The URL can be used to link to this page

Home My WebLink About01-24-18 F&A Committee Packet 1 OTAY WATER DISTRICT FINANCE AND ADMINISTRATION COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA BOARDROOM WEDNESDAY January 24, 2018 12:00 P.M. This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1. ROLL CALL 2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU- RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA DISCUSSION ITEMS 3. APPROVE AN ENGAGEMENT LETTER WITH THE AUDITING FIRM OF TEAMAN, RAMIREZ AND SMITH, INC., TO PROVIDE AUDIT SERVICES TO THE DISTRICT FOR THE FISCAL YEAR ENDING JUNE 30, 2018 (BELL) 4. ADOPT RESOLUTION NO. 4342 DESIGNATING DISTRICT STAFF WITH THE AUTHORITY TO ORDER THE DEPOSIT OR WITHDRAWAL OF FUNDS WITH THE LOCAL AGENCY INVESTMENT FUND (BELL) [5 minutes] 5. APPROVE THE DECLARATION OF 2.539 ACRES OF REAL ESTATE PROPERTY LOCATED ALONG THE FUTURE ALIGNMENT OF ALTA ROAD ON OTAY MESA AS SURPLUS; AND ACCEPT AN OFFER FROM KEARNY PCCP OTAY 311, LLC, A DELAWARE LIMITED LIABILITY COMPANY TO PURCHASE 2.539 ACRES OF THE LAND FOR $691,475.00 AND ACCEPT A GRANT OF EASEMENT THAT SECURES THE OTAY WATER DISTRICT’S PRIOR PROPERTY RIGHTS (MARTIN) [5 minutes] 6. ADJOURNMENT BOARD MEMBERS ATTENDING: Mark Robak, Chair Mitch Thompson 2 All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis- trict’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available through the District Secretary by contacting her at (619) 670-2280. If you have any disability which would require accommodation in order to enable you to par- ticipate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on January 19, 2018 I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time being at least 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on January 19, 2018. /s/ Susan Cruz, District Secretary STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 7, 2018 SUBMITTED BY: Rita Bell, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Kevin Koeppen, Assistant Chief Financial Officer Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Appointment of Auditor for Fiscal Year Ending June 30, 2018 GENERAL MANAGER’S RECOMMENDATION: That the Board authorize the General Manager to sign the engagement letters from the auditing firm of Teaman, Ramirez & Smith, Inc., to contract for audit services for fiscal year ending June 30, 2018. COMMITTEE ACTION: Please see Attachment A. PURPOSE: The District is required to retain the services of an independent accounting firm to perform an audit of the District’s financial records each year. ANALYSIS: At the Board meeting on January 7, 2014, the Board approved Teaman, Ramirez & Smith, Inc., as the District’s auditors for a 1-year contract, with four (4) 1-year options, with each option year subject to Board review and approval. On February 1, 2017, the Board authorized the General Manager to engage Teaman, Ramirez & Smith, Inc., for the third option year for the FY 2017 audit. Staff is recommending the appointment of Teaman, Ramirez & Smith, Inc. as the District’s auditors for FY 2018, in conjunction with the fourth and final 1-year contract option. This is based on their staff’s knowledge of the District’s operations and finances, their technical qualifications, and their performance as the District’s auditors during the fiscal years 2014, 2015, 2016 and 2017 audits. The audit will consist of four major components: 1) Standard audit services, to provide an audit opinion on the District’s financial statements; 2) Agreed upon procedures related to the District’s Investment Policy procedures, to issue a report on staff’s compliance with District policy; 3) A State Controllers Report, required by the State of California; and 4) Assistance in preparation of the District’s Comprehensive Annual Financial Report (CAFR). The following is a tentative planning schedule for the major activities involved in completing the FY 2018 financial audit:  May-2018: Pre-audit fieldwork (3–4 days).  Aug-2018: Year-end audit fieldwork (4–5 days).  Nov-2018: Board presentation of the audited financial statements.  Dec-2018: CAFR submission to Government Finance Officers Association (GFOA). FISCAL IMPACT: The fee for auditing services for the fiscal year ending June 30, 2018, will be $28,600. This is an increase of $850 over the prior year’s fee. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning, formalized financial policies, enhanced budget controls, fair pricing, debt planning, and improved financial reporting. LEGAL IMPACT: Required by law. Attachments: A) Committee Action Form B) Audit Engagement Letter C) State Controllers Report Engagement Letter D) Agreed Upon Procedures Engagement Letter ATTACHMENT A SUBJECT/PROJECT: Appointment of Auditor for Fiscal Year Ending June 30, 2018 COMMITTEE ACTION: The Finance, Administration and Communications Committee supported staff’s recommendation to the Board to appoint Teaman, Ramirez & Smith, Inc., as the District’s auditors for the fiscal year ending June 30, 2018. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board. -=rc ~s TEAMAN, RAMIREZ & SMITH, INC. ~· I ~ c E R T I F I E D p u B l I c A c c 0 u N T A N T s Otay Water District 2554 Sweetwater Springs Blvd Spring Valley, CA 91778-2004 January 10, 2018 We are pleased to confnm our understanding of the services we are to provide the Otay Water District (the "District") for the year ended June 30, 2018. We will audit the fmancial statements of the business- type activities, and each major fund, including the related notes to the fmancial statements, which collectiveiy comprise the basic financial statements, of the Otay Water District as of and for the year ended June 30, 2018. Accounting standards generally accepted in the United States provide for certain required supplementary information (RSI), such as management's discussion and analysis (MD&A), to supplement the District's basic financial statements. Such information, although not a part of the basic fmancial statements, is required by the Government Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic fmancial statements in an appropriate operational, economic, or historical contest. As part of our engagement, we will apply certain limited procedures to the District's RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures will consist principally of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic fmancial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: 1. Management's Discussion and Analysis 2. Schedule of Funding Progress for DPHP 3. Schedule of Changes in the Net Pension Liability and Related Ratios 4. Schedule of Contributions The following other information accompanying the fmancial statements will not be subjected to the auditing procedures applied in our audit of the fmancial statements, and for which our auditors' report will not provide an opinion or any assurance on that other information. 1. Introductory Section 2. Statistical Section Audit Objectives . The objective of our audit is the expression of opinions as to whether your fmancial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles and to report on the fairness of the supplementary information referred to in the second paragraph when considered in relation to the financial statements as a whole. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America and the standards for fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and will include tests of the accounting records of the District and other procedures we consider necessary to enable us to express such opinions. We will issue a written report upon completion of our Richard A. Teaman, CPA eo David M. Ramirez, CPA eo Javier H. Carrillo, CPA eo Bryan P. Daugherty, CPA eo Joshua J. Calhoun, CPA 4201 Brockton Avenue Suite 100 Riverside CA 92501 951.274.9500 TEL 951.274.7828 FAX www.trscpas.com B-1 audit of the District’s financial statements. Our report will be addressed to the Board of Directors of the District. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modify our opinions or add emphasis-of-matter or other-matter paragraphs. If our opinions on the financial statements are other than unmodified, we will discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form or have not formed opinions, we may decline to express opinions or issue reports, or may withdraw from this engagement. We will also provide a report (that does not include an opinion) on internal control related to the financial statements and compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements as required by Government Auditing Standards. The report on internal control and on compliance and other matters will include a paragraph that states (1) that the purpose of the report is solely to describe the scope of testing of internal control and compliance, and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control on compliance, and (2) that the report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. The paragraph will also state that the report is not suitable for any other purpose. If during our audit we become aware that the District is subject to an audit requirement that is not encompassed in the terms of this engagement, we will communicate to management and those charged with governance that an audit in accordance with U.S. generally accepted auditing standards and the standards for financial audits contained in Government Auditing Standards may not satisfy the relevant legal, regulatory, or contractual requirements. Audit Procedures - General An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether from (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the District or to acts by management or employees acting on behalf of the District. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us, even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards. In addition, an audit is not designed to detect immaterial misstatements or violations of laws or governmental regulations that do not have a direct and material effect on the financial statements. However, we will inform the appropriate level of management of any material errors or any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform the appropriate level of management of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential, and of any material abuse that comes to our attention. Our responsibility as auditor is limited to the period covered by our audit and does not extend to later periods for which we are not engaged as auditors. B-1 Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, funding sources, creditors, and financial institutions. We will request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit, we will require certain written representations from you about your responsibilities for the financial statements; compliance with laws, regulations, contracts, and grant agreements; and other responsibilities required by generally accepted auditing standards. , Audit Procedures - Internal Controls Our audit will include obtaining an understanding of the District and its environment, including internal control sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider relevant to preventing and detecting errors and fraud that are material to the financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the financial statements. Our tests, if performed, will be less in scope than would be necessary to render an opinion on internal control and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to Government Auditing Standards. An audit is not designed to provide assurance on internal control or to identify significant deficiencies or material weaknesses. However, during the audit, we will communicate to management and those charged with governance internal control related matters that are required to be communicated under AICPA professional standards and Government Auditing Standards. Audit Procedures - Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the District’s compliance with the provisions of applicable laws, regulations, contracts, agreements, and grants. However, the objective of our audit will not be to provide an opinion on overall compliance and we will not express such an opinion in our report on compliance issued pursuant to Government Auditing Standards. Other Services We will also assist in preparing the financial statements and related notes of the District in conformity with U.S. generally accepted accounting principles and prepare the State Controllers Report (see separate engagement letter) in conformity of the requirements of the California State Controller’s Office based on information provided by you. These nonaudit services do not constitute an audit under Government Auditing Standards and such services will not be conducted in accordance with Government Auditing Standards. We will perform the services in accordance with applicable professional standards. The other services are limited to the financial statement services previously defined. We, in our sole professional judgment, reserve the right to refuse to perform any procedure or take any action that could be construed as assuming management responsibilities. B-1 Management Responsibilities Management is responsible for establishing and maintaining effective internal controls, including evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met; following laws and regulations; and ensuring that management is reliable and financial information is reliable and properly reported. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible for the selection and application of accounting principles, for the preparation and fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles, and for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is also responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. You are also responsible for providing us with (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities include adjusting the financial statements to correct material misstatement and for confirming to us in the written representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. You are responsible for the design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud affecting the District involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud or illegal acts could have a material effect on the financial statements. Your responsibilities include informing us of your knowledge of any allegations of fraud or suspected fraud affecting the District received in communications from employees, former employees, grantors, regulators, or others. In addition, you are responsible for identifying and ensuring that the District complies with applicable laws, regulations, contracts, agreements, and grants for taking timely and appropriate steps to remedy any fraud and noncompliance with provisions of laws, regulations, contracts or grant agreements, or abuse that we report. You are responsible for the preparation of the supplementary information, which we have been engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to include our report on the supplementary information in any document that contains and indicates that we have reported on the supplementary information. You also agree to include the audited financial statements with any presentation of the supplementary information that includes our report thereon or make the audited financial statements readily available to users of the supplementary information no later than the date the supplementary information is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (1) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) the methods of measurement or presentation have not changed from those used in the prior period or if they have changed the reasons for such changes; and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the supplementary information. B-1 Management is responsible for establishing and maintaining a process for tracking the status of audit findings and recommendations. Management is also responsible for identifying and providing report copies of previous financial audits, attestation engagements, performance audits or other studies related to the objectives discussed in the Audit Objectives section of this letter. This responsibility includes relaying to us corrective actions taken to address significant findings and recommendations resulting from those audits, attestation engagements, performance audits, or other studies. You are also responsible for providing management’s views on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for the report, and for the timing and format for providing that information. You agree to assume all management responsibilities relating to the financial statements and related notes and any other nonaudit services we provide. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements and related notes and that you have reviewed and approved the financial statements and related notes prior to their issuance and have accepted responsibility for them. Further, you agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility for them. With regard to the electronic dissemination of audited financial statements, including financial statements published electronically on your website, you understand that electronic sites are a means to distribute information and, therefore, we are not required to read the information contained in these sites or to consider the consistency of other information in the electronic site with the original document. Engagement Administration, Fees, and Other We understand that your employees will prepare all cash or other confirmations we request and will locate any documents selected by us for testing. We will provide copies of our reports to the District; however, management is responsible for distribution of the reports and the financial statements. Unless restricted by law or regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. The audit documentation for this engagement is the property of Teaman, Ramirez & Smith, Inc. and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to grantor agencies or their designee, a federal agency providing direct or indirect funding, or the U.S. Government Accountability Office for purpose of a quality review of the audit, to resolve audit findings, or to carry out oversight responsibilities. We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of our firm. Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned parties. These parties may intend, or decide, to distribute the copies or information contained therein to others, including other governmental agencies. In such cases, Teaman, Ramirez & Smith, Inc. is not responsible for the distribution of the copies or information contained therein. The audit documentation for this engagement will be retained for a minimum of five years after the report release date or for any additional period requested by a grantor or federal agency. If we are aware that a federal awarding agency or auditee is contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. We expect to begin our fmal audit fieldwork approximately in August 2018 and to issue our reports approximately in October 2018. Richard Teaman is the engagement partner and is responsible for supervising the engagement and signing the reports or authorizing another individual to sign them. Our fee for these services will be $28,600. Our invoices for these fees will be rendered as work progresses and are payable on presentation. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been completed upon written notification of termination, even if have not completed our report. You will be obligated to compensate us for all time expended through the date of termination. The above fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. We appreciate the opportunity to be of service to the Otay Water District and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us. RESPONSE: Very truly yours, TEAMAN, RAMIREZ & SMITH, INC. Richard A. Teaman Certified Public Accountant This letter correctly sets forth the understanding of the Otay Water District. By: Title: Date: B-1 -=rc ~s TEAMAN, RAMIREZ & SMITH, INC. ~· I ~ c E R T I F I E 0 p u B l I c A c c 0 u N T A N T s Otay Water District 2554 Sweetwater Springs Blvd Spring Valley, CA 91778-2004 January 10, 2018 We are pleased to confrrm our understanding of the services we are to provide for the year ended June 30,2018. We will prepare the Annual Financial Transactions Report (State Controller's Report) of the Otay Water District (the "District"), as of and for the year ended June 30, 2018 in the forms prescribed by the California State Controller and perform a compilation engagement with respect to the State Controller's Report. The supplementary information accompanying the compiled State Controller's Report will be presented for purposes of additional analysis. The supplementary information (U.S. Bureau of the Census form) will be compiled from information that is the representation of management. We will not compile the Government Compensation in California (GCC) Report or other supplementary information. We will not audit or review the supplementary information. We will not express an opinion, a conclusion, or provide any assurance on such supplementary infmmation. We will assist the Finance Department in adjusting the books of accounts with the objective that the Finance Department will be able to prepare a working trial balance from which the State Controller's Reports can be prepared. The Finance Department will provide us with a detailed trial balance and any supporting schedules we require. Our Responsibilities The objective of our engagement is to- 1) prepare the State Controller's Report in accordance with the format prescribed by the California State Controller based on information provided by you and in accordance with accounting principles generally accepted in the United States of America, and 2) apply accounting and fmancial reporting expertise to assist you in the presentation of the State Controller's Report without undertaking to obtain or provide any assurance that there are no material modifications that should be made to those forms in order for them to be in accordance with the format prescribed by the California State Controller and accounting principles generally accepted in the United States of America. We will conduct our compilation engagement in accordance with Statements on Standards for Accounting and Review Services (SSARS) promulgated by the Accounting and Review Services Committee of the AICP A and comply with applicable professional standards, including the AICPA's Code of Professional Conduct and its ethical principles of integrity, objectivity, professional competence, and due care, when performing the compilation engagement. We are not required to, and will not, verify the accuracy or completeness of the information you will provide to us for the engagement or otherwise gather evidence for the purpose of expressing an opinion or a conclusion. Accordingly, we will not express an opinion or a conclusion nor provide any assurance on the State Controller's Report. Richard A. Teaman, CPA " David M. Ramirez, CPA " Javier H. Carrillo, CPA " Bryan P. Daugherty, CPA " Joshua J. Calhoun, CPA 4201 Brockton Avenue Suite 100 Riverside CA 92501 951.274.9500 TEL 951.274.7828 FAX www.trscpas.com Our engagement cannot be relied upon to identify or disclose any misstatements in the State Controller’s Report, including those caused by fraud or error, or to identify or disclose any wrongdoing within the District or noncompliance with laws and regulations. We, in our sole professional judgment, reserve the right to refuse to perform any procedure or take any action that could be construed as assuming management responsibilities. Your Responsibilities The engagement to be performed is conducted on the basis that you acknowledge and understand that our role is to assist you in the preparation of the State Controller’s Report in accordance with the format prescribed by the California State Controller and accounting principles generally accepted in the United States of America and assist you in the presentation of the State Controller’s Report in accordance with the format prescribed by the California State Controller and accounting principles generally accepted in the United States of America. You have the following overall responsibilities that are fundamental to our undertaking the engagement in accordance with SSARS: 1) The selection of the format prescribed by the California State Controller and accounting principles generally accepted in the United States of America as the financial reporting framework to be applied in the preparation of the State Controller’s Report. 2) The preparation and fair presentation of the State Controller’s Report in accordance with the format prescribed by the California State Controller and the accounting principles generally accepted in the United States of America. 3) The design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the State Controller’s Report. 4) The prevention and detection of fraud. 5) To ensure that the District complies with the laws and regulations applicable to its activities. 6) The accuracy and completeness of the records, documents, explanations, and other information, including significant judgments, you provide to us for the engagement. 7) To provide us with— • access to all information of which you are aware that is relevant to the fair presentation of the State Controller’s Report and supplementary information, such as records, documentation, and other matters. • additional information that we may request from you for the purpose of the compilation engagement. • unrestricted access to persons within the entity of whom we determine it necessary to make inquiries. You are also responsible for all management decisions and responsibilities and for designating an individual with suitable skills, knowledge, and experience to oversee our services and the preparation of your State Controller’s Report. You are responsible for evaluating the adequacy and results of the services performed and accepting responsibility for such services. Our Report As part of our engagement, we will issue a report that will state that we did not audit or review the State Controller's Report and that, accordingly, we do not express an opinion, a conclusion, or provide any assurance on them. There may be circumstances in which the report differs from the expected form and content. If, for any reason, we are unable to complete the compilation of your State Controller's Report, we will not issue a report on such prescribed forms as a result of this engagement. Our report will disclose that the State Controller's Report is presented in a prescribed form in accordance with the requirements of the California State Controller and is not intended to be a presentation in accordance with accounting principles generally accepted in the United States of America. You agree to include our accountant's compilation report in any document containing the State Controller's Report that indicates we have performed a compilation engagement on such prescribed forms and, prior to inclusion of the report, to ask our permission to do so. Other Relevant Information Richard Teaman is the engagement partner and is responsible for supervising the engagement and signing the report or authorizing another individual to sign it. Our fee to prepare the report is included in the fee quoted in the engagement letter to conduct the June 30, 2018 financial audit of the District dated January 10, 2018. The fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the work performed. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. We appreciate the opportunity to be of service to you and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as prescribed in this letter, please sign the enclosed copy and return it to us. RESPONSE: Very truly yours, TEAMAN, RAMIREZ & SMITH, INC. Richard A. Teaman Certified Public Accountant This letter correctly sets fmth the understanding of the Otay Water District. By: ___________________ _ Title:. ______________________ _ Date: _______________________ _ -=rc ~s TEAMAN, RAMIREZ & SMITH, INC. ~· I ~ c E R T I F I E 0 p u 8 l I c A c c 0 u N T A N T s Otay Water District 2554 Sweetwater Springs Blvd Spring Valley, CA 91778-2004 January 10,2018 We are pleased to confirm our understanding of the nature and limitations of the services we are to provide for the Otay Water District (the "District"). We will apply the agreed-upon procedures which the District's management has specified, listed in the attached schedule, for the investments of the District for the fiscal year ending June 30, 2018 (prepared in accordance with generally accepted accounting principles). This engagement is solely to assist the District's management in evaluating the compliance with the District's investment policy. Our engagement to apply agreed-upon procedures will be conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of those parties specified in the report and we will require an acknowledgement in writing of that responsibility. Consequently, we make no representation regarding the sufficiency of the procedures described in the attached schedule either for the purpose for which this report has been requested or for any other purpose. Because the agreed-upon procedures listed in the attached schedule do not constitute an examination, we will not express an opinion on the District's investments or any elements, accounts, or items thereof. In addition, we have no obligation to perform any procedures beyond those listed in the attached schedule. We plan to begin our procedures in approximately August 2018 and, unless unforeseeable problems encountered, the engagement should be completed in October 2018. We will issue a written report upon completion of our engagement that lists the procedures performed and our findings. Our repmt will be addressed to the Board of Directors and senior management of the District. If, for any reason, we are unable to complete any of the procedures, we will describe in oqr report any restrictions on the performance of the procedures, or not issue a report and withdraw from this engagement. You understand that the report is intended solely for the infonnation and use of the District, and should not be used by anyone other than these specified parties. Our report will contain a paragraph indicating that had we performed additional procedures, other matters might have come to our attention that would have been repmted to you. An agreed-upon procedures engagement is not designed to detect instances of fraud or noncompliance with laws or regulations; however, we will communicate to you any known and suspected fraud and noncompliance with laws or regulations affecting the investments of the District that come to our attention. In addition, if in connection with this engagement, matters come to our attention that contradict the investments of the District, we will disclose those matters in our report. You are responsible for the presentation of the investments of the District in accordance with generally accepted accounting principles; and for selecting the criteria and determining that such criteria are appropriate for your purposes. You are also responsible for, and agree to provide us with, a written assertion about the investments of the District. In addition, you are responsible for providing us with (1) access to all information of which you are aware that is relevant to the performance of the agreed-upon procedures on the subject matter, (2) additional information that we may request for the purpose of performing the agreed-upon procedures, and (3) unrestricted access to persons within the District from whom we detennine it necessary to obtain evidence relating to perfonning those procedures. You are responsible for Richard A. Teaman, CPA 5 David M. Ramirez, CPA 5 Javier H. Carrillo, CPA 5 Bryan P. Daugherty, CPA 5 Joshua J. Calhoun, CPA 4201 Brockton Avenue Suite 100 Riverside CA 92501 951.274.9500 TEL 951.274.7828 FAX www.trscpas.com assuming all management responsibilities and for overseeing any nonattest services we provide by designating an individual, preferably within senior management, who possesses suitable skill, knowledge, and/or experience. In addition, you are responsible for evaluating the adequacy and results of the services performed and accepting responsibility for the results of such services. At the conclusion of our engagement, we will require certain written representations in the form of a representation letter from management that, among other things, will confmn management's responsibility for the presentation of the investments of the District in accordance with generally accepted accounting principles. Richard A. Temnan is the engagement partner and is responsible for supervising the engagement and signing the report or authorizing another individual to sign it. Our fees for these services will be $1,500 and is included in the fee quoted in the engagement letter to conduct the June 30, 2018 financial audit of the District dated Janumy 10, 2018. The fee is based on anticipated cooperation your personnel and the asswnption that unexpected circumstances will not be encountered during the engagement. If significant additional time is necessary, we will discuss it with you and arrive at a new fee before we incur the additional costs. We appreciate the oppmtunity to assist you and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us. If the need for additional services arises, our agreement with you will need to be revised. It is custommy for us to enumerate these revisions in an addendum to this letter. If additional specified parties of the report are added, we will require that they acknowledge in writing their responsibility for the sufficiency of procedures. RESPONSE: Very truly yours, TEAMAN, RAMIREZ & SMITH, INC. Richard A. Teaman Certified Public Accountant This letter correctly sets forth the understanding ofthe Otay Water District. By: ___________________ _ Title: _____________________ _ Date: ______________________ _ Otay Water District Agreed-Upon Procedures Investments 1. Obtain a copy of the District’s investment policy and determine that it is in effect for the fiscal year ended June 30, 2018. 2. Select 4 investments held at year end and determine if they are allowable investments under the District’s Investment Policy. 3. For the four investments selected in #2 above, determine if they are held by a third party custodian designated by the District. 4. Confirm the part or original investment amount and market value of the four investments selected above with the custodian or issuer of the investments. 5. Select two investment earnings transactions that took place during the year and recomputed the earnings to determine if they proper amount was received. 6. Trace amounts received for transactions selected at #5 above into the District’s bank accounts. 7. Select five investment transactions (buy, sell, trade, or maturity) occurring during the year under review and determine that the transactions are permissible under the District’s investment policy. 8. Review supporting documentation for the five investments selected at #7 above to determine if the transactions were appropriately recorded in the District’s general ledger. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 7, 2018 SUBMITTED BY: Rita Bell, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Kevin Koeppen, Assistant Chief Financial Officer Joseph R. Beachem, Chief Financial Officer Mark Watton, General Manager SUBJECT: Adopt Resolution No. 4342 Designating District Staff with the Authority to Order the Deposit or Withdrawal of Funds with the Local Agency Investment Fund GENERAL MANAGER’S RECOMMENDATION: That the Board adopt Resolution No. 4342 to authorize the following positions to order the deposit or withdrawal of funds in the Local Agency Investment Fund (LAIF):  Chief Financial Officer  Assistant Chief Financial Officer  Finance Manager COMMITTEE ACTION: See Attachment A. PURPOSE: To renew authorization, using current position titles, for selected District staff to order the deposit or withdrawal of funds in LAIF. 2 ANALYSIS: The District currently invests funds in LAIF for the purpose of earning a return on available funds. Authorized staff regularly transfers funds between the District’s LAIF and Union Bank accounts to meet the District’s short-term cash requirements. With the recent position and title changes, it has become necessary to renew our standing authorizations with LAIF, and to provide LAIF with a new resolution listing the appropriate position titles responsible for making deposits and withdrawals. This action also gives authorization to the successors of these positions, thereby minimizing the need for future Board actions. This administrative update addresses the LAIF policy requiring authorizations be done by resolution of the Board and not by previously authorized parties. FISCAL IMPACT: None. STRATEGIC GOAL: The use of LAIF helps the District to meet our strategic goal of prudently managing District funds. LEGAL IMPACT: None. Attachments: A) Committee Action B) Resolution No. 4342 ATTACHMENT A SUBJECT/PROJECT: Adopt Resolution No. 4342 Designating District Staff with the Authority to Order the Deposit or Withdrawal of Funds with the Local Agency Investment Fund COMMITTEE ACTION: That the Finance, Administration and Communications Committee recommend that the Board adopt Resolution No. 4342 designating District staff with the authority to order the deposit or withdrawal of funds with the Local Agency Investment Fund (LAIF). NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board. RESOLUTION NO. 4342 RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT DESIGNATING DISTRICT STAFF WITH THE AUTHORITY TO ORDER THE DEPOSIT OR WITHDRAWAL OF FUNDS WITH THE LOCAL AGENCY INVESTMENT FUND (LAIF) WHEREAS, The Otay Water District is currently authorized to invest funds in the Local Agency Investment Fund (LAIF); and WHEREAS, The Board of Directors does hereby find that the deposit and withdrawal of funds in LAIF, in accordance with the provisions of Section 16429.1 of the Government Code for the purpose of investment as stated therein, as is in the best interest of the Otay Water District; NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Otay Water District that the following District designees, or their successors in office, shall be authorized to order the deposit and withdrawal of funds with LAIF: Joseph R. Beachem ______________________ Chief Financial Officer Kevin Koeppen __________________________ Assistant Chief of Finance Rita K. Bell ____________________________ Finance Manager, Treasury and Accounting Services PASSED, ADOPTED AND APPROVED by the Board of Directors of the Otay Water District, County of San Diego, State of California, at a regular meeting held on this 7th day of February, 2018. AYES: NOES: ABSTAIN: ABSENT: _____________________________________ President ATTEST: ____________________________________ Secretary Attachment B STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 7, 2018 SUBMITTED BY: Dan Martin Engineering Manager PROJECT: D0914- 090272 090206 DIV. NO. 2 APPROVED BY: Rod Posada, Chief, Engineering Mark Watton, General Manager SUBJECT: Sale of 2.539 Acres of Otay Water District (District) property located along the future alignment of Alta Road on Otay Mesa GENERAL MANAGER’S RECOMMENDATION: That the Board: 1. Declare 2.539 acres of real estate property located along the future alignment of Alta Road on Otay Mesa as surplus (please see Exhibit A for location). 2. Authorize the General Manager to accept an offer from Kearny PCCP Otay 311, LLC, a Delaware limited liability company (Kearny) to purchase 2.539 acres of the land for $691,475.00 (Exhibit B) and accept a Grant of Easement that secures the Otay Water District’s prior property rights (Exhibit C). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain approval from the Otay Water District Board (Board) to declare 2.539 acres of District property as surplus and to authorize the General manager to accept an offer from Kearny to purchase 2.539 acres of the land for $691,475.00 and accept a Grant of Easement that secures the Otay Water District’s prior property rights. 2 ANALYSIS: The District owns a thirty (30) foot wide parcel (APN 648-070-18-00) on Otay Mesa that is located in the future alignment of Alta Road. The north end of the District’s parcel is located at Otay Mesa Road and the south end of the parcel is located approximately 340 feet north of the International Border (See Exhibit A). The parcel supports the District’s 24-inch water distribution main that supplies emergency water to Mexico. The State of California Department of Transportation (Caltrans) is in the process of moving forward with the development of State Route 11 (SR 11) east of Enrico Fermi Drive on Otay Mesa. The work by Caltrans includes acquisition of right-of-way for the SR 11 project. This recent activity by Caltrans has assisted in moving development projects on Otay Mesa forward including the Otay Crossings Commerce Park. The Otay Crossings Commerce Park project consists of 311.5- acres of mixed industrial land. The future extension of SR-11 is planned to be constructed through the Otay Crossings Commerce Park project. As a condition of development, the Otay Crossings Commerce Park, which is located immediately east of the District’s thirty (30) foot wide parcel, is required to construct the extension of Alta Road between Otay Mesa Road and Airway Road. The Otay Crossings Commerce Park is also required to install off-site sewer improvements to support the development. These improvements include sewer that will be located in the future Alta Road between Airway Road and Siempre Viva Road. Kearny, the developer for the Otay Crossings Commerce Park, has approached the District to purchase portions of the District’s property, which are needed to construct the extension of Alta Road and the off-site sewer. The developer funded a District appraisal for the acquisition of the District’s property. The District has also been approached by Caltrans to acquire a portion of the thirty (30) foot wide parcel for the SR 11 project. Caltrans has provided the District with an appraisal for the portion of District property needed for the SR 11 project. The District’s appraisal for the proposed developer acquisition has been reconciled with the appraisal performed by Caltrans. The highest appraisal value is being used for the purchase of the District’s property. A Purchase and Sale Agreement and Escrow Instructions has been developed for the purchase of the property (Exhibit B), which includes the plat and legal descriptions. A Grant of Easement of Right-of-Way has also been developed to secure the District prior rights (Exhibit 3 C). Staff is recommending that these documents be executed in substantially the same form as shown. Once the Alta Road improvements are completed, the developer will dedicate these improvements to the County of San Diego. FISCAL IMPACT: Joe Beachem, Chief Financial Officer This land sale will result in a one-time revenue to the District of $691,475.00. STRATEGIC GOAL: The expansion of the distribution system through the construction developer projects supports the District’s Mission statement, “To provide high value water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner” and the General Manager’s Vision, "A District that is at the forefront in innovations to provide water services at affordable rates, with a reputation for outstanding customer service." LEGAL IMPACT: None. DM/RP:jf P:\Public-s\STAFF REPORTS\2018\BD 02-07-18\BD 02-07-18 Sale o Sale of 2.539 Acres of Excess Property along Future Alta Road Alignment to Kearny PCCP Otay 311, LLC Staff Report (DM_RP).docx Attachments: Attachment A – Committee Action Exhibit A – Location Map Exhibit B – Purchase and Sale Agreement and Escrow Instructions Exhibit C - Grant of Easement of Right-of-Way to Otay Water District ATTACHMENT A SUBJECT/PROJECT: D0914-090272 -090206 Sale of 2.539 Acres of Otay Water District (District) property located along the future alignment of Alta Road on Otay Mesa COMMITTEE ACTION: The Finance, Administration, and Communications Committee (Committee) reviewed this item at a Committee Meeting held on January 24, 2018. The Committee supported Staff’s recommendation. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for Board approval. This report will be sent to the Board as a Committee approved item, or modified to reflect any discussion or changes as directed from the Committee prior to presentation to the full Board. OTAY WATER DISTRICTAPN 648-070-18LOCATION MAP EXHIBIT A D0914-090272D0914-090206P:\DRAFTING DEPARTMENT\Info for Others\OWD\Dan Martin\Exhibit A, APN 648-070-18.mxd Otay CrossingsCommerce ParkAPN 648-070-03 Otay Water District APN 648-070-18Portion 1 (North) Otay Water DistrictAPN 648-070-18Portion 2 ?ÜFUTURE Otay Water DistrictAPN 648-070-18Portion 1 (South) Alta Rd Otay Mesa Rd Enrico Fermi Dr Airway Rd Marconi Dr Paseo de la Fuente Calzada de la Fuente Access Rd Siempre Viva Rd VICINITY MAP PROJECT SITE NTSDIV 5 DIV 1 DIV 2 DIV 4 DIV 3 ?ò Aä%&s ?p ?Ë !\ F 0 1,000500 Feet F Legend APN 648-070-18, Portion 1 APN 648-070-18, Portion 2 APN 648-070-03 EXHIBIT B AS7 Law San Diego/4344/2/K/S0362738.DOC PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS This Purchase and Sale Agreement and Escrow Instructions ("Agreement") is entered into effective as of ______________________, 2018 ("Effective Date"), between OTAY WATER DISTRICT, a municipal water district formed under the Municipal Water District Act of 1911 (“Seller”) and KEARNY PCCP OTAY 311, LLC, a Delaware limited liability company (“Buyer"), and constitutes an agreement for purchase and sale between the parties and joint escrow instructions to the Escrow Agent identified herein and is made with reference to the following facts: RECITALS A. Seller is the owner of the approximately 2.539 acres of land (“Property”) in the Otay Mesa area in the City of San Diego, State of California. The Property is more particularly described in Exhibits “A” and “A-1” attached hereto. B. Seller desires to sell the Property to Buyer and Buyer desires to purchase the Property, all on the terms and conditions in this Agreement. FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which are acknowledged, Buyer and Seller agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 Purchase and Sale. On the terms and conditions set forth herein, Seller agrees to sell to Buyer the Property, and Buyer agrees to purchase from Seller the Property. ARTICLE 2 AGREEMENT OF SALE AND PURCHASE PRICE 2.1 Purchase Price. The purchase price for the Property shall be Six Hundred Ninety One Thousand Four Hundred Seventy Five Dollars ($691,475.00) (the "Purchase Price"). 2.2 Payment of Purchase Price. Buyer shall deliver to Escrow Agent on the Close of Escrow, Cash representing the balance of the Purchase Price due. ARTICLE 3 CLOSING 3.1 Opening of Escrow. No later than one day after the execution of this Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC2 Agreement, the Buyer and Seller shall open an Escrow at First American Title Insurance Company, Attn: Melissa Smith, 4380 La Jolla Village Drive, Suite 110, San Diego, CA 92122; Phone: 858-410-3885; Cell: 619-385-1760; Fax: 877-461-2095; Email: melsmith@firstam.com ("Escrow" or “Escrow Agent”). 3.2 Close of Escrow. Escrow shall close on the Closing Date as set forth in Section 3.3 below. 3.3 Closing Date. The Closing Date shall occur on or before a date, which is ten (10) business days after the Contingency Date. 3.4 Escrow Instructions. The parties agree to execute such additional supplemental escrow instructions not inconsistent with this Agreement as Escrow Agent may reasonably require in order to facilitate the consummation of the transactions contemplated in this Agreement, and otherwise to conform to the usual practice of Escrow Agent, provided such instructions do not conflict with the provisions hereof. If such an escrow instruction is contrary to, or inconsistent with, a provision of this Agreement, the provision of this Agreement controls. 3.5 Seller’s Delivery at Closing. On or before the Closing Date, Seller shall deliver into Escrow the following documents: 3.5.1 Grant Deed. A Grant Deed in recordable form and properly executed on behalf of Seller conveying to Buyer the Property in fee simple (“Grant Deed”). 3.5.2 IRS. Seller's affidavit that Seller is not a foreign person as defined in the Internal Revenue Code of 1986, as amended (42 USCS §1445(f)(3)). The affidavit shall be in the form prescribed by federal regulations; 3.5.3 FTB. A duly executed Certificate by Seller in favor of Buyer as required under Revenue and Taxation Code §§18662 and 18668; 3.5.4 Fees. The amount, if any, required of Seller under Articles 10 and 11 of this Agreement, entitled “Proration” and A “Costs and Fees,” respectively; 3.5.5 Other Documents. Any other documents or instruments reasonably required to close the transaction contemplated hereby. The failure of Seller to make delivery of any of the documents described above on or before the Closing Date shall constitute a material breach hereof by Seller, provided that the conditions to such delivery, if any, have been fulfilled or waived 3.6 Buyer’s Delivery at Closing. Buyer shall, on or before the Closing Date, deliver to Escrow Agent each of the following: 3.6.1 Cash. Cash representing the balance of the Purchase Price; Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC3 3.6.2 Fees. The amount, if any, required of Buyer under Articles 10 and 11 of this Agreement, entitled “Prorations” and “Costs and Fees,” respectively; 3.6.3 Other Documents. Any other documents or instruments reasonably required to close the transaction contemplated hereby. The failure of Buyer to make delivery of any of the documents described above by the Closing Date shall constitute a material breach hereof by Buyer, provided that the conditions to such delivery, if any, have been fulfilled or waived. 3.7 Completion of Documents. Escrow Agent is authorized to collate counterparts of documents deposited into Escrow, to insert the Closing Date as the effective date where appropriate, and to otherwise complete such documents in accordance with instructions received by both parties, where appropriate and consistent with this Agreement. ARTICLE 4 CONDITIONS TO CLOSE OF ESCROW 4.1 Contingency Date. The “Contingency Date” shall mean 5:00 pm on a date, which is twenty (20) business days after the Effective Date. 4.2 Conditions Precedent. Seller and Buyer agree that the Closing is subject to the satisfaction or waiver of the following conditions precedent: 4.2.1 Due Diligence. Buyer, in its sole and absolute discretion, shall have until the Contingency Date to approve or disapprove, by written notice to Seller and Escrow Agent, all physical, developmental, economic, and any and all other aspects of the Property. If Buyer fails to give written notice to Seller and Escrow Agent of its approval or disapproval of all such matters on or before the Contingency Date, then Buyer shall be deemed to have disapproved the matters subject to its due diligence review as set forth herein, and the contingency set forth in this paragraph shall be deemed not satisfied. 4.3 Failure of Conditions. If the conditions set forth in Sections 4.2.1 are not satisfied or waived on or before the Contingency Date, Buyer may unilaterally terminate this Agreement and the Escrow by giving written notice of termination to Escrow Agent and a copy of such written notice to the Seller on or before the Contingency Date. In the event of such termination, and except as provided below, neither party shall have any further rights or obligations hereunder, except for any liability or obligation of Buyer and Seller, if any, pursuant to those provisions, which survive termination of this Agreement under the express terms of this Agreement. Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC4 ARTICLE 5 TITLE 5.1 Delivery of PR. Within five (5) days after the Effective Date, Seller shall deliver to Buyer a preliminary report for the Property (“PR”) issued by First American Title Insurance Company (“Title Company”), together with copies of all underlying documents referred to therein. During the period between the Effective Date and the Closing or earlier termination of this Agreement, Seller shall not create any further liens or encumbrances to title without Buyer’s prior written consent. Seller shall cause to be removed all deeds of trust, if any, which are recorded against the Property upon Close of Escrow. 5.2 Permitted Exceptions. The following matters shall be deemed permitted exceptions to title to the Property (“Permitted Exceptions”) and Buyer shall take title to the Property subject thereto: 5.2.1 The lien of current, non-delinquent real estate taxes and assessments; 5.2.2 The lien of any supplemental taxes assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code; 5.2.3 The exceptions set forth in the PR, to the extent they are approved by Buyer pursuant to Section 4.2.1. 5.3 Reservation of Easement. Notwithstanding Sections 5.1 and 5.2, above, Seller hereby reserves, for itself, its successors, heirs and assigns, a permanent easement of right-of-way over, under, and across the entire width and length of the Property, more particularly described in Exhibit “A” attached hereto, for the purpose of laying underground water and sewer pipelines and laterals, trunk lines, collection lines and laterals, sewer manholes and other underground and surface structures appurtenant to said water or sewer lines, including but not limited to power lines for transmission and communication purposes, pumps, regulators, valves and access roads or areas within said easement, hereinafter referred to as "said facilities," together with the right to construct, operate, maintain, repair and replace said facilities, and the right of ingress and egress for such purposes. Said easement is described and/or depicted as Exhibit “B” attached hereto. 5.4 Supplemental Reports. If the Title Company issues any supplement to the PR after the Contingency Date, which identifies any additional exceptions which are not Permitted Exceptions, Buyer shall have the right, notwithstanding expiration of the Contingency Date, to deliver written notice of its objection to the same, in writing, to Seller and Escrow Agent within five (5) business days after receipt of such supplemental report with respect to the new exceptions identified in such supplemental report. All exceptions which are approved by Buyer, in writing, shall be deemed Permitted Exceptions. If Buyer disapproves one or more exceptions in the supplemental report within such five (5) day period and Seller has not created such exception in breach of its obligation under Section 5.1, Seller shall have the right, but not the obligation, to cure and cause such disapproved Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC5 exception to be deleted from the supplemental report by delivering written notice to Buyer and Escrow Agent indicating that Seller will eliminate such exception(s) prior to the Close of Escrow. If Seller delivers such written election to cure disapproved exceptions within three (3) business days after receipt of Buyer’s notice of disapproval, Seller shall have until the Close of Escrow to complete the cure. If Seller fails to deliver written notice to cure any disapproved exception within such three (3) day period, Seller shall be deemed to have elected not to cure the disapproved exceptions. If Seller does not elect to cure or is deemed to have elected not to cure such disapproved exceptions as described above, Buyer shall elect one of the following, by delivering written notice to Seller and Escrow Agent by 5:00 p.m. within five (5) business days after Seller has elected not to cure such disapproved exceptions or has been deemed not to cure such disapproved exception: (i) to waive its objections, take title subject to such disapproved exceptions, which shall be deemed Permitted Exceptions, and proceed to close the Escrow; or (ii) to terminate this Agreement and the Escrow, in which event neither party shall have any further rights or obligations hereunder (except for any liability or obligation of Buyer pursuant to those provisions which survive termination of this Agreement under the express terms of this Agreement). If Buyer fails to deliver written notice of its election prior to the applicable deadline, Buyer will be deemed to have elected to waive its objections as described in (i) above. Notwithstanding the above, if Seller has created such new exception in breach of its obligation under Section 5.1, Seller shall be in default unless it causes such exception to be deleted from the supplemental report or Title Policy prior to the Close of Escrow. ARTICLE 6 PRE-CLOSING MATTERS 6.1 Inspection of Property. From and after the Effective Date, Seller shall make available to Buyer reasonable access to the Property during reasonable business hours and with reasonable advance notice to Seller for Buyer's inspection, investigation, and approval, in Buyer's sole discretion, and at Buyer’s sole cost and expense, the physical, geological, and environmental condition and use of the Property, including without limitation, the availability of access, utility services, zoning, environmental risks, engineering, and the soil conditions. Buyer agrees to indemnify Seller and to hold Seller, Seller's agents and employees, and the Property harmless from any losses, costs, damages, claims, or liabilities, including but not limited to, mechanics' and materialmen's liens and attorneys’ fees, arising in connection with Buyer's entry upon the Property under this Section 6.1. 6.2 Delivery of Documents. Seller will deliver to Buyer copies of the following documents with respect to the Property within two (2) days after the Effective Date: 6.2.1 Project Documents. Any studies, reports, surveys, and documents for the Property that are in Seller’s possession (collectively, the “Project Documents”). Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC6 ARTICLE 7 REPRESENTATIONS AND WARRANTIES 7.1 Warranties of Parties. 7.1.1 Seller's Warranties. Seller represents and warrants as of the date hereof: (a) Seller is a municipal water district formed under the Municipal Water District Act of 1911, duly formed, existing and in good standing under the laws of the State of California; Seller has full legal right, power and authority to execute and fully perform its obligations under this Agreement pursuant to its governing instruments,; and the persons executing this Agreement and other documents required hereunder on behalf of Seller are the duly designated agents of Seller and are authorized to do so. (b) To the best of Seller’s knowledge and except as described in the Project Documents, the Property does not contain any Hazardous Materials and does not have located under it, nor has there ever been, any underground storage tanks. (c) Seller has received no notice from any governmental authority and has no knowledge of any pending or threatened (i) zoning, building, fire, or health code violations or violations of other laws or governmental regulations concerning the Property or the operation of the Property that has not previously been corrected or disclosed in writing to Buyer; and (ii) condemnation of the Property or any part of the Property or special assessment regarding same. (d) To the best of Seller's knowledge, no legal actions are pending or threatened against the Property; (e) Sale of the Property will not violate any court order or an order of any governmental agency having jurisdiction over the Property or the Seller, or both. 7.1.2 Buyer's Warranties. Buyer represents and warrants as follows: (a) Buyer is a limited liability company, duly formed, existing and in good standing under the laws of the State of Delaware; Buyer has full legal right, power and authority to execute and fully perform its obligations under this Agreement pursuant to its governing instruments, without the need for any further action; and the persons executing this Agreement and other documents required hereunder on behalf of Buyer are the duly designated agents of Buyer and are authorized to do so. Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC7 ARTICLE 8 BROKER’S COMMISSIONS 8.1 Real Estate Commissions. Each party represents and warrants to the other party that no brokers or finders, other than the Brokers, have been employed or are entitled to a commission or compensation in connection with this transaction as a result of the action or agreement of the indemnifying party. Each party agrees to indemnify, protect, hold harmless and defend the other party (and its partners and affiliates and their respective officers, directors, shareholders, employees, agents, successors and assigns) from and against any obligation or liability to pay any such commission or compensation arising from the act or agreement of the indemnifying party. ARTICLE 9 (intentionally deleted) ARTICLE 10 PRORATIONS 10.1 Prorations. The following items shall be prorated, as applicable, on a per diem basis up to and including the Closing Date: 10.1.1 All non-delinquent property taxes and installments of special assessments due and payable in the calendar year of Closing, based upon the most recent tax information; and 10.1.2 Assessments payable pursuant to any covenants, conditions, or restrictions affecting the Property. 10.2 Method. All prorations shall be made on the basis of a 30-day month and a 360-day year, unless the parties otherwise agree in writing. If either party receives, after Close of Escrow, a supplemental tax assessment based upon the new construction or a change in ownership occurring prior to the Closing Date, then, within thirty (30) days after receipt, the parties shall prorate said supplemental assessment outside of Escrow (but as of the Closing Date) and make any appropriate payments. ARTICLE 11 COSTS & FEES 11.1 Costs. Seller will pay (i) Documentary Transfer Tax, in the amount Escrow Agent determines to be required by law; (ii) the CLTA Title Policy premium; and (iii) one- half (1/2) of Escrow Agent’s fee. Buyer will pay (i) one-half of (1/2) Escrow Agent’s fee; (ii) usual Buyer’s document-drafting charges; (iii) the policy premium increase for an ALTA Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC8 Policy and any endorsements requested by Buyer and (iv) all recording charges. ARTICLE 12 RISK OF LOSS 12.1 Buyer’s Rights. If the Property is damaged by fire or other casualty prior to the Closing Date, Buyer may either (i) terminate this Agreement, or (ii) proceed to close this transaction, without reduction in the Purchase Price, and have Seller assign and transfer to Buyer on the Closing Date all of Seller’s right, title, and interest to any insurance proceeds paid or payable to Seller under the policy covering the damage and pay to Buyer the amount of Seller’s deductible under the insurance policy. ARTICLE 13 CONDEMNATION 13.1 Condemnation. If between the Effective Date and the Closing Date, any condemnation or eminent domain proceedings are commenced or threatened that might result in the taking of any part of the Property, Buyer may either: (a) terminate this Agreement by written notice to Seller; or (b) proceed with the Closing and have Seller assign to Buyer all of Seller's right, title, and interest to any award made for the condemnation or eminent domain action. 13.2 Notice. Immediately after Seller obtains notice of the commencement of or the threatened commencement of eminent domain or condemnation proceedings, Seller shall notify Buyer in writing. Buyer shall then notify Seller, within thirty (30) days of Buyer's receipt of Seller's notice, whether Buyer elects to terminate this Agreement in accordance with Section 13.1(a) above. Failure by Buyer to respond within such thirty (30) day period shall be deemed to be an election by Buyer to terminate this Agreement in accordance with such Section 13.1(a) above. ARTICLE 14 (intentionally deleted) ARTICLE 15 NOTICES 15.1 Notice. All notices under this Agreement shall be in writing and sent by (a) certified or registered mail, return receipt requested, in which case notice shall be deemed delivered three (3) business days after deposit, postage prepaid in the United States Mail, (b) by a nationally recognized overnight courier such as Airborne Express, or Federal Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC9 Express, in which case notice shall be deemed delivered one (1) business day after deposit with that courier, or (c) by personal delivery, in which case notice shall be deemed delivered upon such date of delivery, as follows: Buyer’s Address For Notice: KEARNY PCCP OTAY 311, LLC c/o John V. Bragg, Jr. Kearny Real Estate Company 402 W. Broadway, Suite 180 San Diego, CA 92101 Phone: 619-702-8130 E-mail: jbragg@kearny.com With Copies To: Amy Strider Harleman, Esq. Peterson & Price, APC 530 B Street, Suite 1800 San Diego, CA 92101 Fax: (619) 234-4786 E-mail: efw@petersonprice.com Seller’s Address for Notice: _________________________ _________________________ _________________________ With Copies To: _________________________ _________________________ _________________________ ARTICLE 16 ASSIGNMENT 16.1 Assignment. Either party shall have the right to assign its rights and obligations under this Agreement only with the prior written consent of the other party, which consent shall not be unreasonably withheld. To the extent a party assigns its obligations hereunder, the assignee shall assume the assigning party’s warranties, representations and obligations under this Agreement and under any additional escrow instructions, in writing and such assignee is bound by all approvals previously given, if any. ARTICLE 17 THE CLOSING 17.1 Closing. Escrow Agent shall close the Escrow on the Closing Date by (i) filing for record the Grant Deed, such other documents as may be necessary to procure the Title Policy (as hereinafter defined), and Seller’s Easement, and (ii) delivering funds and documents as set forth in this Agreement IF AND ONLY IF each of the following conditions has been satisfied: 17.1.1 Delivery of Funds. All funds and instruments described in Section 3.5 and Section 3.6 have been delivered to Escrow Agent. Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC10 17.1.2 Procurement of Title Policy. Escrow Agent has procured the Title Company's ALTA Standard Owner's Policy (the "Title Policy"), with liability in the amount of the Purchase Price, insuring that the fee title to the Property vests in Buyer subject only to the Permitted Exceptions. 17.1.3 Conditions. The conditions to closing set forth in Section 4.2.1 and 4.2.2 have been satisfied or waived. 17.2 Title Insurance. Buyer may, at Buyer's option, direct the Escrow Agent to obtain an ALTA Title Extended Policy or to issue additional title insurance endorsements, if Buyer pays for the extra cost of such additional endorsements for such ALTA Title Policy over and above what would have been the cost of the CLTA Policy described above, provided that obtaining an ALTA Title Policy or endorsements is feasible and will not delay the Close of Escrow. Notwithstanding Buyer's exercise of this option to obtain an ALTA Title Policy or additional title insurance endorsements, the Title Company's refusal to issue an ALTA Policy with liability in the amount of the Purchase Price or the requirement that additional exceptions to such ALTA coverage should be shown shall not be a condition to Closing or constitute grounds for Buyer's refusing to purchase the Property or any claim for damages or reduction in the Purchase Price. Buyer shall be solely responsible, at his sole cost and expense, for timely obtaining an ALTA survey prior to Close of Escrow. 17.3 Termination. If Escrow Agent cannot close the Escrow on or before the Closing Date, it will nevertheless close the same when all conditions (except as to time) have been met unless, after the Closing Date and prior to the Close of Escrow, Escrow Agent receives a written demand for termination from a party not then in default hereunder. Said written demand shall also concurrently be delivered to the other party hereto. The making of such demand shall be optional, not mandatory; no delay in the making of such demand shall affect the rights hereunder of the party making same. In the event such demand is made upon Escrow Agent, Escrow Agent shall return to each party the funds and/or documents theretofore delivered to it by such party unless Escrow Agent decides the protection of its interests requires otherwise. Such return of funds and/or documents shall not affect the right of either party to enforce any remedy that may otherwise be available against the other party for breach of this Agreement. If Escrow is terminated as provided herein, Buyer shall promptly, upon such termination, deliver to Seller copies of all of the documents previously delivered by Seller to Buyer. ARTICLE 18 GENERAL PROVISIONS 18.1 Governing Law. This Agreement shall be interpreted and construed in accordance with California law. 18.2 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC11 18.3 Captions and Pronouns. The captions in this Agreement are inserted for convenience of reference and in no way define, describe, or limit the scope or intent of this Agreement or any of the provisions of this Agreement. Variations in pronouns have no bearing on the substantive effect of any provision of this Agreement. The masculine, feminine, or neuter, singular or plural, may be used interchangeably as the context expressly, or by necessary implication, may require. 18.4 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors, heirs, and permitted assigns. 18.5 Modifications; Waiver. No waiver, modification, amendment, discharge, or change of this Agreement shall be valid unless it is in writing and signed by the party against which the enforcement of the modification, waiver, amendment, discharge, or change is sought. 18.6 Entire Agreement. This Agreement contains the entire agreement between the parties relating to the transactions contemplated by this Agreement and all prior or contemporaneous agreements, understandings, representations, or statements, oral or written, are superseded. 18.7 Partial Invalidity. Any provision of this Agreement, which is unenforceable, invalid, or the inclusion of which would adversely affect the validity, legality, or enforcement of this Agreement shall have no effect, but all the remaining provisions of this Agreement shall remain in full effect if the rights and obligations of the parties are not materially altered. 18.8 Survival. Except as otherwise expressly provided in this Agreement, all representations, warranties, covenants, agreements, indemnities and other obligations of Seller and Buyer in this Agreement shall survive the Closing of this transaction. 18.9 No Third-Party Rights. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties to this Agreement and their respective successors and assigns, any rights or remedies. 18.10 Time of Essence. Time is of the essence in this Agreement. 18.11 Attorneys’ Fees. If any legal action or any other proceeding, including arbitration or an action for declaratory relief, is brought to enforce this Agreement or because of a dispute, breach, default, or misrepresentation in connection with this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which that party may be entitled. Prevailing party shall include, without limitation, (a) a party who dismisses an action in exchange for sums allegedly due; (b) the party that receives performance from the other party alleged to have breached a covenant or that receives a desired remedy, where these things are substantially equal to the relief sought in an action; Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC12 or (c) the party determined to be the prevailing party by a court of law. 18.12 Definitions. Definitions of words and phrases used in this Agreement: 18.12.1 Cash. "Cash" means (I) United States currency, or (ii) cashiers check(s), currently dated, payable to Escrow Agent and honored and paid upon presentation for payment on or prior to the Closing Date, or (iii) an amount credited by wire transfer into an Escrow Agent's bank account, or (iv) if Escrow Agent, in its sole discretion so requires, check(s) in the form required by clause (ii) drawn on such bank(s) as Escrow Agent may require. 18.12.2 Party. "Party" or "parties" means Buyer and/or Seller, as the context indicates. 18.12.3 Escrow. "The escrow" means the escrow created hereby. 18.12.4 Close of Escrow. "The Close of Escrow" means the time Seller's Grant Deed is filed for record. 18.12.5 Opening of Escrow. "The opening of the escrow" means the date Escrow Agent signs the "Consent of Escrow Agent" attached hereto. 18.12.6 City. “City” means the City of San Diego. 18.12.7 Hazardous Materials. "Hazardous Materials" means: (a) Those substances included within the definitions of "hazardous substance," "hazardous waste," "hazardous material," "toxic substance," "solid waste," or "pollutant or contaminant" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 [42 USCS §§9601 et seq.]; the Resource Conservation and Recovery Act [42 USCS §§6901 et seq.]; the Clean Water Act [33 USCS §§ 2601 et seq.]; the Toxic Substances Control Act [15 USCS §§9601 et seq.]; the Hazardous Materials Transportation Act [49 USCS §§1801 et seq.] or under any other Environmental Laws; (b) Those substances listed in the United States Department of Transportation Table [49 CFR 172.101], or by the Environmental Protection Agency, or any successor agency, as hazardous substances [40 CFR Part 302]; (c) Other substances, materials, and wastes that are or become regulated or classified as hazardous or toxic under federal, state, or local laws or regulations; and (d) Any material, waste, or substance that is: Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC13 (I) a petroleum or refined petroleum product, (ii) asbestos, (iii) polychlorinated biphenyl, (iv) designated as a hazardous substance pursuant to 33 USCS §1321 or listed pursuant to 33 USCS §1317, (v) a flammable explosive, or (vi) a radioactive material. 18.12.8 Laws. “Laws” means all governmental laws, statutes, ordinances, resolutions, rules, regulations, restrictions and requirements applicable to the Property, whether now or hereafter in effect, and as amended or supplemented from time to time. 18.12.9 Environmental Laws. “Environmental Laws” means all laws applicable to the physical condition of the Property or the presence of any substance thereon, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Sections 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Sections 466 et seq.), the Safe Drinking Water Act (14 U.S.C. Sections 300f et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Sections 5101 et seq.), the Toxic Substances control Act (15 U.S.C. Sections 2601 et seq.), the California Hazardous Waste Control Act (California Health and Safety Code Section 25100 et seq.), the California Hazardous Substances Account Act (California Health and Safety Code Sections 25300 et seq.), the Safe Drinking Water and Toxic Enforcement Act (“Proposition 65”)(California Health and Safety Code Sections 25249.5 et seq., and the Porter-Cologne Water Quality Control Act (California Health and Safety Code Sections 13000 et seq.), and any similar federal, state or local laws, all regulations and publications implementing or promulgated pursuant to the foregoing, as any of the foregoing may be amended or supplemented from time to time. Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC14 18.13 Possession. Possession of the Property is to be given to Buyer on the Closing Date. The parties have executed this Agreement as of the date first above written. SELLER: OTAY WATER DISTRICT, a municipal water district formed under the Municipal Water District Act of 1911 By: ___________________________________ Mark Watton, General Manager Approved as to Form: ___________________________________ General Counsel BUYER: KEARNY PCCP OTAY 311, LLC, a Delaware Limited Liability Company By: ___________________________________ Its: ___________________________________ Y:\Board\CurBdPkg\ENGRPLAN\2018\BD 2-7-18\Sale of 2.539 Acres of Otay Water District Property on Otay Mesa\Exhibit B - Purchase and Sale Agreement and Escrow Instructions.doc AS7 Law San Diego/4344/2/K/S0362738.DOC15 CONSENT OF ESCROW AGENT The undersigned Escrow Agent hereby agrees to (i) accept the foregoing Agreement and Instructions, (ii) be escrow agent under said Agreement and Instructions, and (iii) be bound by said Agreement and Instructions in the performance of its duties as escrow agent; provided, however, the undersigned shall have no obligations, liability or responsibility under (i) this Consent or otherwise, unless and until said Agreement and Instructions, fully signed by the parties, has been delivered to the undersigned, or (ii) any amendment to said Agreement and Instructions unless and until the same shall be accepted by the undersigned in writing. Dated: _________________ FIRST AMERICAN TITLE INSURANCE COMPANY By: _____________________________________ EXHIBIT C RECORDING REQUESTED BY AND AFTER RECORDATION MAIL TO: For Recorder's Use OTAY WATER DISTRICT 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CA 91978-2004 APN: 644-061-28 Documentary Transfer Tax: None (Exempt under Rev & Tax Code Section 11922) GRANT OF EASEMENT OF RIGHT-OF-WAY TO OTAY WATER DISTRICT For good and valuable consideration, receipt of which is hereby acknowledged, the undersigned KEARNY PCCP OTAY 311, LLC, a Delaware limited liability company, as Grantor hereby GRANT(S) to OTAY WATER DISTRICT, a municipal water district formed under the Municipal Water District Law of 1911, as amended, situated in the County of San Diego, State of California, as Grantee, a permanent easement of right- of-way for the purpose of laying underground water pipelines and sewer pipelines and laterals, trunk lines, collection lines and laterals, sewer manholes and other underground and surface structures appurtenant to said water pipelines or sewer lines, including but not limited to power lines for transmission and communication purposes, pumps, regulators, valves and access roads or areas within said easement, hereinafter referred to as "said facilities," to provide water for public purposes and to enable the United States to fulfil its water sharing obligations to Mexico when the need arises, together with the right to construct, operate, maintain, repair and replace said facilities, and the right of ingress and egress for such purposes. Said easement is described and/or depicted as follows: (See Exhibit “A” attached hereto and made a part hereof) Grantor reserves the right to use said land at Grantor's own risk for any and all purposes not conflicting, interfering or inconsistent with Grantee's use of, and access to, said facilities. Grantor waives any right under Civil Code section 845, and any right to compel Grantee to grade, surface or otherwise improve or maintain said easement area as a roadway. Grantor shall not increase or decrease or permit to be increased or decreased the ground elevations of said easement existing at the time this document is executed, nor construct or permit to be constructed any permanent building, structures, improvements or other encroachment upon said easement which will cause damage to or threaten the safety of any of said facilities of Grantee placed within the easement. { Grantee may remove from the easement any building, structure, improvement or other encroachments thereon conflicting, interfering or inconsistent with its use for the purposes hereby granted. Grantee shall have the right to install its own gates and locks in all fences, which now cross or may hereafter cross said easement. Grantee agrees on its own behalf and on behalf of its successors in interest that it will indemnify and hold harmless Grantor for any damages to the property, which result from Grantee’s use of the easement and maintenance and repair operations by Grantee’s pipeline within the easement. Grantor may use said land to construct and maintain a public highway on the property and to the extent of such use may surface or pave the area, subject to the restrictions as to changes in existing ground elevations and indemnifications set forth above. Grantor may, at Grantor's expense, and subject to Grantee's prior written consent, relocate the above mentioned facilities in the event such conflict with future development of said property, provided that Grantor does not cause discontinuance of service to any area, and provided, further, that Grantee receives, without expenses to Grantee, an easement comparable to this easement for said relocated facilities. Except as otherwise provided herein, Grantee shall never be required to relocate or alter in any way the facilities installed pursuant to this grant of easement, or to bear any cost in connection therewith as a result of changes in the location of any said facilities. Grantee shall have the right to transfer and assign all or a portion of this easement to its successor in interest, or to any other political subdivision or public utility for use of the above stated purpose. Date: _____________________ APPROVAL: By ____________________________ Name Title KEARNY PCCP OTAY 311, LLC, a Delaware Limited Liability Company { [Each signature of Grantor must be acknowledged in the form attached hereto] DISTRICT CERTIFICATE OF ACCEPTANCE This is to certify that the interest in real property conveyed by the Grant of Easement of Right of Way to Otay Water District dated ___________________, 2018 from the KEARNY PCCP OTAY 311, LLC, a Delaware limited liability company, to OTAY WATER DISTRICT, a municipal water district, is hereby accepted by order of the Board of Directors pursuant to the authority conferred by Resolution No. 1829, adopted on February 23, 1981, and the Grantee consents to recordation thereof by its duly authorized officer. Dated: __________________________ By: _____________________________________ Susan Cruz, District Secretary Otay Water District CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT GRANTOR’S SIGNATURE ACKNOWLEDGEMENT State of California ) ) ss County of ) On ____________________ before me, DATE NAME, TITLE OF OFFICER - E.G., "JANE DOE, NOTARY PUBLIC" personally appeared NAME(S) OF SIGNER(S) who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. _________________________________ Signature of Notary Public (Notary Seal) A notary public or other officer completingthis certificateverifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.