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Resolution No. 6015 j 1 RESOLUTION NO. 6015 6 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON AUTHORIZING THE ISSUANCE AND SALE OF NOT TO EXCEED $70,000,000 PRINCIPAL AMOUNT OF REVENUE BONDS TO FINANCE THE VERNON ELECTRIC SYSTEM TRANSMISSION CAPACITY PROJECTS, APPROVING THE RELATED INDENTURE OF TRUST AND OFFICIAL STATEMENT, AND AUTHORIZING RELATED DOCUMENTS AND OFFICIAL ACTIONS 2 3 4 5 7 WHEREAS, the ci ty of Vernon is a charter city of the 8 State of California, and as such has previously adopted 9 Ordinance No. 1004 enacting Article XI of Chapter 2 of the 10 Vernon City Code, constituting the City of Vernon Municipal 11 Facilities Revenue Bond Law (the "Bond Law"); and 12 WHEREAS, pursuant to the Bond Law, the City of Vernon 13 is authorized to issue its revenue bonds for the purpose of 14 financing the acquisition and construction of any land, 15 improvements, facilities, equipment and other property of any 16 nature whatsoever, which are used in any municipal operation of 17 the City, including but not limited to the system of the City 18 for the generation, production, transmission and distribution of 19 electrici ty , gas and other forms of energy for lighting, 20 heating, and power for public or private uses; and 21 WHEREAS, the City of Vernon is proceeding at this time 22 to acquire electrical transmission capacity in the California- 23 Oregon Transmission Project, the Mead-Phoenix Project, and the 24 Mead-Adelanto Project (collectively, the "Projects") relating to 25 the Vernon Electric System, and in order to provide funds to 26 finance such acquisition the City proposes to issue and sell 27 City of Vernon Electric System Revenue Bonds (1991 Transmission 28 Capacity Projects) (the "Bonds") in the aggregate principal ;:;:::/ .-/ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 amount of not to exceed Seventy Million Dollars ($70,000,000.00) under, and pursuant to, the Bond Law and an Indenture of Trust dated as of December 1, 1991 (the "Indenture") by and between the city and a trustee bank, which Bonds will be special obligations of the ci ty payable from the net revenues of such system; and WHEREAS, the City of Vernon has expended funds for planning and development of said Projects and, prior to issuance of the Bonds, may expend additional funds for transmission capacity in one or more of the projects, all of which shall be subject to reimbursement from the Bond proceeds; and WHEREAS, said Ordinance No. 1004 will not become effective until December 12, 1991, but the Bonds sold pursuant to this resolution will not close until December 19, 1991, or thereafter; and WHEREAS, the firm of Kelling, Northcross & NObriga, as financial consultant to the City, has caused to be prepared an Official Statement describing the Bonds; and WHEREAS, the City Council of the city of Vernon has duly considered such transactions and wishes at this time to approve the Indenture and authorize the issuance and sale of the Bonds and the documents and actions relating thereto. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: SECTION 1: The City Council of the city of Vernon hereby finds and determines that the recitals contained hereinabove are true and correct. -2- 1 SECTION 2: The City Council of the City of Vernon 2 hereby approves the Indenture in substantially the form 3 submi tted concurrently herewith together with any changes 4 therein or additions thereto approved by the city Administrator. 5 SECTION 3: The City Council of the City of Vernon 6 authorizes the Mayor to execute, and directs the city Clerk to 7 attest and affix the seal of the City to, the final form of the 8 Indenture in the name and on behalf of the City of Vernon. The 9 City Council hereby authorizes the performance of the Indenture, 10 and the City Clerk is directed to file said Indenture. 11 SECTION 4: The City Council of the City of Vernon has 12 reviewed all proceedings heretofore taken relative to the 13 authorization of the Bonds and hereby finds and determines that, 14 as of the date of issuance of the Bonds, all things, conditions, 15 and acts required by law to exist, happen and/or be performed 16 precedent to and in the issuance of the Bonds do exist, have 17 happened and have been performed in due time, form and manner as 18 required by law, and the City is now authorized, as an exercise 19 of the municipal affairs power of the City as a charter city 20 under the Constitution and laws of the State of California, and 21 pursuant to the Bond Law and each and every requirement of law, 22 to issue the Bonds in the manner and form provided in the 23 Indenture. 24 SECTION 5: The city Council of the City of Vernon 25 hereby authorizes the issuance of the Bonds under and pursuant 26 to the Bond Law and the Indenture in the aggregate principal 27 amount of not to exceed Seventy Million Dollars ($70,000,000.00) 28 -3- 1 for the purpose of financing the acquisition of the Projects or 2 any of them as set forth in the recitals of this resolution. 3 SECTION 6: The city council of the City of Vernon 4 hereby approves the sale of the Bonds either (a) by competitive 5 bid in the event that the City receives a commitment from a 6 nationally recognized municipal bond insurance firm which is 7 acceptable in form and substance to the City Administrator, or 8 (b) otherwise, by negotiation with an underwriting firm to be 9 selected by the City Administrator. 10 SECTION 7: The City council hereby authorizes and 11 delegates all necessary authorization to the city Administrator 12 to undertake and complete the proceedings for the competitive or 13 negotiated sale of the Bonds in accordance with this resolution. 14 The Bonds shall be sold at a net interest cost of not to exceed 15 seven and one-half percent (7-1/2%) per year, and for a purchase 16 price which is at least equal to ninety-eight and one-quarter 17 percent (98-1/4%) of the par amount thereof. 18 SECTION 8: The City Council of the City of Vernon 19 hereby approves, and hereby deems nearly final within the 20 meaning of Rule 1532-12 of the Securities Exchange Act of 1934, 21 the preliminary Official Statement describing the Bonds in the 22 form on file with the City Clerk, a copy of which Official 23 Statement has been submitted concurrently herewith. 24 SECTION 9: The City Council of the City of Vernon 25 hereby directs the City Administrator to execute the final form 26 of the Official Statement when it is received, in the name and 27 on behalf of the City of Vernon, including such permitt.ed 28 -4- 1 additions thereto and changes therein as the City Administrator 2 shall deem necessary, desirable or appropriate. Said changes 3 may include an increase in the face amount of the Bonds in order 4 to cover the total cost of the Projects. The execution of the 5 final Official statement by the City Administrator shall be 6 conclusive evidence of the approval of any such additions and 7 changes. The City Council hereby authorizes the distribution of 8 the final Official statement by the purchaser of the Bonds. 9 SECTION 10: The City Council of the City of Vernon 10 hereby authorizes and directs the Mayor, the City Administrator 11 and any and all other officers of the City, for and in the name 12 and on behalf of the City, to do any and all things and take any 13 and all actions, including execution and delivery of any and all 14 assignments, certificates, requisitions, agreements, notices, 15 consents, instruments of conveyance and other documents, which 16 they, or any of them, may deem necessary or advisable in order 17 to consummate the lawful issuance and sale of the Bonds as 18 described herein. Whenever in this resolution any officer of 19 the City is authorized to execute or countersign any document or 20 take any action, such execution, countersignature or action may 21 be taken on behalf of such officer by any person designated by 22 such officer to act on his or her behalf in the case such 23 officer shall be absent or unavailable. 24 III 25 III 26 III 27 III 28 -5- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 SECTION 11: The City Administrator is directed to 2 reimburse the City from the proceeds of said Bonds for all 3 expenditures incurred prior to said Bond issue for costs of 4 planning, development, and transmission capacity for said 5 Projects, or any of them. 6 SECTION 12: The city Clerk of the City of Vernon shall 7 certify to the passage of this resolution and thereupon and 8 thereafter the same shall be in full force and effect. 9 APPROVED AND ADOPTED this 19th day of November, 1991. A~ BRUCE V. MALKENHORST, ~/C;~?f~ THO S A. YB , Mayor Pro Tem city Clerk -6- 1 STATE OF CALIFORNIA ) }ss 2 COUNTY OF LOS ANGELES ) 3 I, BRUCE V. MALKENHORST, city Clerk of the City of 4 Vernon, do hereby certify that the foregoing Resolution, being 5 Resolution No. 6015, was duly adopted by the city Council of the 6 City of Vernon at a regular meeting of the City Council duly 7 held on Tuesday, November 19, 1991, and thereafter was duly 8 signed by the Mayor of the City of Vernon. 9 10 11 BRUCE V. MALKENHORST, 12 (SEAL) 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7- $,eet/=e4em() Hand Delivered ~r~L- Resolution No. 6015 ~t8 12/17/91 .... (COTp.;aonds) Pursuant to your request, enclose~ please find the Preliminary Official Statement which was mentioned in-Section 8 of the above-referenced resolution for your records. I If you have any questions, please do not hesitate to call me. r-MS GLORIA J OROSCO CHIEF DEPUTY CITY CLERK TO 4305 SANTA FE AVE VERNON CA 90058-0805 L DAVID B. BREARLEY CITY ATTORNEY 2440 s. HACIENDA BLVD.. #223 HACIENDA HEIGHTS. CA 91745 (B1B) 336-3408 .It J~ RECEIVED NOV 25 1991 Ans'd....... ..... ~ PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER _, 1991 NEW ISSUE-BOOK ENTRY ONLY RATING: (See "Ratings" herein) In the opinion of Jones Hall Hill & White, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however, to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although, for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is tahn into account in determining certain income and earnings. In the funher opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "TAX MA1TERS" herein. $64,000,000* CITY OF VERNON (Los Angeles County, California) ELECTRIC SYSTEM REVENUE BONDS (1991 Transmission Capacity Projects) Dated: December 1, 1991 Due: December 1, as shown below The Bonda..re being iuued by the City ofVemon (the "City") for the purpollO of providing fund. to fillllDCe the acquiution of capacity rights in three electric tranamiAion projects a. more fuUy dea:ribed herein (the "Project"). Interellt repreleftted by the Bond. i. payable IOmi-annuaJly on each June 1 and December 1, commencing June 1, 1992. The Bond. will be in regilltered form and wiD be initially regilltered in the name of Cede & Co., a. nominee of The DepoUtory TNlIt Company, New York, New York. ("DTC"). DTC wiD act a.lIOCUritiea depoUtory for the Boncb. Individual purchue. of intere.c. in the Bond. wiD be available to purchalOn of the Bond. (the "Beneficial Ownen"), in the denomination of $5,000 or any integral part thereof under the boolt-cntry ~ maintained by DTC, only throup broken and dealen who are or act through DTC Participants a. dea:ribed herein. Beneficial Owoen wiD not be entitled to receive phyucal delivery of the Bond.. Principal of and interellt on the Bond. i. payable by the TrulIteC to DTC and, 10 long a. DTC or its nominee remaina the regilltered bondholder, di.bunement of mch paymenb to DTC Participants (lee page 2 for definition) i. the rellpOnaibility of DTC, and di.bunement of mch paymenb to the Beneficial Ownen i. the relIpODaibility of DTC Participants. In the event that the book-cntry .ylltem.g no longer uled with re.pect to the Bond., the Beneficial Ownen wiD become regilltered ownen of the Bond. and wiD be paid principal and intcrellt by the TNlItee, all as dea:ribed herein. Principal and interellt are payable directly to DTC by a. TNlItee (the "TNlItee"). Principal is payable on the date. lOt forth below. 7he Bonds are subjecllo optional redemption prior 10 maturity, as described herein. The Bond. are special obligationa of the City and are payable IOlely from, and are equally secured by, a pledge of and lien upon the Net Revenue. (a. defined herein) derived by the City from opentiona of its Eectric Sylltem. The City covenants that so long a. any Bonds are outstanding it will fix, prea:ribe and collect ntes, fee. and charges for IOrvices and facilities of the Eectric Sylltem (as defined herein) 80 a. to yield Revenues at leallt in the amounts prea:ribed by the RelOlution and mfficient to pay principal of and interellt on the Bonda in accordance with the Resolution. The Boads are not a debt of the City, the State or any of their political subdivisions and neither the City or the State nor any of their political subdivisions is Hable therefor, nor in any enot shaD the Bonds be payable out of any funds or properties other than those of the City as set forth in the Resolution. Neither the fun faith and credit nor the taxing authority of the City, the State or any other political subdmsioo thereof is pledged to the paymeut of the Bonds. The Bonds do DOt constitute an indebtedness within the meaning of any CODStitutional or statutory debt limitation or restriction. This financing was 8tlUctured by the following finn serving as Financial AdvilOr to the City: KEU.lNG, NORmCROSS & NOBRIGA, INC. it (December 1) 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 MATURITY SCHEDULE. Principal ~ $ 1,815,000 1,900,000 1,990,000 2,090,000 2,195,000 2,3lS,OOO 2,445,000 2,580,000 2,735,000 2,895,000 Interest Rate Price (December 1) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Principal Amount. $3,070,000 3,155,000 3,455,000 3,675,000.. 3,905,000.. 4,160,000.. 4,415,000*. 4,715,000*. 5,025,000*. 5,335,000*. Interest ~ Price 71Ie Bonds are to H awarded punutl1ll to a compeliliWJ bidding to be Mid on December _, 1991. 71Ie Bonds are offend when, as and if lulled, 6ubject to the approval as to their validity of lone6 Holl HiU &: W1Jite, A ProfU6iontJl Law CorportJliolJ, San Franci6co, CaUfomJa, Bond CounuL k il anticipated that the Bondi will be available for delivery in book-entry foon in New York, on or about December _, 1991. · Preliminary, IUbject to change. .. Bondi maturing from 1992 through 2004 are Serial Bonds. Maturitiel from 2005 through 2011 are mandatory linking account paymenta. Bidden may designate up to two Term Bonds by aggregating consecutive paymenta. No dealer. broker. salesman or other person bas been authorized by the City to give any information or to make any representation other than those contained herein and. if given or made. such other information or representation must not be relied upon as having been authorized by the City or the Undetwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer. solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement that involve estimates. forecasts or matters of opinion. whether or not expressly so described herein. are intended solely as such and are not to be construed as a representation of fact. The information set forth herein bas been obtained from the City and other official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness and is in a form deemed final as of its date by the City for the purposes of rule lSc2-12 of the Securities and Exchange Commission (except for the omission of certain information permitted to be omitted under rule lSc2-12(b)(1). The information and expression of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall. under any circumstances. create any implication that there bas been no change in the affairs of the City since the date hereof. All summaries of the Indenture of Trust. the Resolution or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. IN CONNECTION WITH THE OFFERING OF THE BONDS. THE UNDERWRITER MAY EFFECT TRANSACTIONS WHICH STABIUZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABIUZING. IF COMMENCED. MAY BE DISCONTINUED AT ANY TIME. CITY OF VERNON City Council Leonis C. Malburg, Mayor and Council Member Thomas A. Ybarra, Mayor Pro Tempore and Council Member Hilario Gonzales, Council Member W. Michael McCormick, Council Member William J. Davis, Council Member City Staff Bruce V. Malkenhorst, City Administrator David B. Brearley, City Attorney Kenneth J. DeDario, Director of Light & Power SPECIAL SERVICES Financial Advisor Kelling, Northcross & Nobriga, Inc. San Francisco, California Trustee Bond Counsel Jones Hall Hill & White, A Professional Law Corporation San Francisco, California TABLE OF CONTENTS INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- mE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1- General Provisions ...................................................... -1- Redemption Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -S- Transfer and Exchange of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- Estimated Uses of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6- Bond Debt Service ....................................................... -7- DESCRIPTION OF THE PROJECT ............................................ -8- SECURITY FOR THE BONDS ............................................... -9- Parity Obligations ....................................................... -9- Additional Bonds ....................................................... -9- Rate Covenant ......................................................... -9- Reserve Account ...................................................... -10- Rate Stabilization Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- Application of Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- Limitations on Remedies Available to Owners of the Bonds and the Trustee .................. -11- THE ELECTRIC SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- General - The City ............ '. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- Power Supply ........................................................ -12- Management and Administration of the Electric System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -13- Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- Current Rates ........................................................ -IS- Comparative Rates ..................................................... -16- Major Customers ...................................................... -16- Transmission Services for Cogenerators ........................................ -17- ABSENCE OF MATERIAL LmGATION ....................................... -17- RATING ............................................................ -17- TAX EXEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- PENDING FEDERAL TAX LEGISLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- CERTAIN LEGAL MATTERS .............................................. -18- UNDERWRITING ...................................................... -18- MISCELLANEOUS ..................................................... -18- APPENDIX A: mE CITY OF VERNON GENERAL INFORMATION APPENDIX B: THE CITY OF VERNON AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30. 1990 APPENDIX C: SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D: FORM OF OPINION OF BOND COUNSEL CITY OF VERNON OFFICIAL STATEMENT $64,000,000* Electric System Revenue Bonds (1991 Transmission Capacity Projects) INTRODUCTION This Official Statement of the City of Vernon (the "City") sets forth certain information in connection with the sale by the City of its $64.000.000* aggregate principal amount of Electric System Revenue Bonds (1991 Transmission Capacity Projects) (the "Bonds"). The Bonds are being issued pursuant to Resolution No. 6105 adopted by the City Council of the City on November 19. 1991 (the "Resolution") and pursuant to the City of Vernon Municipal Facilities Revenue Bond Law adopted by Ordinance No. 1004. The proceeds of the Bonds will be used to finance the acquisition of capacity rights in three electric transmission projects (the "Project"). as more fully described herein under the section "DESCRIPI'ION OF THE PROJECT" . The City was incorporated in 1905. The City is located approximately four miles south of downtown Los Angeles. It is predominantly industrial. All of the City is served by the Electric System. The current population of the City is estimated to be 80. See liTHE ELECTRIC SYSTEM" herein. "CITY OF VERNON GENERAL ECONOMIC INFORMATION" attached hereto as APPENDIX A and "CITY OF VERNON UNAUDITED FINANCIAL STATEMENTS" attached hereto as APPENDIX B. TIlE BONDS General Provisions The Bonds will be executed and delivered in the aggregate principal amount of $64.000.000*. The Bonds will be dated their date of authentication and will bear interest from their date at the rates per annum set forth on the cover page hereof. payable semiannually on each on June 1 and December 1. commencing June 1. 1992 (each an "Interest Payment Date"). The Bonds will mature on December 1 in each of the years and in the principal amounts shown below: *Preliminary. subject to change. -1- (December 1) 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Principal Amount* $ 1.815.000 1.900.000 1.990.000 2.090.000 2.195.000 2.315.000 2.445.000 2.580.000 2.735.000 2.895.000 (December 1) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Principal Amount* $3.070.000 3.255.000 3,455.000 3.675.000** 3.905.000** 4.160.000** 4.425.000** 4.715.000** 5.025.000** 5.335.000** *Preliminary; subject to change. ** Bonds maturing from 1992 through 2004 are Serial Bonds. Maturities from 2005 through 2011 are mandatory sinking account payments. Bidders may designate up to two Term Bonds by aggregating consecutive payments. The Bonds will be executed and delivered in fully registered form without coupons. The Bonds when issued will be registered initially in the name of Cede & Co.. as registered owner and nominee of The Depository Trust Company. New York. New York ("DTC"). So long as DTC. or Cede & Co. as its nominee. is the registered owner of all the Bonds. all payments on the Bonds will be made directly to DTC. and disbursement of such payments to the DTC Participants (defined below) will be the responsibility of DTC. and disbursements of such payments to the Beneficial Owners (defined below) will be the responsibility of the DTC Participants. as more fully described hereinafter. (See "Book-Entry Only System and The Depository Trust Company" below.) Interest on the Bonds will be computed on the basis of a 36O-day year of twelve 3<kJay months. Interest on the Bonds will be payable to the owners of record as of the close of business on the fifteenth day of the month preceding each Interest Payment Date. regardless of whether such day is a business day (the "Record Date"). Interest is payable to the owner of record from the Interest Payment Date next preceding the date of authentication of the Bonds unless (i) it is the date authenticated during the period from the close of business on a Record Date to and including the succeeding Interest Payment Date. in which event interest shall be payable from such Interest Payment Date or (ii) it is authenticated prior to the close of business on the first Record Date. in which event interest shall be payable from December 1. 1991, provided that if at the time of authentication of any Bond certificates. interest is in default on Outstanding Bonds. such Bond shall bear interest from the Interest Payment Date to which interest bas been paid or made available for payment. Book-Entry Only System and The Depository Trust Company DTC will act as securities depository for the Bonds. Upon the issuance of the Bonds. one fully registered Bond will be registered in the name of Cede & Co.. as nominee for DTC. for each maturity of the Bonds as set forth on the cover page hereof. each in the aggregate principal amount of such maturity. So long as Cede & Co. is the registered owner of the Bonds. as nominee of DTC. references herein to the owners of the Bonds or registered owners of the Bonds shall mean Cede & Co. and shall not mean the actual purchasers of the Bonds. DTC is a limited purpose trust company organized under the laws of the State of New York. a member of the Federal Reserve System. a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. as amended. DTC was created to hold securities of its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions among DTC Participants in such securities through electronic book-entry changes in accounts of DTC Participants. thereby eliminating the need for physical movement of certificates. DTC Participants include securities brokers and dealers. banks. trust companies. clearing corporations and certain other organizations. some of whom (and/or their representatives) own DTC. Access to the DTC system is also available to other entities such as banks. brokers. dealers and trust companies that clear -2- through or maintain a custodial relationship with a DTC Participant. either directly or indirectly (-DTC Indirect Participants-). The interest of each of the Beneficial Owners in the Bonds will be recorded through the records of a DTC Participant. Each DTC Participant will receive a credit balance in the records of DTC. The ownership interest of each actual purchaser of the Bonds (the -Beneficial Owner-) will be recorded through the records of the DTC Participant. Individual purchases by Beneficial Owners of the Bonds will be made in denominations of S5.000 or any integral multiple thereof. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds. unless use of the book--entry system is discontinued as described below. Transfers of beneficial ownership interest in the Bonds which are registered in the name of Cede & Co. will be accomplished by book entries made by DTC and. in turn. by the DTC Participants and DTC Indirect Participants who act on behalf of the Beneficial Owners. For every transfer and exchange of beneficial ownership in the Bonds. the Beneficial Owner may be charged a sum sufficient to cover any tax. fee or other governmental charge that may be imposed in relation thereto. In the event that the City determines that it is U1 the best interest of the Beneficial Owners of the Bonds . that they may be able to obtain Bonds directly. the Trustee shall. upon the written instruction of the City. so notify DTC. whereupon DTC shall notify the DTC Participants of the availability through DTC of such Bonds. In such event. the Bonds will be transferable in accordance with the Indenture. DTC may determine to discontinue providing its service with respect to the Bonds at any time by giving notice of such discontinuance to the City and the Trustee and discharging its responsibilities with respect thereto under applicable law. In such event. Bonds will be transferable in accordance with the Indenture. Whenever DTC requests the City and the Trustee to do so. the Trustee and the City will cooperate with DTC in taking appropriate action after reasonable notice to arrange for another securities depository to maintain custody of all certificates evidencing the Bonds then outstanding. In such event. the Bonds will be transferable to such securities depository in accordance with the Indenture. and thereafter. all references in the Indenture to DTC or its nominee will be deemed to refer to such successor securities depository and its nominee. as appropriate. The Beneficial Owners. upon registration of certificates held in the Beneficial Owners' names. will become the registered owners of the Bonds. For so long as all Bonds are registered in the name of any nominee of DTC. all payments with respect to the principal of. premium. if any. and interest on the Bonds and all notices with respect to the Bonds shall be made and given. respectively. to DTC as provided in the Letter of Representations (defined in the Indenture). Conveyance of notices and other communications by DTC to DTC Participants. by DTC Participants to Indirect Participants. and by DTC Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them. subject to any statutory and regulatory requirements as may be in effect from time to time. Payments of interest. principal and premium. if any. with respect to the Bonds will be made to DTC or its nominee. Cede & Co.. as registered owner of the Bonds. Upon receipt of such payments. DTC's current practice is to immediately credit the accounts of the DTC Participants in accordance with their respective holdings shown on the records of DTC. Payments by DTC Participants and Indirect Participants to Beneficial Owners will be governed by standing instructions and customary practices (which is now the case with municipal securities held for the accounts of customers in bearer form or registered in -street name-) and will be the responsibility of such DTC Participant or Indirect Participant and not of DTC. the Trustee or the City. subject to any statutory and regulatory requirements as may be in effect from time to time. The City and the Trustee cannot and does not give any assurances that DTC Participants or Indirect Participants will distribute to the Beneficial Owners (i) payments of interest. principal or premium. if any. with respect to the Bonds. (ii) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds. (iii) redemption or other notices sent to DTC or Cede & Co.. its nominee. as the registered owner of the Bonds. or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current -Rules- applicable to DTC are on file with the Securities and Exchange Commission and the current -Procedures- of DTC to be followed in dealing with DTC Participants are on file with DTC. -3- The Trustee. the City. and any paying agent may treat DTC (or its nominee) as the sole and exclusive owner of the Bonds registered in its name for the purpose of payment of the principal or redemption price of and interest on the Bonds. selecting the Bonds or portions thereof to be redeemed. giving any notice permitted or required to be given to Owners under the Indenture. registering the transfer of the Bonds. obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever; and neither the Trustee nor the City or any paying agent shall be affected by any notice to the contrary. Neither the Trustee nor the City or any paying agent shall have the responsibility or obligation to any Participant (which shall mean. for purposes of the Indenture. securities brokers and dealers. banks. trust companies. clearing corporations and other entities. some of whom directly or indirectly own DTC). any person claiming a beneficial ownership interest in the Bonds under or through DTC or any Participant. or any other person which is not shown on the registration records as being an Owner. with respect to (i) the accuracy of any records maintained by DTC or any Participant. (ii) the payment by DTC or any Participant of any amount in respect of the principal or redemption price of or interest on the Bonds. (ill) any notice which is permitted or required to be given to owners of the Bonds under the Indenture. (iv) the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the Bonds. or (v) any consent given or other action taken by DTC as owner of the Bonds. Discontinuation of Book-Entry System; Payments to Beneficial Owners In the event that the book-entry system described above is no longer used with respect to the Bonds. the following provisions will govern the payment. registration. transfer. exchange and replacement of the Bonds. The principal of the Bonds and any premium upon the redemption thereof prior to the maturity will be payable in lawful money of the United States of America upon presentation and surrender of the Bonds at the corporate trust office of the Trustee in . Interest on the Bonds will be paid by the Trustee by check or draft mailed by first class mail to the registered owner as his or her name and address appear on the registration book kept by the Trustee at the close of business on the Record Date or. upon written request of an owner of Bonds in an aggregate principal amount of at least $1.000.000. submitted to the Trustee before the applicable Record Date, by wire transfer to an account designated by the owner. The Bonds may be transferred or exchanged under surrender thereof to the Trustee but only in the manner and subject to the limitations and payment of charges provided in the Indenture. Upon surrender of any Bond at its corporate trust office for registration of transfer or exchange. accompanied by an instrument of transfer in the required form. duly executed by the Owner or his or her attorney. the Trustee shall deliver a new fully authenticated and registered Bond or Bonds of authorized denominations. of the same maturity and in the same aggregate principal amount. The Trustee may require the Owner to pay any tax or other governmental charge imposed by law on such transfer or exchange. The Trustee shall not be required to register a transfer or make an exchange of any Bond (i) during the 15 days before the selection of Bonds for redemption or (ii) if such Bond bas been called for redemption in whole or in part. The City and the Trustee may treat the Owner. as shown on the bond register at the relevant time. as the absolute Owner of that Bond for any and all purposes and the City and the Trustee shall not be affected by any notice to the contrary. It shall be the duty of the Owner to notify the Trustee in writing of any change in its address. If any Bond is mutilated. lost. stolen or destroyed. the City shall execute and the Trustee shall authenticate a new Bond in replacement thereof in the same aggregate principal amount and of the same maturity. subject to satisfaction of certain conditions set forth in the Indenture. Any such mutilated Bond shall be surrendered to the Trustee. and in the case of a lost. stolen. or destroyed Bond. the Trustee and the City may require satisfactory evidence to such loss. theft or destruction and indemnity prior to authenticating a new Bond. The City and the Trustee may charge the Owner the expense in connection with replacing a mutilated. lost. stolen. or destroyed Bond. -4- Redemption Provisions Optio1llll Redemption. Bonds maturing on or before December 1. 2000 are not subject to optional redemption prior to their stated maturities. Bonds maturing on or after December 1. 2001 are subject to redemption. in whole. or in part by lot. at the option of the City prior to their stated maturities. on any date commencing on or after December 1. 2000 at the following prices (expressed as a percentage of the principal amount called for redemption). plus accrued interest to the date fixed for redemption. Optional Redemption Period (Dates Inclusive) December 1.2000 through November 30.2001 December 1.2001 through November 30.2002 December 1. 2002 and thereafter Redemotion Price 102% 101% 100% Sinking Account Redemption - Term Bow* Bonds maturing from 2005 through 2011 are subject to numdatory Sinking Fund Payments which may be aggregated by the winning bidder for the Bonds to form a maximum of two Term Bonds. These Term Bonds are subject to mandatory redemption in whole. or in part by lot. on December 1 in each year commencing 2005 from Sinking Fund Payments made by the City at a redemption price equal to the amount thereof to be redeemed. without premium. or in lieu thereof shall be purchased pursuant to the next paragraph. in the aggregate respective principal amounts and on the respective date as set forth in the following table; provided however that if some but not all of such Term Bonds have been redeemed pursuant to optional redemption as described above. the total amount of all future Sinking Fund Payments shall be reduced by the aggregate principal amount of Bonds so redeemed. to be allotted among such Sinking Fund Payments on a pro rata basis in integral multiples of $5.000 as determined by the City notice of which determination shall be given by the City to the Trustee. Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed.. · Winning bidder can designate up to two Term Bonds. at least one of which must have a final maturity in 2021. .. Preliminary; subject to change. In lieu of redemption of the Term Bonds as described above. amounts on deposit in the Special Fund or the Sinking Fund may also be used and withdrawn by the Trustee at any time prior to the selection of Bonds for redemption and the notice thereof having been given with respect to such amounts. upon the Written Request of the City. which Written Request of the City shall be received by the Trustee at least seventy-five (75) days prior to the purchase date. for the purchase of the Term Bonds at public or private sale as and when and at such prices (including brokerage and other charges. but excluding accrued interest. which is payable from the Interest Account) as the City may in its discretion determine. The par amount of any Term Bonds so purchased by the City in any twelve-month period ending on December 1 in any year shall be credited towards and shall reduce the par amount of the Term Bonds required to be redeemed pursuant to the schedule above on December 1 in such year; provided that evidence satisfactory to the Trustee of such purchase has been delivered to the Trustee by said December 1. In connection with any such purchase of Term Bonds at a price in excess of the principal thereof and accrued interest thereon. the City shall comply with the requirements of Section 33664 of the Law. Notice of Redemption. The Trustee is required to mail notice of redemption at least 30 days but not more than 60 days prior to the redemption date to owners of all registered Bonds to be redeemed at the addresses of the registered owners as set forth on the Trustee's registration books. Such notice is required to specify: (i) the redemption date. (ii) the place or places of redemption. (iii) whether all of the Bonds are to be redeemed. (iv) the identifying numbers of Bonds to be redeemed. and (v) in the case of Bonds to be redeemed in part only. the portion of the principal amount to be redeemed. Such notice is also required to state the redemption price that will become due and payable on the Bonds as of the redemption date and that from and after such redemption date. interest thereon will cease to accrue. Neither the failure to receive any such notice nor any defect therein will affect the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. -5- Selection of Bonds for Redemption. If fewer than all of the Bonds are to be redeemed. the Trustee is required to select the Bonds to be redeemed pro rata among maturities. and. by lot within a maturity if fewer than all of the Bonds Outstanding of any maturity are called for redemption. in any manner in which the Trustee in its sole discretion deems appropriate and fair; provided that. at the request of the City optional redemption of the Bonds is required to occur in inverse order of maturities and by lot within a maturity. Transfer and Exchange of Bonds Any Bond may. in accordance with its terms. be transferred upon the Bond registration books upon surrender of such Bond to the Trustee. Such Bond is required to be accompanied by delivery of a written instrument of transfer. duly executed in a form approved by the Trustee. Bonds may be exchanged at the principal trust office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of like maturity. The Trustee is not required to transfer or exchange any Bond which bas been selected for redemption. In addition. such transfer or exchange is not required during the period established by the Trustee for the selection of Bonds for redemption. &timated Uses of Proceeds Bond proceeds and accrued interest thereon shall be used for the purposes set forth in the table below: CITY OF VERNON ESTIMATED USES OF FUNDS Uses Deposit to Construction Fund (1) Reserve Account (2) Undetwriter's Discount Bond Insurance Deposit to Costs of Issuance Fund Total Uses $56.669.200 5.710.080 800.000 570.800 250.000 $64.000.000 (I) (2) Will be used to finance the Project described herein. Represents the Reserve Requirement which equals maximum annual debt service. The amounts on deposit in the Reserve Account shall be used only to pay principal and interest in the event of a default. -6- Bond Debt Service The table below sets forth the annual debt service on the Bonds based on the maturity schedule and interest rates set forth on the cover page of this Official Statement. CITY OF VERNON ELECTRIC SYSTEM REVENUE BONDS ANNUAL DEBT SERVICE SCHEDULE- Bond Year Ending December 1 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Princioal $1,815,000 1,900,000 1,990,000 2,090,000 2,195,000 2,315,000 2,445,000 2,580,000 2,735,000 2,895,000 3,070,000 3,255,000 3,455,000 3,675,000 3,905,000 4,160,000 4,425,000 4,715,000 5,025,000 5.355.000 Interest $3,891,073 3,809,398 3,719,148 3,619,648 3,510,968 3,392,438 3,263,955 3,124,590 2,974,950 2,813,585 2,639,885 2,452,615 2,250,805 2,033,140 1,799,778 1,549,858 1,281,538 993,913 685,080 353.430 $50,159,790 Total $5,706,073 5,709,398 5,709,148 5,709,648 5,705,968 5,707,438 5,708,955 5,704,590 5,709,950 5,708,585 5,709,885 5,707,615 5,705,805 5,708,140 5,704,778 5,709,858 5,706,538 5,708,913 5,710,080 5.708.430 $114,159,790 $64,000,000 ... Preliminary; subject to change. -7- DESCRIPI'ION OF THE PROJECT The City bas an overall plan to acquire power from alternative sources other than from Southern California Edison Company ("SCE"). To this end, the City will use proceeds of this issue to acquire capacity rights in three electric power transmission projects. Mead-Adelanto and Mead-Phoenix Projects. The City is participating as an owner of the Mead-Phoenix Project ("Mead-Phoenix Project"). The Mead-Phoenix Project is a proposed 500-kilovolt ("kV") AC transmission line to be constructed between Marketplace Substation in southern Nevada, and the Phoenix, Arizona area (a distance of approximately 240 miles). The Mead-Phoenix Project is estimated to cost $332 million. The City is participating as an owner in the construction of transmission facilities from the Mead Substation to the Adelanto, California area ("Mead-Adelanto Project"), a distance of approximately 180 miles. This project consists of a 500- kV AC transmission line. The Mead-Adelanto Project is estimated to cost $299 million. The City will purchase a 6.25 % share in the Mead-Adelanto Project between southern California and southern Nevada. The Mead-Phoenix Project bas three components as listed below. The City will buy capacity share in these components of the Mead-Phoenix Project as follows: Westwing-Mead Component Mead Substation Component Mead-Marketplace Component 2.154 % 3.793% 4.05% The City's capacity purchase in both intertie projects will provide it with transmission capacity from the Phoenix area and southern Nevada to southern California. The City presently bas power supply agreements with the Southern California Public Power Authority ("SCPPA ") with respect to the Palo Verde Nuclear Generating Station ("PVNGS") near Phoenix. The City will have 28 megawatts (MW) of transfer capability from its participation the Westwing-Mead component, 47 MW from the Mead Substation component and 75 MW from the Mead-Marketplace component. It is anticipated that the combined capacity of both intertie projects will enable the City to transmit its allocation of PVNGS in addition to other potential sources in the Phoenix and southern Nevada region to its customers. The combined cost of purcbasing this transmission capacity in both the Mead-Phoenix and Mead..Adelanto Projects is $25 million. Of this total acquisition cost, 100% will be funded from the proceeds of the Bonds. The City believes that ownership of this capacity will provide it access to alternative sources of power in the southwest. The other participants in the Mead-Phoenix Project and the Mead-Adelanto Project consist ofvarious public power entities in California, the M-S-R Public Power Agency ("MSR"), the Salt River Project Agricultural and Improvement District ("SRP"), the Department of Water and Power of the City of Los Angeles ("LADWP") and the United States Department of Energy, Western Area Power Administration ("Western"). Construction will begin in Fiscal year 1992-93 and be complete by August, 1995. COTP Project. The City intends to use the proceeds of the bonds to also purchase a 8.053 % (120.8 MW) capacity share in the California Oregon Transmission Project ("COTP"). This project is a 500 kV AC transmission project between the California-Oregon border and central California. The COTP will create another intertie between the electric systems of the Pacific Northwest and those in California. The northern terminus of COTP will interconnect with a 500 kV transmission line presently being constructed by the Bonneville Power Administration ("BP A") of the United States Department of Energy. The southern terminus will be at a point near the Tesla Substation of Pacific Gas & Electric Company ("PG&E") near Tracy, California, a distance of 345 miles. The City does not presently have any power supply contracts with power producers in the Pacific Northwest and northern California. However, the City believes this transmission capacity purchase will enable it to purchase power from sources in the Pacific Northwest and transmit it to its customers. -8- The COTP bas been developed by the Transmission Agency of Northern California eTANCW), Western and various public power entities in California. Among the various members of TANC are the Sacramento Municipal Utility District, the City of Santa Clara, the City of Redding, the Modesto Irrigation District and the Turlock Irrigation District. The total estimated cost of the COTP is $420 million. The cost for the City to purchase its capacity share is $33.5 million. Of this total acquisition cost, the City will finance 100% from the proceeds of the Bonds. As of November 1, 1991, the COTP project is about 50% complete and is on schedule for beginning commercial operation in early 1993. SECURITY FOR THE BONDS The Bonds are special obligations of the City and are secured by a pledge, charge and lien upon the Net Revenues of the City's Electric System and a pledge of all of the moneys in the Project Fund, the Bond Fund, the Reserve Fund and the Rate Stabilization Fund, all as defined in the Indenture. Neither the full faith and credit nor the taxing power of the City, State or any other political subdivision thereof are pledged to the payment of the Bonds. Parity Obligations The City by Resolution No. 6015 bas approved an indenture (the wIndentureW) which covenants that, except for obligations incurred to prepay, redeem or discharge the Bonds or other Parity Obligations, no additional indebtedness evidenced by leases, installment sale agreements, bonds, notes or other obligations of the City payable from and secured by a pledge of and lien upon any of the Net Revenues and ranking on a parity with the obligation to make payments of the Bonds (a wParity ObligationW) will be created or incurred unless: (a) No Event of Default shall have occurred and be continuing under and as defined in the Indenture; (b) The Net Revenues (excluding connection charges but including funds on deposit in the Rate Stabilization Fund), calculated in accordance with sound accounting principles, as shown by the books of the City for the most recently completed Fiscal Year for which audited financial statements are available, or for any more recent consecutive (12) month period selected by the City, in either case verified by a certificate or opinion of an independent certified public accountant employed by the City, plus the Additional Revenues, equal at least one hundred twenty-five percent (125 %) of the amount of Maximum Annual Debt Service with respect to the Bonds and all Parity Obligations then Outstanding (including the Parity Obligations then proposed to be issued); and (c) Upon the issuance of such Parity Obligations a reserve fund will be established therefor in an amount at least equal to the lessor of (i) the Maximum Annual Debt Service on such Parity Obligations, or (ii) the maximum amount then permitted under the applicable federal tax law. Additional Bonds The City may not issue any additional bonds or incur any other obligations during the term of the Bonds having any priority in payment out of the Gross Revenues or Net Revenues over the payments on the Bonds. In addition to Parity Obligations described above, the City may issue bonds or incur obligations which are subordinate to the pledge of and lien upon Net Revenues created by the Indenture. Rate Covenant The Indenture requires that the City fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Electric System during each Fiscal Year, which are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Gross Revenues which, together with the amounts -9- (if any) which are permitted to be added to Gross Revenues in such fiscal year from the Rate Stabilization Fund, are at least sufficient to pay the following amounts in the following order: (a) Fiscal Year; All Operation and Maintenance Costs estimated by the City to become due and payable in such (b) The principal of and interest on the Bonds and the principal of and interest on any Parity Obligations as they become due and payable during such Fiscal Year, without preference or priority, except to the extent such Bonds or such interest on Parity Obligations are payable from the proceeds of the Bonds or Parity Obligations deposited for such purpose; (c) All payments necessary to restore the Reserve Account to the full amount of the Reserve Requirement; and (d) All payments required to meet any other obligations of the City which are charges, liens, encumbrances upon or payable from the Gross Revenues or the Net Revenues during such Fiscal Year. In addition, the City bas covenanted to fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Electric System during each Fiscal Year which are sufficient to yield Net Revenues which, together with the amounts (if any) which are permitted to be added to Net Revenues from the Rate Stabilization Fund, are at least equal to one hundred and twenty-five percent (125%) of the amount described in the preceding clause (b) for such Fiscal Year. The Gross Revenues are defined as all gross charges received from, and all other gross income and receipt derived by the City from, the ownership and operation of the Electric System or otherwise arising from the Electric System, including but not limited to earnings thereon, also including funds on deposit in the Rate Stabilization Fund; but excluding the proceeds of any (a) connection charges, (b) ad valorem property taxes levied for the purpose of paying general obligation bonds of the City relating to the Electric System, and (c) the proceeds of any special assessments or special taxes levied upon real property within an improvement district served by the City levied for the purpose of paying special assessment bonds or special tax obligations of the City relating to the Electric System. Net Revenues are defined as the Gross Revenues of the Electric System less debt service on the Parity Bonds and less Operation and Maintenance costs of such Electric System. Operation and Maintenance Costs of the Electric System are defined to be the reasonable and necessary costs and expenses paid by the City for maintaining and operating the Electric System, including but not limited to (a) costs of acquisition of power to be supplied by the Electric System (b) the reasonable expenses of management and repair and other cost and expenses necessary to maintain and preserve the Electric System in good repair and working order, and (c) the reasonable administrative costs of the City attributable to the operation and maintenance of the Electric System; but in all cases excluding (i) interest expense relating to subordinate obligations and unsecured obligations of the City, (ii) depreciation, replacement and obsolescence charges or reserves therefor and (iii) amortization of intangibles or other bookkeeping entries of a similar nature. Reserve Account To secure further the payment of principal of and interest on the Bonds, the City is required, upon delivery of the Bonds, to deposit the amount of the Reserve Requirement (as defined below) in the Reserve Account held by the Trustee. Amounts in the Reserve Account are required to be used to pay debt service on the Bonds to the extent other moneys are not available therefor. Pursuant to the Indenture, the "Reserve Requirement" means, as of the date of any calculation, an amount equal to maximum annual debt service of the Outstanding Bonds. Amounts in the Reserve Account may be used to pay the final year's debt service on the Bonds. Upon retirement of the Bonds, to the extent there remain moneys then on deposit in the Reserve Account, such moneys are required to be paid to the City as refund of overpaid principal and interest payments. See "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Indenture of Trust" attached hereto as APPENDIX C. -10- Rate Stabilization Fund To secure further the payment of principal and interest on the Bonds, the City has established, pursuant to the Indenture, the Rate Stabilization Fund. Amounts in the Rate Stabilization Fund shall be applied solely for the uses and purposes set forth below. For the purposes of computing the amount of Gross Revenues or Net Revenues for any Fiscal Year for purposes of the Rate Covenant, the City shall be permitted to add thereto amounts on deposit in the Rate Stabilization Fund as of the first day of such Fiscal Year. The City shall have the right to deposit into the Rate Stabilization Fund from time to time any funds which are legally available therefor. In the event that the amounts on deposit in the Light and Power Department Fund are insufficient to enable the City to transfer to the Trustee, for deposit into the Bond Service Fund, the full amount then required to be so transferred pursuant to the Indenture, the City shall immediately withdraw the amount of such insufficiency from the Rate Stabilization Fund. Such transfer shall be made prior to any transfer to the Bond Service Fund from the Reserve Fund pursuant to the Indenture. In addition, in the event that the Trustee shall notify the City at any tUne that the amount on deposit in the Reserve Fund is less than the amount of Maximum Annual Debt Service, and the City shall not have on deposit in the Light and Power Department Fund an amount sufficient to make up such insufficiency in the Reserve Fund, the City shall immediately withdraw the amount of such insufficiency from the Rate Stabilization Fund and transfer such amount to the Trustee for deposit into the Reserve Fund. All amounts deposited by the City in the Rate Stabilization Fund for any Fiscal Year shall remain on deposit therein during the whole of such Fiscal Year, and may only be withdrawn therefrom for the uses and purposes set forth in the preceding paragraph. Following the final Interest Payment Date in each Fiscal Year, all amounts on deposit in the Rate Stabilization Fund shall be withdrawn therefrom by the City and may be used for any lawful purposes. Application of Revenues In the Indenture, the City covenants and agrees that the Gross Revenues shall be deposited by the City, immediately upon receipt, in the Light and Power Fund previously established by the City and which is required to be held and maintained by the City at all times during the term of the Bonds. The City covenants and agrees that all Net Revenues will be held by the City in the Light and Power Fund in trust for the Benefit of the Trustee and the owners of the Bonds and any Parity Obligations. The City is required to deposit with the Trustee on or before each May 15 and November 15, commencing May 15, 1992 and continuing during the term of the Bonds, an amount equal to the aggregate amount of the Bonds coming due and payable on the next succeeding Interest Payment Date. In addition, the City is required to withdraw from the Light and Power Fund such amounts at such times as shall be required to (a) pay all Operation and Maintenance Costs as they come due and payable, (b) pay to the Trustee the amount of any deficiency in the Reserve Fund, the notice of which deficiency shall have been given by the Trustee to the City, (c) pay the principal of and interest on any Parity Obligations and otherwise comply with the provisions of the instruments authorizing the issuance of any Parity Obligations, and (d) pay all other amounts when due and payable. Limitations on Remedies Available to Owners of the Bonds and the Trustee The enforceability of the rights and remedies of the Owners of the Bonds and the Trustee, and the obligations incurred by the City, may be subject to the following: the Federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in -11- the interest of service a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations or modification of their rights. Remedies may be limited since the Project serves as essential public purpose. THE ELECTRIC SYSI'EM General - The City The City is located in Los Angeles County, California, approximately four miles south of downtown Los Angeles. The City is predominantly industrial, with an estimated resident population of 80 as of January 1, 1991. The City bas nearly 400 industrial facilities located within its S.06 square miles and a work day population of nearly SO,OOO. The City bas owned its own electric distribution system since 1931. The City is a California charter city and was incorporated in 1905. The City bas a council-administrator form of municipal government and is governed by a council of five elected at large by the voters of the City. The City Council appoints the City Administrator who is responsible for the day-to-day administration of City business and the coordination of all departments of the City. The Mayor is selected by the City Council from amongst its members. The City employs a staff of approximately _ employees under the direction of the City Administrator. See "APPENDIX A - THE CITY OF VERNON GENERAL INFORMATION" for further information. Power Supply In the past the City bas purchased virtually all of its power requirements from Southern California Edison Company (Edison) and is currently receiving the majority of its required energy from Edison as a partial requirements customer pursuant to a tariff approved by Federal Energy Regulatory Commission ("FERC"). The City owns five diesel generator units each with a net capacity of 4.1 megawatts ("MW"). Total net capacity for the five units is 20.S MW. These units operate for approximately three to five hours daily during peak hours to reduce demand for purchased power. The City also owns and operates two gas turbine generators. These units have a capacity of 6.1 MWeach. They are used to provide on-peak power. SCPP A, of which the City is a member, bas entered into an agreement with the SRP to purchase an interest in PVNGS. SCPPA bas purchased a S.91 percent interest in PVNGS and the City is entitled to 4.9 percent of that share for a total of 11.03 MW. Power from all three PVNGS units is currently being delivered to the City. SCPP A bas also purchased a 6.SS percent share of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission System to transmit PVNGS power to the City. PVNGS supplies a portion of the City's base load. The City bas been allocated a share of contingent capacity and associated firm energy of the Hoover Power Plant ("Hoover") resulting from the Hoover uprating program. The City's 22 MW share of capacity from the uprating program is available in increasing amounts up to the 22 MW total as the Hoover uprating program is completed. The City currently utilizes approximately 13 MW of such capacity during its peak periods of demand for power. The City also has a firm contract with the California Division of Water Resources (CDWR) for up to 98 MW of capacity during on-peak periods. The City has an additional firm contract with SRP (independent of the SCPPA-PVNGS arrangements) for up to 20 MW of on-peak capacity in 1994. However, prior to 1994, SRP will supply between 7 and 17 MW. The City purchases capacity from SCE under its tariff schedule mentioned above to meet the remaining capacity needs of its customers. SCE capacity is relied upon primarily for off-peak and mid-peak power. -12- CITY OF VERNON DISTRIBUTION OF POWER SUPPLY PURCHASED ENERGY (MWH) Utility Southern California Edison California Dept. of Water Resources Nevada Power Company L.A. Dept of Water & Power (I) SCPPA (pVNGS) Vernon W APA (Hoover Dam) Total % of Total 41.78% 28.97 0.01 22.91 2.22 1.66 2.46 100.00% 1989/90 470,067.886 325,944.761 86.184 257,806.800 24,934.324 18,651.779 27.628.393 1.125.120.127 1990/91 523,184.829 283,638.102 0.000 130,292.310 76,254.077 17,856.974 22.404.211 1.053.630.503 (I) The City terminated its power purchases from L.A. Dept. of Water & Power in December 1990. % of Total 49.66% 26.92 0.00 12.37 7.24 1.69 -1.ll 100.00% Source: The City. Management and Administration of the Electric System The City of Vernon Light and Power Department exercises jurisdiction over the Electric System. The Following is a brief description of the senior management personnel of the Light and Power Department. Mr. Bruce V. Malkenhorst is the City Administrator, a position he bas held since September 1975. His duties include the responsibilities of Chief Executive Officer of the Light and Power Department. Mr. Malkeohorst holds a Bachelor of Science degree from Woodbury University. Mr. Kenneth J. DeDario is Director of the Light and Power Department. He is responsible for the administration of such department. Mr. DeDario bas a BS in Electrical Engineering from Purdue University, a MS in Electrical Engineering from USC, and a Business Management Certificate from UCLA. -13- . . Operating Results The following information concerning the City and its Electric System was prepared by the City for inclusion in this Official Statement. This information does not purport to describe all aspects of the Electric System's business, operations and financial position. CITY OF VERNON STATISI1CS Year EDded J- 38 -12!L -12ll- ...!nL -12!L --1l!2!L 1991"1 Electric PIut: Net Utility PIaat $9.705.310 $14,002.321 $16.969,234 $20.239,537 $19.805,322 $20.708.079 Mi1ea of Liaea: T~ulioa66kV 13 13 13 13 13 13 DiItribuIioa-lowervo""e 203 203 203 203 203 203 BoDded 1DMJ.t.d- -0- 125,000.000 125,000.000 125.000,000 -0- -0- Power Supply (MWh): Pun:hMs 1.141.562 1.140,518 1.142.258 1.156,647 1,106.468 1,034.440 G_ntioa 9,547 11,171 14.720 16,830 18,637 17,856 CuatomerII: Residential 31 30 30 30 31 31 Commercial 1.489 1,490 1.510 l,n7 1,853 1.723 IDdUUial 497 471 460 403 364 381 Other n 89 71 119 104 132 &ell)' Sold (MWh): Residential 125 123 124 120 131 120 Commercial 198.146 169.516 199,207 185.247 194.388 177,681 IDdUUial 888.563 929,471 909,377 902.72S 904.824 827.056 Other 7.435 7.732 7.467 7.455 --!.l1!! 7.420 ToIal 1,094.269 1.106,842 1.116,175 1,095,547 1,107.463 1.012,277 Peak Dcmud (MWe) 193 194 190 191 193 182 Summary of Operations: Operaliq Reveauea: Electric Sala $77,475,949 $59,405,155 $60,609.597 $69,459,342 $65.826.732 $56,203,080 Other 55.944 74.365 80.887 7.106.123 0.265.268) 1.446.826 Total 77.531,893 59,479,520 60,690,484 76,565.465 64,561.464 57,649.906 0pera1iDc Expayea: Power Supply 68,177,475 54,425,868 57,156.843 57.189,010 47.648.906 40.210.544 TnDmIiAicmIDi8tribu1io 3.147,383 3.758.562 3,418.463 3,615,133 10.844.270 9.614,048 Other 5.436.374 4.868.858 6.955.432 10,193.059 4.932.923 4.153.793 Total 76.761.232 63.053.288 67.530.738 70.997.202 63.426.099 53.978.385 Net ()peraIiq Rcveaues AVlIiIUle for Deprecilltion lIIId Debt Service 770,661 (3.573.768) (6,840.254) 5.568,263 1.135.365 3.671.521 Olher Reveoues AVlIiIUle for Depreciation lIIId Debt Service 01 7.223.868 4.492.170 7.730.064 6.819.418 11.452.340 13.896.864 Total Reveoues AVlIiIUle for Depreciation lIIId Debt Service $7.994.529 $918,402 $889.810 $12.387 .681 $12.587.705 $17.568,385 (I) Bued upon _udited filwK:ial infonnation. (Z) Other Reveoues include interest income, FERC refimda. wheeling fees paid by coleoeralon lIIId Olber non-opcraIiDs Reveoues. -14- Current Rates The current rate schedules of the City's Light and Power Department were approved by ordinance on_ . Retail billing rates are established based upon the estimated cost of fuel and purchased power. Any difference between the actual and estimated cost of fuel is accumulated in the fuel adjustment balance account. Rates are adjusted each quarter to reflect the difference between actual and estimated costs, as shown by the fuel adjustment balancing account. The City's retail rate structure for the largest 100 customers provides for the same time of use service as is contained in the City's wholesale tariff schedule with Edison. RATE SCHEDULE - GS.l DOMESTIC SERVICE - RESIDENTIAL Moatbly Rate* Customer Charge ........................................................... N/A Energy Charge for all kWh .......................................... 12.374 centl per kWh RATE SCHEDULE GS.1 GENERAL SERVICE - DEMAND UNDER 500 kw Moatbly Rate* Demand Charge ...................................................... $10.04 per kw Energy Chargo ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.22 centl per kWh Minimum Monthly Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200.85 RATE SCHEDULE TOU-V AND TOU-G.. GENERAL SERVICE - LARGE - DEMAND OF 500 kw OR GREATER (TOU-V) AND DEMAND OF BETWEEN 100 kw AND 500 kw (TOU-G) Moatbly Rate4' TOU-V CustomerCharge .......................................... $566.50 DemandChargeon-peakdemand$10.295perltw ....................... $10.635perkw P1UI mid-poak demand ....................................... $1.597 per kw P1UI off-peak demand...................................................................... . . . . . 0 TOU-G i566.SO $10.635 per Itw $1.65 per kw o Energy Cbarae* On-Peak. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5.186 cents per kWh Mid-Peak ....................................... 4.861 cents per kWh Off-Peak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4.374 cents per kWh 5.344 centl per kWh 5.009 centl per kWh 4.507 centl per kWh On-Peak: 1:00 p.m. to 7:00 p.m. Summer weekdays except holidays 5:00 p.m. to 10:00 p.m. W'mter weekdays except holidays Mid-Peak: 9:00 a.m. to 1:00 p.m. and 7:00 p.m. to 11:00 p.m. Summer weekdays except holidays 8:00 a.m. to 5:00 p.m. Winter weekdaYI except holidaYI Off-Peak: All other houn Summer sealOn il defined althe period May I through October 31. Winter sealOn il defined al November I through April 30. . The City historically hal provided its customers with an annual reduction in the ntel they pay for certain energy cost adjustmentl. Such adjustmentl are not included in the figures shown here since they are not guannteed and would vary from year to year if applied. .. The City of Vernon has introduced a new Time-of-Uae (TOU) nte schedule called TOU-G for customen between 200 kw and 500 kw. -15- Comparative Rates The following table sets forth comparative industrial and commercial power (electricity) rates for major power providers in California: CITY OF VERNON COMPARATIVE ELECTRICITY RATES (cents/kwh) Provider Southern California Edison San Diego Gas & Electric Pacific Gas & Electric Los Angeles Department of Water and Power Sacramento Municipal Utilities District City of Vernon Industrial(l) 9.43 9.01 7.34 7.25 7.20 S.27 Commercial(2) 9.S0 8.0S 8.S9 8.60 8.31 6.09 (I) Source: Energy Users News, January 1991. (2) Source: Energy Users News, Aprill99L ~or Customers The following table sets forth the ten major industrial and commercial customers of the City in terms of percentage of total energy sales. MAJOR CUSTOMERS FOR THE YEAR 1990 CITY OF VERNON LARGEST TEN CUSTOMERS Customer 1. Alcoa 2. American National Can 3. Container Corp. 4. Domtar Gypsum* S. Farmer John 6. Filtrol 7. GNB Battery 8. National Can Corp. 9. Owens Illinois 10. Pabco Tvne of Products Metal Forging Metal Containers Paper Board Mfg. Paper Products Meat Packers & Processors Catalyst Manufacturer Battery Manufacturer Glass Container Recycling Glass Paper Products Combined energy usage for the largest 10 customers is about 40.7% of total City-wide usage. * Domtar Gypsum may close its facility in Vernon during calendar year 1992. Source: The City. -16- Transmission Services for Cogenerators The City has entered into firm transmission service agreements with three large cogenerators (98 MW total) located within the City of Vernon which permits the cogenerators to transmit and sell their power to Edison. The City receives transmission service fees of approximately $1.2 million annually from such cogenerators. ABSENCE OF MATERIAL LmGATION At the time of delivery and payment for the Bonds, a responsible officer of the City will certify that, to the best of his knowledge, information and belief, that in reliance upon the legal opinion of its counsel no litigation is pending, and, that no litigation is threatened, before any judicial, quasi-judicial or administrative forum (a) to restrain or enjoin the issuance or delivery of the Bonds, the application of the proceeds thereof, or the performance by the City of the provisions of certain documents relating to the Bonds or the source of payment of the Bonds; (b) in any way contesting or affecting the authority for, or the validity of, certain documents relating to the Bonds, or the application of the proceeds of the Bonds; or (c) in any way contesting the existence or powers of the City. A responsible officer of the City will also certify that, to the best of its knowledge, information and belief, that the Official Statement, insofar as it relates to the City, the Electric System and certain documents relating to the Bonds, is true, correct and complete in all material respects and the Official Statement does not include any untrue statement of a material fact or omit to state any material fact necessary to make such statements and information, in light of the circumstances under which they were made, not misleading. RATING bas have given the Bonds a rating of · _.. An explanation of the significance of such rating may be obtained only from the rating agency furnishing the same. The City furnished to such rating agency certain information and materials. Generally, rating agencies base their ratings on such information and materials, and, in the public agencies themselves. There is no assurance that the rating mentioned above will continue for any given period of time or that the rating may not be lowered or withdrawn entirely by such rating agency, if in its judgement circumstances so warrant. The City bas not undertaken any responsibility to bring to the attention of the owners of the Bonds any proposed change in or withdrawal or any rating or to oppose any such proposed revision or withdrawal. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. TAX EXEMPfION In the opinion of Jones Hall Hill & White, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however, to the qualifications set forth below, under existing law, interest received by the Owners of the Bonds is excluded from gross income for federal income tax purposes, such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that for the purpose of computing the alternative minimum tax imposed on such corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the delivery of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City bas covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Bonds. Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should also be aware that (i) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b )(5)(B)(i) reduces the reduction for loss reserves -17- by 15 percent of the sum of certain items, including interest payable with respect to the Bonds, (ii) for taxable years beginning before January 1, 1992, interest payable with respect to the Bonds earned by some corporations could be subject to the environmental tax imposed by Section 59A of the Code, (iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under Section 1347 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 2S % of the gross receipts of such Subchapter S corporation is passive investment income and (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, recipients or accruals of interest on the Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. PENDING FEDERAL TAX LEGISLATION On March 21, 1991, Representative Brian Donnelly introduced H.R. 1552 (the "Bill") in the United States House. of Representatives. The Bill provides that, in the case of taxpayers who are individuals, no deduction is allowable for the portion of the taxpayer's itemized deductions which is allocable to tax-exempt interest. Such portion is an amount which bears the same ratio to the individual taxpayer's total amount of deductions as the amount of tax-exempt interest received or accrued by the taxpayer in the taxable year bears to the sum of such tax- exempt interest plus the adjusted gross income of the taxpayer for the taxable year. This provision, if enacted, would apply to taxable years beginning after the date of enactment without regard to the date of issuance of the tax- exempt obligations and, as a consequence, would apply to interest on the Bonds which is received or accrued by an individual taxpayer in taxable years beginning after the date of enactment of the Bill. In the case of taxpayers which are corporations, the Bill provides that a deduction is denied for the portion of interest expense allocable to interest payable with respect to tax-exempt obligations unless such obligations are qualified tax-exempt obligations (as defined in the Bill) acquired at original issue. This provision does not apply to obligations issued prior to the date of enactment and, as a consequence, would not apply to the Bonds. Individual taxpayers are encouraged to consult their own tax attorneys regarding the effect of the Bill. CERTAIN LEGAL MATTERS The legal opinion of Bond Counsel, approving the validity of the Bonds, in substantially the form attached hereto as APPENDIX D, will be made available to purchasers at the time of original delivery of the Bonds, and a copy thereof will be printed on each Bonds. Certain legal matters will be passed upon for the City by David Brearley, City Attorney for the City. UNDERWRITING Pursuant to the terms of a public bid dated December _, 1991, as underwriter (the "Underwriter") bas agreed to purchase the Bonds at a purchase price of $ , plus accrued interest to the date of delivery of the Bonds, at a net interest cost of % . The initial public offering prices of the Bonds may be changed from time to time by the Undetwriter. The Undetwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than such offering prices stated on the cover of this Official Statement. MISCELLANEOUS All summaries of the Resolution, the Indenture, applicable legislation, agreements and other documents are made subject to the provisions of such document and do not purport to be complete statements of any or all of such -18- provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not expressly stated, are set forth and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement bas been duly authorized by the City. CITY OF VERNON BY: Mayor -19- APPENDIX A THE CITY OF VERNON GENERAL INFORMATION General The City of Vernon was incorporated on September 16, 1905, as a general law city. Effective April 12, 1988, the City became a charter city. The City encompasses 5.06 square miles and is located next to the City of Los Angeles, just four miles south of the Los Angeles Civic Center. The City was planned from its inception to be primarily an industrial city. The City operates under a Council-City Administrator form of government. The City Administrator manages the following functions through his office: City Clerk, Treasurer, Finance Director, Purcbasing Agent and Personnel Director. Population The historic population for the City is set forth below: CITY OF VERNON POPULATION Year 1970 1980 1989(1) 1990 1991(1) Vernon 261 90 80 80 80 (I) As of January 1 of each year. Source: Statistics for 1989 and 1991 are State Finance Department estimates made May 1, of each respective year. The 1970, 1980 and 1990 totals are U.S. Census figures. The City's work day population is estimated at 50,000. -A-l- Employment The City bas nearly 400 industrial facilities located within its boundaries. The following table presents current employment information for some of the larger manufacturing employers in the City: MAJOR MANUFACTURING EMPLOYERS CITY OF VERNON Name of Company Aluminum Can Company of America (Alcoa) Clougherty Packing Company (Farmer John Products) United Parcel Service Angelus Sanitary Can Machine Company Cole of California Galletti Brothers Food Kal Kan Foods Mallin Company Maxine of Hollywood NI (Norris Industries) Owens-Brockway Company Packaging Corp. of America Seven-UplRC Bottling Companies ThermadorlWaste King Tomeo Carburetor Company Wior Corporation Emplovees 1000+ 1000+ 1000+ 500+ 500+ 500+ 500+ 500+ 500+ 500+ 500+ 500+ 500+ 500+ 500+ 500+ Product/Service Metal Forging Meat Packing Delivery Service Garbage Cans Clothing Manufacturer Food Distributer Pet Foods Patio Furniture Clothing Manufacturer DefenselDishwashers Bottle Manufacturer Corrugated & Fiber Boxes Soft Drinks Appliances Remanufactured Carburetors Clothing Manufacturer Source: City of Vemon Chamber of Commerce. -A-2- The following table represents as of August 1, 1991 the labor patterns for 1989 and 1990 and the forecast for 1993 for the Los Angeles County Area. LOS ANGELES COUNTY CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT ANNUAL AVERAGES (Fagures in Thousands) Actuals Forecast 1988 1989 1993 Civilian Labor Force(1) 4,163.5 4,231.1 4,550.0 Employment 3,959.9 4,034.3 4,323.0 Unemployment 203.6 196.8 227.0 Unemployment Rate 4.9% 4.7% 5.9% Wage & Salary Employment(2) 4,109.2 4,235.5 4,481.7 Agricultural 12.4 12.7 13.6 Non-Agricultural 4,096.8 4,222.9 4,468.1 Mining/Construction 156.3 162.9 175.4 Nondurable manufacturing 312.1 314.7 329.3 Durable manufacturing 585.6 577.0 553.2 Transportation and public utilities 207.6 212.1 225.3 Wholessle trade 298.5 312.3 333.6 Retail trade 635.1 652.2 703.2 Finance, insurance, and real estate 281.9 291.9 316.3 Services 1,114.0 1,176.7 1,306.0 Government 505.6 523.1 525.8 (I) Based on place of residence (2) Based on place of work Source: California Employment Development Department. -A-3- Transportation The City of Vernon is adjacent to the City of Los Angeles, and bas complete access to the nearby freeway and highway systems. It is four miles south of the Los Angeles Civic Center, seventeen miles north of the Port of Los Angeles and Long Beach Harbor, and 15 miles northeast of Los Angeles International Airport. Vernon is served by four railroads operating 114 miles of railroad line within the City. Three are transcontinental systems: Union Pacific, Southern Pacific, and Santa Fe. One, the Los Angeles Junction Railroad Company, provides an intra-city belt system. Thus virtually every industry or business is on a direct transcontinental rail line. Taxable Transactions A summary of historic retail sales for the City is set forth below: CITY OF VERNON TAXABLE TRANSACTIONS Year 1986 1981 1988 1989 1990 Permits 831 839 804 813 833 Taxable Transactions (Thousands) $431,842 463,283 462,658 483,583 409,036 Source: State Board of Equalization. Building Activity Building activity for the past five years in the City is set forth below: CITY OF VERNON TOTAL BUILDING PERMIT VALUATION (Valuation in Thousands) Year 1986 1981 1988 1989 1990 Residential Valuations(1) $ 250 o o o o Non-Residential Valuations $21,112 36,984 31,591 29,129 21,442 Total Building Valuations $21,962 36,984 31,591 29,129 21,442 (I) Includes all residential building activity. Source: "California Building Permit Activity, " Economic Sciences Corporation. -A-4- Statement of Direct and Overlapping Bonded Debt Contained within the City's service area are numerous overlapping local agencies providing public services. These local agencies have outstanding indebtedness issued in the form of general obligation, lease revenue and special assessment bonds. The direct and overlapping debt of the City is shown in the following table (the WDebt ReportW). Self-supporting revenue bonds, tax allocation bonds and non-bonded capital lease obligations are excluded from the debt statement. The City bas no authorized but unissued general obligations. The Debt Report is included for general informational purposes. The City bas not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. CITY OF VERNON STATEMENT OF DIRECT AND OVERLAPPING DEBT 1992-92 Assessed Valuation: $2,271,203,887 DIRECT AND OVERLAPPING DEBT: LoI Angeles County Los Angeles County Building Authorities Los Angeles County Superintendent of Schools Los Angeles County Flood Control District Los Angeles County Flood Control District Certificates of Participation Metropolitan Water District Central Basin Municipal Water District Certificates of Participation Los Angeles Community College District Certificates of Participation Los Angeles Unified School District LoI Angeles Unified. School District Certificates of Participation Los Angeles County Sanitary District #23 City of Vernon Certificates of Participation TOTAL DIRECT AND OVERLAPPING BONDED DEBT % Aoolicable 0.544% 0.544 0.544 0.502 0.502 0.291 5.675 0.950 1.152 1.152 100. 100. Debt 1111/91 $ 459,898 10,106,274 130,404 684,862 211,543 2,036,767 1,123,650 571,805 119,347 2,478,033 540,000 6.435.371 (I) $24,897,954 (2) (I) Excludes pooled certificates of participation to be sold. (2) Excludes revenues, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt 0.28% Total Debt 1.10% SHARE OF AUTHORIZED AND UNSOLD BONDS: Metropolitan Water District ......... $145,000 Los Angeles County Flood Control District. 92,619 STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/91: $540,740 Source: California Municipal Statistics, Inc. -A-S.. Assessed Valuations and Tax Collections Taxes are levied for each fiscal year on taxable real and personal property which is situated in the City as of the preceding March 1. For assessment and collection purposes, property is classified either as wsecuredw or wunsecuredw and is listed accordingly on separate parts of the assessment roll. The wsecured rollw is that part of the assessment roll containing State-assessed public utilities property and property taxes for which a lien on real property is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the wunsecured roll. W Property taxes on the secured roll are due in two installments, on December 1 and February 1, of the fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquent penalty, plus a redemption penalty of 1.5 % per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County Tax Collector. Property taxes on the unsecured roll are due as of the March lllen date and become delinquent, if unpaid, on August 31 of the fiscal year. A 10% penalty attaches to delinquent taxes on property of the unsecured roll, and an additional penalty of 1.5% per month begins to accrue beginning December 1 of the fiscal year. The taxing authority bas four ways of collecting unsecured personal property taxes: (a) a civil action against the taxpayer; (b) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (c) filing a certificate of delinquency for record in the County Recorder's office, in order to obtain a lien on certain property of the taxpayer; and (d) seizure and sale of personal property, improvements or possessory interest belonging or assessed to the assessee. CITY OF VERNON ASSESSED VALUATIONS (1) Fiscal ..xw 1987/88 1988/89 1989/90 1990/91 1991/92 Local Secured $1,310,502,796 1,401,218,810 1,396,385,183 1,566,108,517 1,687,890,662 Utilitv $87,147,640 52,741,107 43,258,436 40,210,023 46,486,154 Unsecured $288,386,368 355,966,190 362,169,282 440,915,060 536,827,071 Total $1,684,036,804 1,809,928,107 1,801,812,901 2,049,933,600 2,271,203,887 (I) No redevelopment increment within the City. Source: California Municipal Statistics, Inc. -A-6- .. Tax Levies and Delinquencies Set forth below is a summary of the secured property tax levies, collections and delinquencies for the City property tax for the five most recent fiscal years. CITY OF VERNON SECURED TAX CHARGES AND DELINQUENCIES 1985-86 1986-87 1987-88 1988-89 1989-90 Secured Tax Chal'fe (I) $1,293,177.93 1,391,091.69 1,452,568.72 1,536,984.53 1,544,598.19 Amount Delinquent June 30 $52,842.97 60,661.03 57,419.56 77,714.10 91,021.55 % Delinquent June 30 4.09% 4.36 3.95 5.06 5.89 (1) 1 % General Fund apportionment. Source: California Municipal Statistics, Inc. Constitutional and Statutory Limitations Affecting City Revenues On June 6, 1978, California voters approved Proposition 13, a statewide initiative relating to the taxation of real property which added Article XIIIA to the California Constitution (RArticle XIllAR). On June 3, 1986, California voters approved Proposition 46 which amended Article xnIA. As amended, Article xnIA: (a) limits ad valorem property taxes on all real property to one percent (1 %) of the full cash value of the property; (b) exempts bonded indebtedness approved by the voters prior to July 1, 1978, from the 1 % limitation; (c) defines Rfull cash valueR as the Assessor's appraised value of real property as of March 1, 1975, subject to annual adjustment to reflect inflation at a rate not to exceed two percent (2%), or a reduction in the Consumer Price Index or comparable local data, or declining property value caused by damage, destruction or other factors; (d) permits establishment of a new Rfull cash valueR when there is new construction or a change in ownership; (e) permits the reassessment, up to the March 1, 1975 value, of property which was not current on the 1975/76 assessment roll; (t) requires counties to collect the 1 % property tax and to Rapportion according to law to the districts within the counties; R (g) exempts from the 1 % limitation bonded indebtedness for the acquisition or improvement of real property approved by two-thirds (2/3) of the votes cast by the voters voting on the proposition; (h) prohibits sales taxes, or transaction taxes,on the sale of real property; (i) permits the imposition of special taxes by local agencies, other than those prohibited, by a two-thirds (2/3) vote of the Rqualified electorsR of such agencies; and (j) requires a two-thirds (2/3) vote of all members of both houses of the California legislature (the RLegislatureR) for any changes in State taxes which would result in increased revenues. An initiative Constitutional amendment entitled RLimitation of Government AppropriationsR was approved by California voters on December 6, 1979. Under the amendment, which adds Article xnm to the California Constitution (R Article XIIIBR), state and local government agencies are subject to an annual Rappropriations limitR and are prohibited from spending R appropriations subject to limitation R above that limit. R Appropriations subject to limitation R consist of tax revenues, state subventions, and certain other funds. The amendment does not affect the appropriation of money excluded from the definition of Rappropriations subject to limitation, R such as debt service on indebtedness existing or authorized by January 1, 1979, or subsequently authorized by the voters and appropriations mandated by the court. The amendment also excluded from limitation the appropriation of proceeds from regulatory licenses, user charges, or other fees to the extent that such proceeds equal Rthe costs reasonably borne by such entity in providing the regulation, product, or service. R -A-7- .. In general terms, the amendment provides that the appropriations limit will be based on certain 1978/79 expenditures and will be adjusted annually to reflect changes in cost of living, population, and transfer of financial responsibility of providing services from one governmental unit to another. The amendment also provides that if an agency's revenues in any year exceed the amount which is appropriated by such agency in compliance with initiative, the excess must be returned during the next two fiscal years by revising tax rates or fee schedules. The City believes it is presently fulfilling all its obligations under Article XIIIB. The appropriations limit for the City for fiscal year 1990-91 is $ and the appropriations subject to this limit were $ and so were within the legal limit. Proposition 90, approved by the California voters on December 8, 1988 (WProposition 9OW) allows the Legislature to authorize each county board of supervisors, after consultation with affected agencies within the county, to adopt an ordinance allowing persons over the age of SS years who purchase a dwelling within the county for his or her principal residence in replacement of one of equal or greater value located in another county, to transfer the base year value for property tax purposes (the WTax ValueW) of the previous dwelling to the replacement dwelling. The Tax Value of the residential property subject to the provisions of Proposition 90 would be lower than the Tax Value of such property would otherwise be. If implemented by the Legislature, Proposition 90 could lower property tax revenues in the City if the County of Los Angeles chooses to participate in the program and if persons who qualify for the reduced Tax Value purchase replacement dwellings within the City. The City is unable to determine with certainty the impact that Proposition 90 would have on the City; however, the City believes the impact will be minimal. On December 4, 1986, California voters approved an initiative statute known as Proposition 62. This statute (i) requires that any tax for general governmental purposes imposed by local governments be approved by resolution or ordinance adopted by a two-thirds (2/3) vote of the governmental entity's legislative body and by a majority vote of the electorate of the governmental entity; (ii) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds (2/3) vote of the voters within that jurisdiction; (iii) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed; (iv) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA; (v) prohibits the imposition of transaction taxes and sales taxes on the sale of the real property by local governments; (vi) requires that any tax imposed by a local government on or after July 15, 1985, be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November IS, 1988; (vii) requires that, in the event a local government fails to comply with the provisions of this measure, the amount of property tax revenue allocated to such local government entity shall be reduced in an amount equal to the revenues received by such entity attributable to the tax levied in violation of the initiative; and (viii) permits these provisions to be amended exclusively by the voters of the State of California. -A-8- # Largest Property Tax Assessees The largest secured property tax assessees in the City based on 1990/91 secured assessed values, are as follows: CITY OF VERNON LARGEST SECURED PROPERTY TAX ASSESSEES BY ASSESSED VALUE (TOP TEN) ~ Aluminum Co. of America Kal Kan Foods, Inc. Owens lllinois Glass Container Corp. Oscar Mayer Foods Corp. NI Industries, Vemon Military Products Div. Container Corp. of America Santa Fe Pacific Realty Corp. Westinghouse Beverage Group Inc. Mobil Oil Corp. Slauson Distribution Center Ltd. Total 1990-91 Assessed Valuation $62,768,900 62,443,488 56,340,152 42,050,583 35,847,706 30,063,588 28,062,226 25,564,299 22,551,687 18.182.940 $383,875,569 Source: California Municipal Statistics. -A-9- . Financial Report Summary of Revenues and Expenditures The following table summarizes General Fund revenues, expenditures, transfers, and ending fund balances for the City for fiscal years 1987/88 - 1989/90. See APPENDIX B herein for excerpts from the City's 1989/90 Audited Financial Report. CITY OF VERNON GENERAL FUND REVENUES, EXPENDITURES AND FUND BALANCES 1987/88,1988/89, AND 1989190 1987/88 1988/89 1989/90 REVENUES: Sales and use taxes $5,145,948 $5,494,888 $5,989,140 Franchise taxes 2,268,910 2,529,643 2,412,445 Property taxes 1,757,185 1,776,185 1,727,353 Building permits and plan check fees 755,761 728,589 652,615 Community services 713,659 34,149 33,157 Business licenses 397,044 449,865 596,301 Interest income 249,254 182,014 549,804 Fines and forfeitures 138,136 161,446 108,759 Cigarette taxes 75,296 67,372 59,058 Miscellaneous 497,313 758,490 540,218 Prior year adjustments 1,112,901 Bond proceeds 1,874,772 Transfers In 7 .384.479 491.828 409.089 Total Revenues $19,382,985 $13,787,370 $14,952,711 EXPENDITURES: General government $1,623,017 $1,669,430 $2,061,214 Fire protection 4,966,924 5,219,522 5,827,208 Police protection 3,080,112 3,312,952 3,425,170 Public works 2,719,952 3,213,870 3,374,564 Health services 364,751 382,996 428,082 Capital outlay 1,577,204 1,382,586 759,011 Transfers Out 0 0 1.089.032 Total Expenditures $14.331.960 $15.181.356 $16.964.281 Revenues Over (Under) Expenditures 5,051,025 (1,393,986) (2,011,570) Fund Equity June 30 $7,647,472 $6,253,486 $4,241,916 -A-lO- I - The following table summarizes the statement of revenues, expenses and changes in retained earnings for the City's Light & Power Department: CITY OF VERNON LIGHT & POWER DEPARTMENT REVENUES, EXPENDITURES AND RETAINED EARNINGS AS OF JUNE 30, 1m 1m ~ OPERATING REVENUES Power and water sales $60,609,596 $69,459,342 $64,561,464 Charges for services 1,135,388 1,061,872 1,029,775 Other 1.169.355 6.044.251 1.609.393 Total operating revenues 62,914,339 76,565 ,465 67,200,632 OPERATING EXPENSES Cost of sales 63,626,155 65,331,049 58,493,176 In lieu of franchise tax 2,036,182 2,122,086 2,020,743 General and administrative 1,208,701 2,950,997 1,873,715 Depreciation 659.700 593.070 1.038.465 Total operating expenses 67.530.738 70.972.202 63.426.099 Operating income (loss) (4,616,399) 5,568,263 3,774,533 NONOPERATING REVENUE (EXPENSE): Interest revenue 13,006,209 14,656,467 14,255,406 Interest expense (7.500.000) (7.595.980) (5.236.781) Total nonoperating revenue (expense)-net 5.506.209 7 .060.487 9.018.625 Income before operating transfers out 889,810 12,628,750 12,793,158 Operating transfers out 4.959.781 (241.069) (205 .45 1) NET INCOME (LOSS) (4,069,971) 12,387,681 12,587,707 RETAINED EARNINGS AT THE BEGINNING OF THE YEAR 79.987.451 75.917.480 88.305.161 RETAINED EARNINGS AT THE END OF THE YEAR 575.917.480 $88.305.161 $100.892.868 Source: The City's Audited Financial Statements. -A-ll- .. APPENDIX B CITY OF VERNON AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 1990 -B-l- '" ... APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS RELATING TO mE BONDS -C-l- . ,. . APPENDIX D FORM OF OPINION OF BOND COUNSEL [1 JB\evb c:\B\44On04.0I2] -D-l-