1998 Pump Station Telemetry 9,250 07/01/2008 9,250 07/01/2008 Storm Sewer Connection 85 07/01/ /01/2008 Application Sewer Manhole Tap Application /01/ /01/2008 Sewer Lateral Abandonment Permit 85 07/01/ /01/2008 Re-Inspection Fee 85 07/01/ /01/2008 Bond Cost (Tapper) 5,750 07/01/2008 5,750 07/01/2008 Tapping Inspection 85 07/01/ /01/2008 Tapper Program Certification /01/ /01/2008 Annual Renewal of Tapper Cert /01/ /01/2008 Photocopies of Plans (per page) 3 07/01/ /01/2008 Pretreatment Permit Tier 1 (per 3,000 07/01/2009 3,600 07/01/2010 year) Pretreatment Permit Tier 2 (per /01/ /01/2010 year) Fat, Oil & Grease (FOG) Permit /01/ /01/2009 (per year) General Labor (per hour) /01/ /01/2010 A-19

51 Storm Water Services ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Effective Approved Effective Rates Date Rates Date Plan Review $575 07/01/2009 $675 07/01/2010 Inspection (per acre) 60 07/01/ /01/2010 (not to exceed $1,000) Administrative Fines (per violation) 1,000 08/01/2003 1,000 08/01/2003 Note: Each day of noncompliance is deemed a separate and distinct violation. Industrial fines (per event, per day) ** FY 2010 Rates ** ** FY 2011 Rates ** Approved Effective Approved Effective Rates Date Rates Date First Offense $500 07/01/ /01/2008 Second Offense /01/ /01/2008 Third Offense 1,000 07/01/2008 1,000 07/01/2008 Tapper Fines (per event, per day) First Offense /01/ /01/2008 Second Offense /01/ /01/2008 Third Offense 1,000 07/01/2008 1,000 07/01/2008 DISTRICT STORM WATER FEES A combination of storm water user fees and plan review and inspection fees pay for the cost of implementing the Regional Storm Water Management Program and the region's growing storm water system needs. The District utilizes an impervious area rate methodology as the basis for funding the regional storm water utility. The rate structure includes procedures for challenging fees and methods for non-residential properties to obtain credits to reduce their effective fee. Residential Fees Based on a statistical analysis of residential properties in Boone, Campbell and Kenton counties, it was determined that the average impervious area per property is 2,652 square feet. Based on this data, the District has designated an equivalent residential unit (ERU) equal to 2,600 square feet. All residential properties are charged a single flat monthly fee based on one ERU. Based on program costs, one ERU is $4.47 as of July 1, Non-residential Fees Non-residential property owners are billed a monthly storm water user fee based on the total amount of impervious area on their property. Impervious areas include roofs, patios, walkways, sidewalks, driveways, parking lots and roadways. The impervious areas for the non-residential properties within the designated storm water service area were calculated using aerial photography and Geographical Imaging Systems methods. A-20

52 The non-residential property user fee is based on the number of ERUs that are represented by the impervious area of the property or $4.47 (as of July 1, 2009) per 2600 square feet of impervious area. Exemptions The only exceptions which are currently excluded from the District storm water fee are as follows: unimproved properties, publicly dedicated roadways and properties classified as agricultural by the PVA. "Although water quality problems also can occur from agricultural storm water discharges..., this area of concern is statutorily exempted from regulation as a point source under the Clean Water Act..." Federal Register/Vol. 64, No. 235, December 8, Additionally, in the Commonwealth of Kentucky, agricultural properties are required to prepare their own water quality plans pursuant to the Kentucky Agricultural Water Quality Act. Additional Fees The District charges a plan review fee of $ and an inspection fee of $60.00 per acre (not to exceed $1,000) for new development and re-development that occurs within the identified storm water service area in Boone, Campbell and Kenton counties. These fees are based on the costs incurred to provide these services. Credits The District has established a policy to provide credits against the storm water fees for nonresidential and non-agricultural properties in an effort to provide equity and consistency in the application of the fee to individual properties. Credits can be granted for best management practices that address any combination of water quantity and/or water quality impact reductions. apply: A total maximum of an 80% credit against the fee may be granted. The following criteria shall The credit will be applied by reducing the number of billable equivalent residential units (ERUs). The property parcel can qualify for both water quantity and water quality credits. The maximum allowable water quantity credit percentage equals 50%. The maximum allowable water quality credit percentage equals 50%. The adjusted ERU includes the credit for both water quantity and water quality. The minimum ERU is one. Long-term Plan to Address Overflows ENVIRONMENTAL COMPLIANCE AND QUALITY In October 2005, Sanitation District No. 1 joined the ranks of wastewater utilities across the nation whose futures are being guided by a Consent Decree to improve water quality. The Consent Decree, signed by the U.S. EPA, the Kentucky Energy and Environment Cabinet, the U.S. Department of Justice and the District, requires an estimated $1.2 billion investment over the next 20 years to address sewage overflows in Northern Kentucky. Overflows from combined and separate sanitary sewer systems during heavy rainstorms are chronic problems throughout the United States, sending a mixture of storm water and raw sewage into local waterways. Overflows can occur when storm water inundates the collection system, overwhelming sewer lines and pump stations. A-21

53 Combined Sewer Overflows (CSOs) used to be an acceptable practice for managing excess flow during wet weather, but today they must comply with regulations set forth in the Clean Water Act. During the late 1990s, the U.S. EPA and Department of Justice began enforcing the Clean Water Act in cities across the United States, requiring them to address combined and/or separate sanitary sewer overflows. The U.S. EPA has reached similar agreements with numerous municipal entities across the country, including the Metropolitan Sewer District of Greater Cincinnati in 2003 and the Louisville/Jefferson County Metropolitan Sewer District in early Watershed-based Approach Sanitation District No. 1 is taking a proactive and unique watershed approach to meet the requirements of the Consent Decree. The District is one of the first wastewater utilities in the U.S. to use this holistic approach to control overflows and protect the environment. The use of this watershed approach is expected to lead to more rapid improvements in water quality in critical areas with more efficient and cost-effective solutions and should serve as a benchmark for other utilities across the nation. A watershed approach evaluates the cumulative impacts of pollution sources on waterways. The District's service area has been divided into four major watershed study basins: Central, East, North and West. Development of Watershed Plans The District has finalized draft Watershed Plans for Northern Kentucky. These Plans, which are required to be implemented over the next five years, describe projects for addressing sewage overflows and other water quality issues throughout Boone, Campbell and Kenton counties. As required by the District's Consent Decree with the U.S. EPA and the Kentucky Energy and Environment Cabinet, these Watershed Plans will be updated every five years with a deadline of December 31, 2025 for full implementation. Key Elements of the Consent Decree In addition to the development of the Watershed Plans, the Consent Decree required the District to develop and implement the following programs and plans, which have all been submitted and approved: Nine Minimum Controls Compliance Program Capacity, Management, Operation and Maintenance (CMOM) Program Grease Control Program Pump Station Backup Power Plan Sewer Overflow Response Plan (SORP) Initial Watershed Projects Framework for Developing the Watershed Plans Pump Station Overflow Elimination Plan. A-22

54 The District is required to submit quarterly compliance updates and an annual compliance report for each of the following: Nine Minimum Controls Program CMOM Program (including Grease Control, Pump Station Backup Power, and SORP) Initial Watershed Projects Pump Station Overflow Elimination Plan Initial Watershed Projects It is projected that the District will spend more than $415.4 million to implement the initial watershed projects outlined in the Consent Decree. These projects are expected to address many of the sewer overflow issues that are currently affecting water quality. Two of the District's initial watershed projects include construction of the 4 mgd Eastern Regional Water Reclamation Facility and conveyance system in Campbell County and the 20 mgd Western Regional Water Reclamation Facility and conveyance system in Boone County. The cost of constructing these two new plants and the accompanying conveyance systems totals $275 million. The Eastern Regional Water Reclamation Facility officially began receiving flow on September 24, 2007 and the Western Regional Water Reclamation Facility is scheduled to be receiving flow by Together, the two new plants will eliminate approximately 24 SSOs through increased collection and treatment capacity. In addition to the new treatment plants and conveyance systems, further upgrades to the sanitary sewer system have and will continue to be completed as part of the Initial Watershed Projects, which will increase capacity of the collection system and help reduce overflows throughout the region. One of the most costly projects, completed in 2007, was the separation of a portion of the combined sewer system in Latonia, which totaled more than $2.3 million. Addressing Pump Station Bypasses Eliminating SSOs at pump stations is another key component of the Consent Decree. Bypasses can occur during wet weather when excess storm water enters sanitary sewers, overwhelming the system and causing stress at the pump station. The Consent Decree identifies eight pump station bypasses that must be eliminated by 2010 and an additional six bypasses to be eliminated by Possible solutions include upgrades at pump stations, elimination of pump stations, diversion of flow from pump stations or construction of equalization basins to capture wet weather flows. Reduced State and Federal Funding Water is one of our most precious natural resources, yet state and federal funding for water and wastewater projects continues to diminish. The federal government provided grants throughout the 1970s and 1980s that funded thousands of new wastewater treatment plants and expanded thousands more, resulting in significant reductions in discharges of pollutants and greatly improved water quality. In the 1990s, the federal government continued to identify new investment needs and created additional legislative mandates, including the storm water regulations. The problem is that state and federal financial assistance is decreasing just as needs are increasing, placing the burden back on ratepayers. The Congressional Budget Office estimates that for the years 2000 to 2019, annual costs for wastewater infrastructure investment will average between $13 billion and $20 billion. A-23

55 As identified by Sanitation District No. 1's Consent Decree, it will cost approximately $1.2 billion to rehabilitate combined sewer systems that are 50 to 100 years old, eliminate SSOs and upgrade sewage collection and treatment systems throughout the region. The District will continue to seek state and federal funding to help minimize the financial burden placed on its customers, but as these funding sources continue to diminish, user fees will need to be increased to meet the requirements set forth in the Consent Decree. Status of New Eastern Regional Water Reclamation Facility Construction of the new Eastern Regional Water Reclamation Facility was completed in the fall of The 4 million gallons per day facility is located in the City of Alexandria in Campbell County, Kentucky. The new plant incorporates state-of-the-art treatment processes including an equalization basin, oxidation ditch, ultraviolet disinfection and odor control. This advanced secondary treatment plant will meet or exceed all state regulatory permit parameters. With the new facility in operation, a building moratorium that has been in effect in Campbell County for approximately 10 years has been partially lifted (mostly in the southern portions of the county) by the Commonwealth of Kentucky. This will allow economic growth to resume in the area. Status of the New Western Regional Water Reclamation Facility The Western Regional Water Reclamation Facility and Conveyance Tunnel also represent the largest infrastructure investment the District has ever made totaling approximately $178 million. They will significantly reduce the amount of sanitary sewage overflowing from the District's collection systems, provide flexibility for future capacity needs and help meet stringent regulatory requirements. The new Western Regional Water Reclamation Facility will process an average daily flow of 20 million gallons and will feature state-of-the-art ultraviolet light disinfection and conventional activated treatment technologies. The Western Regional Conveyance Tunnel is being constructed to convey flows to the new water reclamation facility. The 8.5 foot diameter tunnel will begin at the current location of the District's Gunpowder Pump Station, which is located off Camp Ernst Road, and travel approximately 6 miles to the Western Regional Facility. Under the District's Consent Decree with state and federal regulators, the Western Regional Water Reclamation Facility and Conveyance Tunnel are required to be completed by In addition, these two projects are key components of the 5-year improvement plan outlined in the District's draft Watershed Plans. [The remainder of this page is intentionally left blank.] A-24

56 APPENDIX B DEMOGRAPHIC INFORMATION NORTHERN KENTUCKY The Northern Kentucky Area, covering a total land area of 559 square miles, is composed of Boone, Campbell, and Kenton Counties; and is ideally situated along and adjacent to the south bank of the Ohio River, immediately south of Cincinnati, Ohio. These three counties are a part of the Cincinnati Metropolitan Statistical Area, which had a 2007 population of 365,728. The Northern Kentucky Area forms the northern apex of an industrial triangle anchored by Louisville on the southwest and Lexington on the southeast. Within the triangle is more than one-third of the state's population and nearly one-half of its manufacturing jobs. The interstate highway system places these three metropolitan areas within less than two hours driving from each other. The Economic Framework The Northern Kentucky market area includes Boone, Campbell and Kenton Counties, as well as the adjoining Kentucky counties of Gallatin, Grant and Pendleton. The market area also includes the Ohio counties of Hamilton and Clermont and the Indiana counties of Ripley, Ohio and Dearborn. The County is part of the greater Cincinnati CMSA, which is composed of 13 counties in Kentucky, Ohio, and Indiana. The Greater Cincinnati region is known as a major center for transportation, medical services, wholesaling, manufacturing, retailing, insurance/financial services, government installations and service industries. Of particular note is the Greater Cincinnati/Northern Kentucky International Airport (CVG) with nearly 670 daily departures and non-stop flights to more than 120 destinations (Source: Northern Kentucky Chamber of Commerce). CVG is operated by the Kenton County Airport Board, a political subdivision of the Commonwealth of Kentucky. The Board was created in 1943 as a corporation pursuant to a resolution adopted by the Fiscal Court of the County. Labor Supply For 2008, the current U.S. Department of Labor, Bureau of Labor Statistics, estimates a labor supply of 568 for the Labor Market Area. See "LABOR MARKET STATISTICS" below. Transportation Major highways serving Boone, Campbell, and Kenton Counties include Interstates 71, 75, 275, and 471; U.S. Highways 42/127, 25, and 27. The Greater Cincinnati-Northern Kentucky International Airport, located in Boone County, Kentucky, provides commercial airline service. The airport is a major hub for Delta Airlines. The Southern Railway System and CSX Transportation provide main line rail service to the area. Several barge and towing companies provide barge transportation on the Ohio River. The Port of Cincinnati extends 30 miles along both banks of the Ohio River. Power and Fuel Electric power is provided to Boone, Campbell, and Kenton Counties by Duke Energy, E. ON US KU, East Kentucky Power Cooperative and the Owen County Rural Electric Cooperative Corporation. Additionally, Duke Energy provides natural gas service to major portions of the three-county area.

57 Education Primary and secondary education is provided by the Boone, Campbell, and Kenton County Public School Systems; eleven independent school systems; and 38 nonpublic schools within the three-county area. Three universities and six senior colleges are located in the Northern Kentucky-Cincinnati Area. Northern Kentucky University and Thomas More Colleges are located in Northern Kentucky. Vocational-technical training is available at two state vocational-technical schools, three area vocational education centers, and a health occupations center; all located in Boone, Campbell, and Kenton Counties. See "EDUCATION" below. Population LABOR MARKET STATISTICS Estimate Year Description Labor Market Area 1,754,484 1,769,519 1,791,018 1,798,935 1,809,859 Northern Kentucky 346, , , , ,728 Source: U.S. Department of Commerce, Bureau of the Census. Population Projections Estimate Year Description Labor Market Area 1,782,708 1,842,196 1,902,256 Northern Kentucky 367, , ,194 Source: Kentucky State Data Center, University of Louisville and Kentucky Cabinet for Economic Development. Population by Selected Age Groups, 2008 Labor Market Area Age Number Percent Under , , , , , and older 31, Median Age 36.7 Source: U.S. Department of Commerce, Bureau of the Census. B-2

58 Per Capita Personal Income Percent Change Northern Kentucky $30,381 $36, % Kentucky $25,777 $30, % United States $30,804 $38, % Source: U.S. Department of Commerce, Bureau of Economic Analysis. Households Number of Households Persons Per Household Median Household Income Boone County 37, $66,178 Campbell County 34, $50,566 Kenton County 60, $52,633 Civilian Labor Force Northern Kentucky Labor Market Area 2008 Dec Dec Civilian Labor Force 191, , , ,994 Employed 180, , , ,107 Unemployed 11,140 19,505 53,917 90,887 Unemployment Rate(%) Unemployment Rate (%) Year Northern Kentucky Labor Market Area Kentucky U.S Source: U.S. Department of Labor, Bureau of Labor Statistics. B-2

59 EDUCATION Public Schools Enrollment Expenditures Per Pupil Beechwood Independent Schools 1,090 8,727 Bellevue Independent Schools 797 9,978 Boone County Schools 18,919 8,737 Campbell County Schools 4,854 9,248 Covington Independent Schools 4,022 13,732 Dayton Independent Schools 958 9,289 Erlanger-Elsmere Independent Schools 2,506 8,445 Ft. Thomas Independent Schools 2,530 9,090 Kenton County Schools 13,878 8,344 Ludlow Independent Schools 891 8,742 Newport Independent Schools 1,991 12,552 Silver Grove Independent Schools ,264 Southgate Independent Schools ,184 Walton-Verona Schools 1,428 9,317 Source: Kentucky Department of Education, Office of Curriculum, Assessment and Accountability Nonpublic Schools Number of Schools Total Enrollment 38 11,756 Source: Kentucky Schools Directory, [ ], Kentucky Department of Education Vocational Training Vocational Schools Location Cumulative Enrollment Chapman Career and Technical Education Center Covington N/A Boone County ATC Hebron 194 J.D. Patton ATC Ft. Mitchell 509 Carroll County ATC Carrollton 501 Harrison County ATC Cynthiana 556 Mason County ATC Maysville 190 C.E. McCormick ATC Alexandria 289 Source: Kentucky Cabinet for Workforce Development; Kentucky Community and Technical College System; Kentucky Department of Education. B-3

60 Bluegrass State Skills Corporation The Bluegrass State Skills Corporation, an independent public corporation created and funded by the Kentucky General Assembly, provides programs of skills training to meet the needs of business and industry from entry level to advanced training, and from upgrading present employees to retraining experienced workers. The Bluegrass State Skills corporation is the primary source for skills training assistance for a new or existing company. The Corporation works in partnership with other employment and job training resources and programs, as well as Kentucky's economic development activities, to package a program customized to meet the specific needs of a company. Colleges and Universities Fall 2008 Institution Location Enrollment Gateway Community & Technical College, Covington Covington, KY 3,477 Campus AEC Southern Ohio College, Ft. Mitchell Campus Ft. Mitchell, KY NA Southwestern College of Business, Northern Kentucky Crestview Hills, KY NA Campus Thomas More College Crestview Hills, KY 1,893 Gateway Community & Technical College, Highland Heights Highland Heights, KY NA Northern Kentucky University Highland Heights, KY 15,109 Gateway Community & Technical College, Edgewood Edgewood, KY NA Campus University of Cincinnati Cincinnati, OH 29,319 Athenaeum of Ohio Cincinnati, OH NA AEC Southern Ohio College, Cincinnati Campus Cincinnati, OH NA College of Mt. St. Joseph Cincinnati, Oh NA Hebrew Union College, Cincinnati Campus Cincinnati, OH NA University of Cincinnati Raymond Walters College Cincinnati, OH NA Xavier University Cincinnati, OH NA National College of Business & Technology Florence Florence, KY NA Branch Beckfield College Florence, KY NA Interactive College of Technology, Florence Campus Florence, KY NA Maysville Community & Technical College Maysville, KY 3,479 Gateway Community & Technical College, Kenton County Union NA Campus Miami University, Oxford Campus Oxford, OH NA Jefferson Community & Technical College, Kenton County Campus Union, KY NA Source: Kentucky Cabinet for Economic Development [The remainder of this page is intentionally left blank.] B-4

61 Name of Employer LARGEST EMPLOYERS IN NORTHERN KENTUCKY Product/Service Number of Employees Covington Club Chef Processor of fresh cut produce 425 Fidelity Investments Financial services 3,900 The Nielsen Company Headquarters, marketing research 563 Erlanger Comair Air terminal, maintenance and training 2,700 Covergys Technical support center 600 DHL Airfreight delivery service 583 Toyota Motor Engineering Corporate headquarters 1,133 US Playing Card Company Manufacture playing cards, headquarters 419 Wild Flavors Inc Headquarters, administration, research and development, pilot plants and manufacturing 436 Florence Citicorp Credit Services Financial services 2,700 DURO Bag Manufacturing Paper bags, corporate office 478 Mazak Corp Machine tools; general machining & assembly, office and 551 warehouse Meritor Heavy Vehicle Systems Automotive components 406 LLC Mubea Inc Automotive components 470 Schwan's Global Supply Chain Inc. Frozen pizzas 1,075 Hebron Cincinnati Machine LLC Machine tool industry manufacturer 475 Levi Strauss & Co Distribution, customer service center 580 Pomeroy IT Solutions Inc Computer services 426 Toyota North American Parts Center Parts warehouse, distribution center 403 Independence Cengage Learning Distribution Book distribution center 700 Source: Kentucky Cabinet for Economic Development [The remainder of this page is intentionally left blank.] B-5

62 APPENDIX C THE SERIES 2010 BONDS AND OUTSTANDING BONDS

63 Series 2010 Bonds Debt Service THE SERIES 2010 BONDS AND OUTSTANDING BONDS The following table shows the projected 2010 Series Bond debt service shown by each fiscal year ending June 30, adjusted for capitalized interest and the debt service reserve anticipated cash flows. FY Ending June 30 Principal Interest Government Subsidy DSR Earnings Total 2011 $0 $2,108,560 ($737,996) ($27,433) $1,343, ,165,000 2,835,721 (992,502) (40,000) 2,968, ,175,000 2,816,690 (985,842) (40,000) 2,965, ,190,000 2,790,660 (976,731) (40,000) 2,963, ,215,000 2,759,370 (965,780) (40,000) 2,968, ,235,000 2,722,291 (952,802) (40,000) 2,964, ,265,000 2,678,820 (937,587) (40,000) 2,966, ,295,000 2,629,518 (920,331) (40,000) 2,964, ,330,000 2,575,023 (901,258) (40,000) 2,963, ,370,000 2,515,603 (880,461) (40,000) 2,965, ,415,000 2,451,525 (858,034) (40,000) 2,968, ,460,000 2,382,503 (833,876) (40,000) 2,968, ,505,000 2,308,355 (807,924) (40,000) 2,965, ,560,000 2,228,638 (780,023) (40,000) 2,968, ,615,000 2,143,693 (750,292) (40,000) 2,968, ,670,000 2,054,163 (718,957) (40,000) 2,965, ,730,000 1,959,798 (685,929) (40,000) 2,963, ,795,000 1,860,200 (651,070) (40,000) 2,964, ,865,000 1,754,958 (614,235) (40,000) 2,965, ,940,000 1,643,643 (575,275) (40,000) 2,968, ,015,000 1,526,970 (534,439) (40,000) 2,967, ,095,000 1,404,678 (491,637) (40,000) 2,968, ,175,000 1,276,469 (446,764) (40,000) 2,964, ,265,000 1,142,594 (399,908) (40,000) 2,967, ,330,000 1,037,963 (363,287) (40,000) 2,964, ,400, ,648 (325,027) (40,000) 2,963, ,500, ,573 (272,500) (40,000) 2,966, ,605, ,943 (217,330) (40,000) 2,968, ,710, ,500 (159,425) (40,000) 2,966, ,825, ,119 (98,392) (40,000) 2,967, ,945,000 95,713 (33,499) (4,020,000) (1,012,787) Total $54,660,000 $56,768,894 ($19,869,113) ($5,207,433) $86,352,348 [The remainder of this page is intentionally left blank.] C-1

64 Total Long Term Debt Service The following table shows the current gross debt service representing the Prior Bonds that are currently outstanding, the 2010 Series Bonds, and the total debt service of all the outstanding bonds following the sale and delivery of the 2010 Series Bonds. FY Ending June 30 Series 2001 Debt Service Series 2005 Debt Service Series 2006 Debt Service Series 2007 Debt Service Series 2009 Debt Service Series 2010 Debt Service Total Debt Service* 2010 $3,393,700 $4,205,300 $3,021,441 $5,946,850 $1,072,442 $ 0 $17,639, ,391,275 4,198,100 3,021,236 5,956,850 3,223,889 1,370,564 21,161, ,383,500 4,196,300 3,019,311 5,969,750 3,224,672 3,008,219 22,801, ,375,125 4,194,600 3,015,666 5,980,450 3,225,985 3,005,849 22,797, ,364,000 4,187,900 3,010,301 6,003,650 3,227,495 3,003,929 22,797, ,355,000 4,186,000 3,008,109 6,019,150 3,223,881 3,008,591 22,800, ,347,875 4,183,600 3,008,874 6,025,375 3,226,450 3,004,489 22,796, ,342,375 4,175,600 3,007,489 6,041,500 3,225,972 3,006,233 22,799, ,338,250 4,171,800 3,008,846 6,048,500 3,226,533 3,004,186 22,798, ,335,250 4,166,700 3,007,839 6,056,375 3,223,640 3,003,765 22,793, ,333,125-3,009,359 7,327,500 3,223,699 3,005,142 19,898, ,331,625-3,013,191 7,325,250 3,226,249 3,008,491 19,904, ,330,500-3,019,121 7,315,500 3,224,269 3,008,627 19,898, ,329,500-3,022,041 7,317,750 3,223,487 3,005,431 19,898, ,328,375-3,021,951 7,316,375 3,224,272 3,008,614 19,899, ,326,875-3,028,636 7,311,125 3,225,048 3,008,400 19,900, ,329,625-3,036,774 7,301,750 3,226,798 3,005,206 19,900, ,331,250-3,041,256 7,292,875 3,225,704 3,003,868 19,894, ,331,500-3,046,976 7,288,875 3,225,758 3,004,130 19,897, ,335,000-3,053,719 7,279,250 3,226,718 3,005,722 19,900, ,336,375-3,061,269 7,268,625 3,224,350 3,008,368 19,898, ,335,375-3,068,547 7,266,250 3,222,011 3,007,531 19,899, ,341,500-3,075,297 7,251,625 3,224,319 3,008,040 19,900, ,077,234 7,088,250 3,222,536 3,004,705 16,392, ,084,141 7,085,375 3,226,447 3,007,686 16,403, ,090,688 7,078,500 3,225,836 3,004,676 16,399, ,101,547 7,067,125 3,226,231 3,003,621 16,398, ,106,500 7,060,500 3,226,997 3,006,072 16,400, ,267,875 3,226,859 3,008,613 12,503, ,225,585 3,006,075 6,231, ,222,942 3,007,727 6,230, _- - 3,007,213 3,007,213 Total $76,946,975 $41,865,900 $85,087,360 $196,558,825 $97,827,072 $91,559,781 $589,845,913 [The remainder of this page is intentionally left blank.] C-2

65 Principal Outstanding The following table shows the amortization of principal for each of the outstanding series of bonds including the Series 2010 Bonds and the total principal outstanding for all the outstanding bonds following the sale and delivery of the Series 2010 Bonds. FY Ending June 30 Series 2001 Principal Maturing Series 2005 Principal Maturing Series 2006 Principal Maturing Series 2007 Principal Maturing Series 2009 Principal Maturing Series 2010 Principal Maturing Total Principal Outstanding 2010 $1,140,000 $2,875,000 $915,000 $975,000 $0 $0 $334,180, ,190,000 2,985, ,000 1,025,000 1,085, ,940, ,240,000 3,105, ,000 1,080,000 1,100,000 1,165, ,255, ,295,000 3,230,000 1,035,000 1,135,000 1,120,000 1,175, ,265, ,350,000 3,355,000 1,075,000 1,205,000 1,145,000 1,190, ,945, ,410,000 3,490,000 1,120,000 1,270,000 1,170,000 1,215, ,270, ,475,000 3,630,000 1,170,000 1,335,000 1,205,000 1,235, ,220, ,545,000 3,770,000 1,220,000 1,420,000 1,240,000 1,265, ,760, ,620,000 3,920,000 1,275,000 1,500,000 1,280,000 1,295, ,870, ,700,000 4,080,000 1,330,000 1,585,000 1,320,000 1,330, ,525, ,785,000-1,390,000 2,970,000 1,365,000 1,370, ,645, ,875,000-1,455,000 3,120,000 1,415,000 1,415, ,365, ,970,000-1,525,000 3,270,000 1,465,000 1,460, ,675, ,070,000-1,595,000 3,440,000 1,520,000 1,505, ,545, ,175,000-1,665,000 3,615,000 1,580,000 1,560, ,950, ,285,000-1,745,000 3,795,000 1,645,000 1,615, ,865, ,405,000-1,830,000 3,980,000 1,715,000 1,670, ,265, ,530,000-1,915,000 4,175,000 1,785,000 1,730, ,130, ,660,000-2,005,000 4,385,000 1,860,000 1,795, ,425, ,800,000-2,100,000 4,600,000 1,940,000 1,865, ,120, ,945,000-2,200,000 4,825,000 2,020,000 1,940, ,190, ,095,000-2,305,000 5,070,000 2,105,000 2,015, ,600, ,260,000-2,415,000 5,315,000 2,200,000 2,095,000 94,315, ,525,000 5,420,000 2,295,000 2,175,000 81,900, ,645,000 5,695,000 2,400,000 2,265,000 68,895, ,770,000 5,980,000 2,505,000 2,330,000 55,310, ,905,000 6,275,000 2,620,000 2,400,000 41,110, ,040,000 6,590,000 2,745,000 2,500,000 26,235, ,115,000 2,875,000 2,605,000 14,640, ,010,000 2,710,000 8,920, ,150,000 2,825,000 2,945, ,945,000 - Total $45,820,000 $34,440,000 $49,120,000 $101,165,000 $54,880,000 $54,660,000 - [The remainder of this page is intentionally left blank.] C-3

66 Kentucky Infrastructure Authority Loan The District has entered into an Assistance Agreement with the Kentucky Infrastructure Authority (KIA), a government agency and instrumentality of the Commonwealth of Kentucky dated December 1, Under the Agreement, the KIA has agreed to loan to the District $30,605,750 at a 3.2% interest rate payable over 20 years. Proceeds from the loan were used to construct the Eastern Regional Water Reclamation Facility. The Agreement further provides that the loan is inferior and subordinate to the Outstanding Bonds of the District. Construction of the Eastern Regional Water Reclamation Facility is complete and the Facility began accepting flow in September The final loan amount, including change orders, was for $32,401, The final KIA draw was received on March 19, Under the Loan Agreement the District's annual KIA debt obligation will now include principle, as well as the interest and service charges. In fiscal year 2009 the District made semi-annual payments totaling $2,226, The District has entered into an Assistance Agreement with the KIA dated June 5, Under this Agreement KIA has agreed to loan the District $70,000,000 at a 1.2% interest rate payable over 20 years. Proceeds from this loan, added with other funds of the District, will be used to construct the Western Regional Water Reclamation Facility. The District has entered into the following Assistance Agreements with the KIA all dated June 5, 2009 at a 2.2% interest rate payable over 20 years: Amount Purpose $4,473,000 Construction of the Dry Creek WWTP Final Clarifier Rehabilitation. 5,592,000 Construction of the Sunnybrook Sewer Project. 5,768,000 Construction of the Frogtown Interceptor Sewer Project. 15,230,000 Construction of the South Fork Gunpowder Interceptor Sewer Project. 9,900,000 Construction of the Narrows Road Diversion Pump Station. 2,470,000 Construction of the Turkeyfoot Forcemain Project. Debt Coverage The table on the following page shows the total system revenues less applicable operating expenses used to compute the debt coverage for all the Outstanding Bonds of the District. Fiscal Year 2002 through 2005 is based on audited revenues and expenses of the District. Fiscal Year 2006 is based on budgeted amounts. [The remainder of this page is intentionally left blank.] C-4

67 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET System Revenues Total Applicable Rate Revenue $18,320,107 $22,649,202 $21,805,628 $25,313,914 $26,970,656 $31,121,420 $41,342,262 $44,000,000 Capacity Connection 3,192,711 2,963,006 2,900,000 Revenues 3,244,782 3,778,069 3,773,784 3,975,155 3,595,057 Total 21,566,891 26,429,274 25,581,416 29,291,074 30,565,713 34,314,131 44,305,268 46,900,000 Other Operating Revenue 2,769,669 4,531,610 10,533,965 13,046,963 11,787,811 13,139,956 12,509,751 14,334,000 Unrestricted Interest Income 4,045,544 4,914,102 1,917, ,521 1,815,566 3,339,413 5,280, ,000 Total System Revenues 28,382,104 35,874,986 38,032,598 43,325,559 44,169,090 50,793,500 62,096,017 61,834,000 Operating Expenses Dry Creak W.W.T.P. & Pump Stations (2005) 4,813,247 5,279,571 5,451,500 9,350,772 10,459,901 11,007,672 12,499,036 12,156,383 Eastern Regional Reclamation Facility (2008) ,764 1,655,210 Collection System 2,542,973 2,878,213 2,897,923 3,511,619 2,392,464 3,521,030 4,186,609 5,085,851 Administration 2,476,450 2,757,947 2,918,774 3,599,352 3,785,468 4,307,132 4,369,782 4,902,869 Engineering 1,028,543 1,034, , , , , ,193 1,434,089 Field - Technical Services 2,830,265 2,590,290 2,543, Storm Water , ,790 1,180, ,140 1,980,624 1,769,767 Incremental Operating & Maintenance Costs Total O&M Expenses 13,691,478 14,540,103 15,235,437 17,931,173 18,482,967 20,386,356 24,037,008 27,004,169 Other Expenses Major Repairs and Other Expenses 698, , , , , ,601 6,447,722 - Net Revenues 13,992,626 20,640,242 22,380,271 24,968,320 25,124,909 30,056,543 31,611,287 34,829,831 3,033 1,000,000 2,113, Adjusted Net Revenues for Covenant Tests $13,989,592 $19,640,242 $20,266,865 $24,968,320 $25,124,909 $30,056,543 $31,611,287 $34,829,831 Series 1998A Revenue Bonds $4,420,375 $4,422,275 $4,424,663 $4,422,300 $2,661,244 $2,656,638 $2,656,806 2,651,513 Series 2001A Revenue Bonds 3,468,275 3,453,675 3,447,950 3,440,650 3,418,713 3,413,938 3,407,363 3,398,988 Series 2005A Revenue Bonds n/a n/a n/a n/a 826,700 1,647,500 1,647,900 1,647,900 (1998A Refinancing) Series 2006A Revenue Bonds n/a n/a n/a n/a n/a 721,318 2,163,954 3,025,034 Series 2007A Revenue Bonds n/a n/a n/a n/a n/a n/a 837,458 5,843,050 Total P&I Revenue Bonds $7,888,650 $7,875,950 $7,872,613 $7,862,950 $6,906,656 $8,439,393 $10,713,481 $16,566,485 All Bonds- Annual Principle and Interest $7,986,506 $7,912,139 $7,905,340 $7,964,142 $6,871,088 $9,551,035 $13,753,882 $18,583,458 Coverage Ratio - Calculated 175% 248% 256% 314% 366% 315% 230% 187% Coverage Ratio - Required 125% 125% 125% 125% 125% 125% 125% 125% Total Debt Service Capacity (Before existing Debt Service) $11,191,674 $15,712,194 $16,213,492 $19,974,656 $20,099,927 $24,045,234 $25,289,030 $27,863,865 Less Existing Debt Service 7,986,506 7,912,139 7,905,340 7,964,142 6,871,088 9,551,035 13,753,882 18,583,458 Additional Revenues for Debt Service $3,205,168 $7,800,055 $8,308,152 $12,010,515 $13,228,839 $14,494,199 $11,535,148 $9,280,407 C-5

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69 APPENDIX D FINANCIAL STATEMENTS OF THE DISTRICT

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