THE AUTHORITY - PRELIMINARY OFFICIAL STATEMENT DATED JULY 22, 2013

General

The Authority was incorporated on September 21, 1966 by the Lehigh County Commissioners under the provisions of the Act. The Authority is a body corporate and politic and is empowered by its Articles of Incorporation to perform all functions allowed by the Act, and the Act allows the Authority to execute, deliver and perform its obligations as contemplated in the Concession Agreement. The Act provides that a municipal authority has all rights and functions granted to it under the Act unless a resolution or ordinance of its governing body specifies that only specific projects may be undertaken by that municipal authority. Among its rights and functions under the Act, the Authority is empowered to acquire, hold, construct, improve, maintain, operate, own and lease (either in the capacity as lessor or lessee), sewers, sewer systems, or parts thereof, sewage treatment works, including works for treating or the disposal of industrial waste, as well as water works, water supply works and water distribution systems.

The Authority’s life currently expires on June 9, 2049. In the Concession Agreement, the Authority agrees not to terminate its existence prior to that date and further agrees to take such actions as are needed, prior to January 1, 2049 to extend its term of existence to a date later than the 50^th Anniversary of the Closing Date. In any event, the final maturity date of the 2013 Bonds is December 1, 2048. See “CONCESSION AGREEMENT – Termination – Termination Relating to Authority’s Life.”

The Authority currently owns and operates the Existing LCA System that provides water and wastewater service in and to 16 municipalities, which are primarily located in suburban areas north, south and west of the City. The Authority was transformed into an operating authority in 1969. Since then, the Authority has transformed the provision of water and wastewater services in Western Lehigh County from multiple, developer-driven systems into a single, regional system. The Authority currently operates

regional water and sewer systems serving most of the communities adjacent to the City and it meets rural community needs by operating smaller satellite systems in the outlying areas of Lehigh County and Northampton County.

The Existing LCA System consists of a water system and a wastewater system that provides direct retail service to approximately 22,500 residential, commercial, industrial and institutional customers, the Western Lehigh Interceptor System, which provides wastewater treatment and transportation services to eight municipalities, the Little Lehigh Relief Interceptor System, which provides wastewater treatment and transportation services to eight municipalities, a wastewater treatment plant and wastewater collector and/or treatment systems in five municipalities. The Authority’s 2013 budget totals for the Existing LCA System are set forth in the table below. As discussed above, the 2013 Bonds and any Additional Bonds, Parity Indebtedness or other debt relating to the Project issued by the Authority are not secured by revenues from the Existing LCA System; those revenues will be segregated from the moneys generated by the Concessioned System and deposited into separate accounts.

Existing LCA System 2013 Budget ($ millions)

Water Wastewater Total

Operations $7.65 $16.00 $23.65

Capital 5.45 11.33 16.78

Total $13.10 $27.33 $40.43

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Source: Lehigh County Authority

The Existing LCA System has grown by extension of service to both new and existing developments previously served by on-lot water and wastewater systems and through the acquisition of 26 water systems and six wastewater systems owned by public and private entities. The Authority also leases and operates one municipally owned wastewater collection system.

The Authority currently is party to a water service agreement dated January 7, 2009 (the

“Existing LCA Water Service Agreement”) with the City pursuant to which the City provides water for use in the Existing LCA System. The Existing LCA System will continue to purchase water under the Existing LCA Water Service Agreement after the Authority becomes the concessionaire under the Concession Agreement and those water purchase payments for the Existing LCA System will be Revenues of the Concessioned System. Similarly, pursuant to a series of sewer service agreements with the Authority (collectively, the “Existing LCA Sewer Service Agreement”), the City currently provides sewage treatment services to the Existing LCA System. After the Authority becomes the concessionaire under the Concession Agreement, the payments for sewer services for the Existing LCA System provided under the Existing LCA Sewer Service Agreement (net of the Existing LCA Wastewater System’s share of payments for debt incurred by the City to finance the Administrative Order Project described below) will be turned over to the Authority, as concessionaire, and will be Revenues of the Concessioned System.

Board

The Authority is governed by a seven-member board (the “Board”), with its members being appointed by the Lehigh County Executive and confirmed by the Lehigh County Commissioners. The Board establishes operating and service policies; approves the annual budget, capital plan and contracts;

hires the General Manager; and performs other responsibilities typically resting with a board of directors.

All members serve without compensation other than the reimbursement of expenses incurred in the course of Authority business.

The City does not have the authority to appoint or remove any members of the Board. Board members serve five-year terms with staggered appointments. A brief biography of each Board member follows:

Asa M. Hughes, Chair (Term Expires December 31, 2014). Mr. Hughes is a Principal in LB&W Design Associates Inc., an architectural and engineering firm. Mr. Hughes has been Chairman of the Allentown Chamber of Commerce and a member of the Leadership Lehigh Valley, President of Allentown Rotary, and served on the Board of Directors of Kutztown University Foundation, Swain School, Phoebe Home and numerous committees throughout the Lehigh Valley. Mr. Hughes holds a Bachelor of Science degree in Aerospace Engineering and Master of Science degree in Theoretical Mechanics.

Thomas S. Muller, Vice Chair (Term Expires December 31, 2015). Mr. Muller is the Director of Administration for the County and has over 40 years of experience in the private sector, including positions as President and Chief Operating Officer for Binney & Smith, Executive VP for Victaulic and President & CEO of NVent, LLC. Mr. Muller has been a resident of the Lehigh Valley for over 20 years and has served on a number of non-profit boards, including 21 years on the Board of Easton Hospital. He is also an Adjunct Professor of Business Management at Cedar Crest College. Mr. Muller holds degrees from both the Journalism and Business schools at Syracuse University and an MBA from Fairleigh Dickinson University.

Richard H. Bohner, Secretary (Term Expires December 31, 2017). Mr. Bohner is retired from Pennsylvania Power & Light Company where he was Manager of Customer Support Systems. During his career, he was active in the Edison Electric Institute. Mr. Bohner has served on the Board since 1972 and has received the Sahli Award and the Extended Service Award from the Pennsylvania Municipal Authorities Association. Mr. Bohner holds an MBA from Lehigh University and a Bachelor of Science degree in Finance from The Pennsylvania State University.

Emrich M. Stellar, Jr., Treasurer (Term Expires December 31, 2014). Mr. Stellar is a managing Partner of the Stellar Advisor Group located in Bethlehem, Pennsylvania. Mr. Stellar is the immediate past president of the Lehigh Valley Society of Financial Services Professionals and a current Board member. He is a member of the Lehigh Valley Estate Planning Council, the Historic Bethlehem Partnership, and a Cubmaster of Pack 199. In the 1990’s, Mr. Stellar was elected to two terms on the Lehigh County Board of Commissioners. Mr. Stellar became a Board member in July 2006. Mr. Stellar earned his undergraduate degree from East Stroudsburg University and his Chartered Financial Consultant designation from the American College in Bryn Mawr, Pennsylvania.

Brian C. Nagle, Assistant Treasurer (Term Expires December 31, 2013). Mr. Nagle was a registered Professional Engineer in the Commonwealth. Mr. Nagle is a life-long resident of the Lehigh Valley and is now retired from PPL Corporation after 38 years of service in engineering, project management, environmental management and regulatory affairs. He was a founding Board member of the Sustainable Energy Fund and currently serves on the Board of the Wildlands Conservancy. Mr. Nagle has also been involved in the Lehigh Valley’s initiatives to preserve open space and revitalize abandoned industrial sites. Mr. Nagle has been a Board member since 2009. Mr. Nagle holds a Bachelor of Science degree in Mechanical Engineering from Rutgers University.

Norma A. Cusick, Assistant Secretary (Term Expires December 31, 2014). Ms. Cusick holds a Bachelor of Arts degree from De Sales University and a Master of Arts degree from Kutztown University, and is a certified paralegal. She has been a resident of Lehigh County for 37 years and is a small business

owner and business manager. Ms. Cusick has served as the Division Director for the American Heart Association, Allentown Downtown Improvement District, the Salisbury Township School Board, Salisbury Township Planning Commission and is currently on the Salisbury Township Education Foundation. She also currently serves as a Salisbury Township Commissioner and on the Board of Directors of the Allentown Public Library. Ms. Cusick has served on the Board of Directors of the Pennsylvania Shakespeare Festival, Child Advocacy Center and the Lehigh Valley Hospital Board of Associates and was past President of the Lehigh County Sports Fields. She has also participated with and served on several additional community organizations, including the Greater Lehigh Valley Girl Scouts.

Throughout the period of her residence she continues to be active in many other local, regional, and statewide endeavors. Ms. Cusick became an Authority Board member in March 2010.

Scott C. Bieber, Member (Term Expires December 31, 2014). Mr. Bieber holds a Bachelor of Arts Degree in Political Science from Kutztown University. He is the owner of Lehigh Soils and Wetlands, Inc., a small environmental consulting firm that offers on-site sewage treatment testing and design, stormwater infiltration and wetland services. He is also a regulatory Pennsylvania Sewage Enforcement Officer providing contract services to several municipalities in the Lehigh Valley. Prior to that, he was a reporter for The Morning Call for ten years. He is vice chair of the Lehigh County Agricultural Land Preservation Board and a former member of the Upper Milford Township Planning Commission.

Management and Administration of the Existing LCA System

The Authority’s operations are currently conducted by a staff of 39 full-time employees who are divided into four groups: administration, customer care and communications, operations, and capital works. The responsibilities of each group and descriptions of key Authority management and staff members are included below in “– Prospective Authority Management and Operational Plans.”

Transition Advisor. The Authority has engaged CH2M HILL, a national engineering and consulting firm, to serve as an advisor to assist the Authority during the transition period as it takes possession of and operates and maintains the Concessioned System. CH2M HILL’s role includes reviewing the Authority’s standard operating procedures; undertaking a review of potential personnel for the operation of the Concessioned System; assisting the Authority in the preparation of the budget and the Capex Plan (as defined herein); participating in on-site evaluations of the day-to-day operation of the Water Treatment Facility and the Wastewater Treatment Facility; evaluating the laboratory located in the Water Treatment Facility; and performing a skills assessment for the Authority’s existing personnel and potential new personnel to develop the staffing plan. CH2M HILL is also available to provide supplementary operations, maintenance and management resources on an as needed basis during the transition and initial operations periods. After the Closing Date, CH2M HILL will continue to support the Authority by finalizing its system evaluations and making future operational improvement recommendations that will meet or exceed industry best management practices and the Operating Standards. Operations Management International, an affiliate of CH2M HILL, currently operates the Existing LCA System’s wastewater pre-treatment plant in Upper Macungie Township.

Prospective Authority Management and Operational Plans

Organizational Plan. In order to effectively and efficiently manage and operate the combination of the Existing LCA System and the Concessioned System, the Authority has created the organizational plan (the “Organizational Plan”) shown below.

The Authority’s new combined Organizational Plan divides its employees into the following four groups:

Operations/Finance. The Operations/Finance group will be responsible for (i) the operation and maintenance of both the Existing LCA System and the Concessioned System and (ii) the finance, accounting and purchasing needs for both the Existing LCA System and the Concessioned System. The group will be headed by the combined Chief Operations Officer (“COO”)/Chief Financial Officer (“CFO”) position. The COO role will be supported by a Water Services Manager and a Wastewater Services Manager, each of whom will have responsibility for the planning, management and oversight of the ongoing operation of both the Existing LCA System and the Concessioned System in their respective area of responsibility. These managers will be supported by six supervisors, each of whom will have responsibility for the operation of a discrete portion of either the Existing LCA System or the Concessioned System. In general, operational personnel will work for either the Existing LCA System or the Concessioned System without much overlap. The finance, accounting and purchasing personnel will work for both the Existing LCA System and the Concessioned System.

Information Technology. The Information Technology group will be responsible for all information management/technology systems utilized by both the Existing LCA System and the Concessioned System. These systems will include the Geographic Information System (GIS), the Supervisory Control and Data Acquisition (SCADA) system, business systems, and the organizational network. This group will be headed by a Chief Information Officer, a role which the Authority expects to fill by an employee or via a service contract. Personnel in the Information Technology group will serve both the Existing LCA System and the Concessioned System.

Administration. This Administration group will be responsible for the human resources, customer care and communications needs for both the Existing LCA System and the Concessioned System. This group will be led by the Chief Administrative Officer who will be supported by a Human Resources Manager and a Customer Care Manager and other staff members. While this group will serve both the Existing LCA System and the Concessioned System, some individual staff members will focus their efforts on either the Existing LCA System or the Concessioned System.

Capital Works. The Capital Works group will provide professional and technical services required to undertake various capital improvements and additions to the Existing LCA System and the Concessioned System. In executing that responsibility, the group will (i) prepare studies, preliminary and final designs and contract documents, (ii) inspect construction, (iii) review plans, (iv) approve developer-installed additions and work performed by outside consultants and (v) provide drafting and survey services related to the Authority’s operating and capital programs. This group will provide oversight and coordination with any outside engineering consultants that are involved in a capital project for the Authority. This group will be led by the Chief Capital Works Officer who will be supported by the Capital Works Manager, who will focus on capital improvements to the Concessioned System, and other technical staff members. This group will serve all parts of both the Existing LCA System and the Concessioned System; however, the Capital Works Manager and some technical staff members will focus their work on Concessioned System projects.

Although individual employees of the Authority may undertake work for the Concessioned System and the Existing LCA System, the rates, charges and similar fees (“Service Charges”) and Revenues generated in connection with the operation of the Concessioned System at all times will be segregated from the Revenues generated by the Existing LCA System. Salary and related expenses attributable to employees having responsibility for both the Concessioned System and the Existing LCA System will be allocated based on actual time spent.

Management. Individuals occupying senior management C-level positions have over 97 years of water and wastewater experience managing and leading the Authority, the City and other utility systems.

This structure includes five Senior-level positions that are supported by six top-level experts and multiple supporting management positions. Collectively, these individuals bring organizational development, hands-on system knowledge, water industry and community leadership, a broad variety of professional and technical experience and expertise and a record of proactive and successful operation and development of regional water and wastewater systems. Key Authority personnel include:

Chief Executive Officer/General Manager. The Chief Executive Officer will have overall responsibility for all of the Authority’s operations and activities to implement the organizational strategic plan, manage the Authority’s senior management C-level positions and oversee and support the work of the management staff at the Concessioned System and the Existing LCA System. The Chief Executive Officer will also be actively involved in external matters such as community leadership, governmental affairs including legislative and regulatory matters, and water industry leadership. The Chief Executive Officer role will be filled by Aurel M. Arndt.

Aurel M. Arndt – Mr. Arndt is currently the General Manager of the Authority and is the Authority’s chief executive officer. He joined the Authority in 1974 and has held several positions during his tenure, including Chief Financial Officer, Business Manager and Assistant General Manager. He is a member of the Executive Board and Board of Directors of the American Water Works Association (the “AWWA”) and chairs its Water Utility Council (legislative and regulatory affairs). He also chaired the Pennsylvania Section (the “PA-AWWA”) and was a past member and chair of the PA-AWWA Water Utility Council; and chair of the AWWA Economics Technical Advisory Workgroup. He is also a peer reviewer for AWWA’s Qualserve Program, a water utility quality improvement program. He also served as representative for AWWA on the EPA’s National Drinking Water Advisory Committee Workgroup on State Revolving Loan Funds. He has also chaired two steering committees for AWWA studies on financing water infrastructure and use of private activity bonds to finance water infrastructure. He has received AWWA’s George Warren Fuller award for distinguished service to the water supply field. He is a past member of the Executive Board of the Government Finance Officers Association of the United States and Canada and past chair of its Debt & Fiscal Policy Committee. He is past president and regional director of the Pennsylvania Municipal Authorities Association (the “PMAA”); chair of its legislative committee; and served on various standing and ad hoc committees. He was a recipient of PMAA’s William H. Markus Award of Excellence for distinguished service to the Municipal Authorities of the Commonwealth, Sahli Service Award and Extended Service Award.

From 1988 through 1990, he served as the representative of water and wastewater utilities on the board of directors of the Pennsylvania Infrastructure Investment Authority. He is also a past member of the Governor’s Local Government Advisory Committee. He has served on the Board of Directors and Executive Committee of the Water Resources Association of the Delaware River Basin. He was a member of the Leadership Council and Organizing Committee of Renew Lehigh Valley, a regional group with a diverse membership focusing on improving community services and the quality of life in the Lehigh Valley. He also co-chaired the Lehigh Valley Partnership’s Water and Wastewater Regional Coordinating Council, which evaluated cooperative, regional service approaches for the two county Lehigh Valley region. He is a former

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