Resolution No. 97521
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RESOLUTION NO 9752
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON AUTHORIZING AND APPROVING THE ISSUANCE OF
NOT TO EXCEED FIFTY MILLION DOLLARS AGGREGATE
PRINCIPAL AMOUNT OF ELECTRIC SYSTEM REVENUE BONDS;
APPROVING THE SUPPLEMENTAL INDENTURE OF TRUST
PURSUANT TO WHICH -SUCH BONDS ARE TO BE ISSUED;
APPROVING A DISCLOSURE DOCUMENT IN CONNECTION WITH
SUCH BONDS, A CONTRACT OF PURCHASE AND A CONTINUING
DISCLOSURE AGREEMENT; AUTHORIZING AND APPROVING
CERTAIN DOCUMENTS IN CONNECTION WITH THE ISSUANCE,
SECURING AND SALE OF SUCH BONDS; AND AUTHORIZING
CERTAIN OTHER MATTERS RELATING THERETO
WHEREAS, the City of Vernon (the "City") is a municipal
corporation and a chartered city of the State of California organized
and existing under its Charter and the Constitution of the State of
California; and
WHEREAS, the City is authorized pursuant to the provisions
of its Charter and the City of Vernon Municipal Facilities Revenue
Bond Law, constituting Article XI of the City Code of the City of
Vernon to issue bonds, notes and other obligations payable from the
Net Revenues of the Electric System (capitalized terms used herein and
not otherwise defined shall have the meanings given such terms in the
Indenture mentioned below) to finance the costs of any land,
improvements, facilities, equipment and other property of any nature
whatsoever which are used in the Electric System and to refund such
bonds, notes and other obligations; and
WHEREAS, pursuant to an Indenture of Trust, dated as of
September 1, 2008 (the "Master Indenture"), entered into by the City
and The Bank of New York Mellon Trust Company, N.A., as trustee (the
"Trustee"), the City has provided the terms and conditions for the
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issuance and securing of its Electric System Revenue Bonds to finance
the costs of any land, improvements, facilities, equipment and other
property of any nature whatsoever which are used in the Electric
System or to refund any outstanding bond or bonds; and
WHEREAS, the City desires to provide for the issuance of its
Electric System Revenue Bonds, 2008 Taxable Series B (the'"2008B
Revenue Bonds") to, among other things, finance the costs of certain
capital improvements to the City's Electric System and reimbursing the
Electric System for the payment of such costs, to fund a deposit to
the Debt Service Reserve Fund, and to pay costs of issuance of the
2008B Revenue Bonds; and
WHEREAS, the 2008B Revenue Bonds are to be issued under and
pursuant to the Master Indenture as supplemented by the Second
Supplemental Indenture of Trust, to be dated as of November 1, 2008,
and to be entered into by the City and the Trustee (such Second
Supplemental Indenture of Trust, in the form attached hereto as Exhibit
IA with such changes, insertions and deletions as are made pursuant to
Ithis Resolution being referred to herein as the "Second Supplemental
(Indenture" and together with the Master Indenture and the First
ISupplemental Indenture, dated as of September 1, 2008, entered into by
Ithe City and the Trustee, referred to as the "Indenture"); and
WHEREAS, the 2008B Revenue Bonds are to be payable from and
Isecured by a pledge and assignment of the Trust Estate on a parity with
Tall other Bonds issued and Outstanding under the Indenture; and
WHEREAS, RBC Capital Markets Corporation, as underwriter (the
I"Underwriter"), has submitted a proposal to purchase the 2008B Revenue
IBonds in the form of a Contract of Purchase (such Contract of Purchase,
lin the form attached hereto as Exhibit B with such changes, insertions
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and deletions as are made pursuant to this Resolution, being referred
to herein as the "Purchase Contract"); and
WHEREAS, in connection with the offering and sale of the
2008B Revenue Bonds there has been prepared a disclosure document in
the form of a Preliminary Official Statement (such Preliminary Official
Statement in the form attached hereto as Exhibit C with such changes,
Iinsertions and deletions as are made pursuant to this Resolution, being
referred to herein as the "Preliminary Official Statement"); and
WHEREAS, Rule 15c2-12 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 15c2-12"), requires that, in
order to be able to purchase or sell the 2008B Revenue Bonds, the
Underwriter must have reasonably determined that an obligated person
has undertaken in a written agreement or contract for the benefit of
the owners of the 2008B Revenue Bonds to provide disclosure of certain
financial information and certain material events on an ongoing basis;
land
WHEREAS, in order to cause such requirement to be satisfied,
the City desires to enter into a Continuing Disclosure Agreement with
Ithe Trustee (such Continuing Disclosure Agreement, in the form attached
hereto as Exhibit D, with such changes, insertions and deletions as are
made pursuant to this Resolution, being referred to herein as the
"Continuing Disclosure Agreement"); and
WHEREAS, there have been prepared and submitted to this
meeting drafts of the following:
(1) the Second Supplemental Indenture;
(2) the Purchase Contract;
(3) the Preliminary Official Statement; and
(4) the Continuing Disclosure Agreement; and
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WHEREAS, after having reviewed and considered the proposal of
Ilthe Underwriter to purchase the 2008B Revenue Bonds on the terms and
conditions contained in the Purchase Contract, this City Council now
desires to authorize the issuance and sale of the 2008B Revenue Bonds,
including the execution of such documents and the performance of such
acts as may be necessary or desirable to effect such issuance and sale
and the other actions contemplated by this Resolution.
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
land correct.
SECTION 2: The Second Supplemental Indenture, in
substantially the form attached hereto as Exhibit A and made a part
hereof as though set forth in full herein, be and the same is hereby
approved. Each of the Mayor, the Mayor Pro-Tem, the City
Administrator, the Treasurer, the City Clerk and the City Attorney of
the City (each an "Authorized Officer"), acting singly, is hereby
authorized to execute and deliver the Second Supplemental Indenture,
in the name of and on behalf of the City, in substantially the form
attached hereto with such changes, insertions and deletions as may be
approved by the Authorized Officer executing the Second Supplemental
Indenture, said execution being conclusive evidence of such approval,
and the City Clerk or Deputy City Clerk is hereby authorized to attest
Ithereto.
SECTION 3: The issuance of the 2008B Revenue Bonds on the
Iterms and conditions set forth in the Second Supplemental Indenture,
land subject to the limitations specified in this Resolution, is hereby
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authorized and approved. The aggregate principal amount of the 2008B
Revenue Bonds shall not exceed Fifty Million Dollars. The 2008B
Revenue Bonds will be dated as provided in, will bear interest at the
rates provided in, will mature on the date or dates provided in, will
be issued in the form provided in, will have the Sinking Fund
Installments specified in, will be subject to redemption as provided
in, and will have such other terms as shall be provided in, the Second
Supplemental Indenture as the same is completed as provided in this
Resolution, provided that no 2008B Revenue Bond shall bear a stated
rate of interest in excess of nine percent per annum.
SECTION 4: The Authorized Officer executing the Second
Supplemental Indenture is hereby authorized, subject to the
limitations set forth in Section 2 hereof, to determine the following:
(i) the maturity date or dates of the 2008B Revenue Bonds (but no
2008B Revenue Bond shall mature later than August 1, 2048); (ii) the
principal amount of the 2008B Revenue Bonds maturing on each maturity
date; (iii) the interest rate for the 2008B Revenue Bonds maturing on
each maturity date, (iv) the Sinking Fund Installments, if any, for
the 2008B Revenue Bonds; and (v) the redemption provisions for the
2008B Revenue Bonds.
SECTION 5: The proceeds of the sale of the 2008B Revenue
Bonds shall be applied as set forth in the Second Supplemental
Indenture.
SECTION 6: The Purchase Contract, in substantially the form i
attached hereto as Exhibit B and made a part hereof as though set
forth in full herein, be and the same is hereby approved. Each of the
Authorized Officers, acting singly, is hereby authorized to execute
land deliver the Purchase Contract, in the name of and on behalf of the
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City, in substantially the form attached hereto with such changes,
insertions and deletions as may be approved by the Authorized Officer
executing said Purchase Contract and as are consistent with the
determinations of the terms of the 2008B Revenue Bonds made pursuant
to this Resolution, said execution being conclusive evidence of such
approval, and the City Clerk or Deputy City Clerk is hereby authorized
to attest thereto..
Each of the Authorized Officers, acting singly, is hereby
authorized to determine the purchase price to be paid for the 2008B
Revenue Bonds under the Purchase Contract; provided, however, that the
aggregate Underwriter's discount (not including original issue
discount which shall not exceed five percent of the aggregate
principal amount of the 2008B Revenue Bonds) for the 2008B Revenue
Bonds shall be not more than two percent of the aggregate principal
amount of the 2008B Revenue Bonds. The sale of the 2008B Revenue
IBonds to the Underwriter on the terms and conditions contained in the
Purchase Contract, as the same may be completed in accordance with the
provisions of this Resolution, with such changes, insertions and
deletions as are authorized hereby, is hereby approved and authorized.
SECTION 7: The Preliminary Official Statement, in
substantially the form attached hereto as Exhibit C and made a part
hereof as though set forth in full herein, be and the same is hereby
approved. Each of the Authorized Officers, acting singly, is hereby
authorized to cause the Preliminary Official Statement to be delivered
to the Underwriter, in substantially the form attached hereto as
Exhibit C with such changes, insertions and deletions as may be
approved by the Authorized Officer delivering the Preliminary Official
Statement (including without limitation the insertion of the proposed
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(terms of the 2008B Revenue Bonds), said delivery being conclusive
evidence of such approval, and the City Clerk or Deputy City Clerk is
11hereby authorized to attest thereto
The use of the Preliminary
Official Statement in connection with the offering and sale of the
II2008B Revenue Bonds by the Underwriter is hereby authorized and
lapproved. Each of the Authorized Officers, acting singly, is hereby
authorized to determine that the Preliminary Official Statement is
deemed final for purposes of Rule 15c2-12.
The preparation and delivery to the Underwriter of a final
Official Statement (the "Official Statement") relating to the 2008B
IlRevenue Bonds, and its use by the Underwriter in connection with the
offering and sale of the 2008B Revenue Bonds, be and the same is
hereby approved. The Official Statement shall be in substantially
the form of the Preliminary Official Statement with such changes,
insertions and deletions as may be approved by the Authorized Officer
executing the Official Statement (including without limitation the
insertion of the final terms of the 2008B Revenue Bonds), said
execution being conclusive evidence of such approval. Each of the
Authorized Officers, acting singly, is hereby authorized to execute
the Official Statement, in the name and on behalf of the City, and
thereupon to cause the Official Statement to be delivered to the
Underwriter. Each of the Authorized Officers, acting singly, is
hereby authorized to approve and execute any amendment or supplement
to the Official Statement contemplated by the Purchase Contract, in
the name and on behalf of the City, and thereupon to cause such
amendment or supplement, to be delivered to the Underwriter.
SECTION 8: The Continuing Disclosure Agreement, in
substantially the form attached hereto as Exhibit D and made a part
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hereof as though set forth in full herein, be and the same is hereby
approved. Each of the Authorized Officers, acting singly, is hereby
authorized to execute and deliver the Continuing Disclosure Agreement,
in the name of and on behalf of the City, in substantially the form
attached hereto with such changes, insertions and deletions as may be
approved by the Authorized Officer executing the same, said execution
being conclusive evidence of such approval, and the City Clerk or
Deputy City Clerk is hereby authorized to attest thereto.
SECTION 9: If the 2008B Revenue Bonds are issued in a
calendar year other than 2008 the name of the 2008B Revenue Bonds
shall be changed to reflect the year in which they are initially
issued.
SECTION 10: The Mayor, the Mayor Pro-Tem, the City
Administrator, the Treasurer, the City Clerk and the City Attorney of
the City, the Director of Light and Power and any other proper
official, officer or employee of the City, acting singly, be and each
of them hereby is authorized to execute and deliver any and all
documents and instruments and to do and cause to be done any and all
acts and things necessary or convenient in carrying out the actions
authorized by this Resolution and the transactions contemplated by the
documents and instruments approved or authorized by this Resolution,
including, without limitation, making any determinations or submission
of any documents or reports which are required by any rule or
regulation of any governmental entity in connection with the issuance
and sale of the 2008B Revenue Bonds and the authorization, execution,
delivery and performance by the City of its obligations under the
documents and instruments approved or authorized by this Resolution.
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SECTION 11: All actions heretofore taken by any committee of
the City Council, or any official, officer, employee, representative
or agent of the City, in connection with the issuance and sale of the
2008B Revenue Bonds or the authorization, execution, delivery, or
performance of the City's obligations under the documents and
instruments approved or authorized by this Resolution and the other
actions contemplated by this Resolution are hereby ratified, approved
and confirmed.
SECTION 12: The City Clerk of the City of Vernon shall
certify to the passage of this resolution, and thereupon and
thereafter the same shall be in full force and effect.
APPROVED AND ADOPTED this 3rd day of November, 2008.
Name: Hilario Gonzales
Title:Mayor Pro-Tem
ATTEST:
MA&UELA GIRON, City Clerk—
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STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
I, MANUELA GIRON, City Clerk of the City of Vernon, do hereby
certify that the foregoing Resolution, being Resolution No. 9752, was
duly adopted by the City Council of the City of Vernon at a regular
meeting of the City Council duly held on Monday, November 3, 2008, and
thereafter was duly signed by the Mayor or Mayor Pro-Tem of the City of
IVernon.
(SEAL)
hz:: 6 � � - -
MANUELA GIR N, City Clerk
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EXHIBIT
A
Orrick, Herrington & Sutcliffe LLP
Draft of 10124108
SECOND SUPPLEMENTAL
INDENTURE OF TRUST
between
CITY OF VERNON
and
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee
Relating to
City of Vernon
Electric System Revenue Bonds,
2008 Taxable Series B
Dated as of 1, 2008
OHS West:260528941.1
TABLE OF CONTENTS
Page
ARTICLE I AUTHORITY AND DEFINITIONS............................................................... 2
Section 1.01.
Supplemental Indenture of Trust......................................................... 2
Section 1.02.
Authority for the Second Supplemental Indenture of Trust ................. 2
Section1.03.
Definitions............................................................................................ 2
Section 1.04.
Interpretation........................................................................................ 4
ARTICLE II THE 2008 SERIES B BONDS........................................................................ 4
Section 2.01.
Principal Amount and Designation; Conditions to Issuance ............... 4
Section 2.02.
Terms of the 2008 Series B Bonds; Registration;
Denominations; Payment of Principal and Interest ............................. 5
ARTICLE III REDEMPTION OF 2008 SERIES B BONDS ................................................ 5
Section 3.01.
Terms of Redemption.......................................................................... 5
ARTICLE IV APPLICATION
OF PROCEEDS.................................................................... 6
Section 4.01.
Application of Proceeds of 2008 Series B Bonds ................................ 6
Section 4.02.
2008B Costs of Issuance Fund............................................................. 7
ARTICLE V MISCELLANEOUS........................................................................................ 8
Section 5.01.
Indenture to Remain in Effect.............................................................. 8
Section 5.02.
Continuing Disclosure......................................................................... 8
Section 5.03.
Notice to Rating Agencies................................................................... 8
Section5.04.
Notices................................................................................................. 8
Section5.05.
Counterparts......................................................................................... 9
EXHIBIT A FORM
OF 2008 SERIES B BONDS.......................................................... A-1
OHS West:260528941.1 -i-
SECOND SUPPLEMENTAL INDENTURE OF TRUST
THIS SECOND SUPPLEMENTAL INDENTURE OF TRUST, dated as of
1, 2008, is entered into by and between the City of Vernon (the "City"), a municipal
corporation and chartered city of the State of California and The Bank of New York Mellon
Trust Company, N.A., as trustee (the "Trustee"), a national banking association duly organized
and existing under and by virtue of the laws of the United States of America, authorized to
accept and execute trusts of the character in the Indenture set forth;
WITNESSETH:
WHEREAS, the City has entered into the Indenture of Trust, dated as of
September 1, 2008 (the "Master Indenture") by and between the City and the Trustee to provide
for the issuance from time to time by the City of Bonds to, among other things, pay the Costs of
Capital Improvements (capitalized terms used herein shall have the meanings given such terms
pursuant to Section 1.03), including reimbursing the City for its payment of such Costs; and
WHEREAS, the Master Indenture authorizes the City and the Trustee to enter
into Supplemental Indentures to provide for the issuance of Bonds; and
WHEREAS, the City desires to issue its 2008 Series B Bonds in order to provide
moneys to finance the Costs of Capital Improvements by reimbursing the Electric System for
amounts previously paid from the Light and Power Fund, to fund the Debt Service Reserve Fund
and to pay the Costs of Issuance of the 2008 Series B Bonds; and
WHEREAS, the City has determined that all acts and things have been done and
performed which are necessary to make the Indenture, as supplemented by this Second
Supplemental Indenture, a valid and binding agreement for the security of the 2008 Series B
Bonds authenticated and delivered hereunder;
NOW, THEREFORE, KNOW ALL PERSONS BY THESE PRESENTS, THIS
SECOND SUPPLEMENTAL INDENTURE OF TRUST WITNESSETH:
That, in consideration of the premises, the acceptance by the Trustee of the trusts
hereby created and originally created by the Master Indenture, the mutual covenants herein
contained and the purchase and acceptance of the 2008 Series B Bonds by the Owners thereof,
and for other valuable consideration, the receipt whereof is hereby acknowledged, and in order to
secure the payment of the principal of, Redemption Price, if any, and interest on the 2008 Series
B Bonds according to their tenor and effect, and the performance and observance by the City of
all the covenants and conditions in the Indenture and in the 2008 Series B Bonds contained on its
part to be performed, it is agreed by and between the City and the Trustee as follows:
OHS West:260528941.1
ARTICLE I
AUTHORITY AND DEFINITIONS
Section 1.01. Supplemental Indenture of Trust. This Second Supplemental Indenture
is supplemental to the Master Indenture.
Section 1.02. Authority for the Second Supplemental Indenture of Trust. This
Second Supplemental Indenture is entered into (a) pursuant to the Charter and Bond Ordinance
and (b) in accordance with Article II and Article VII of the Master Indenture.
Section 1.03. Definitions.
(a) Except as otherwise defined by this Second Supplemental Indenture, all
terms which are defined in Section 1.01 of the Master Indenture shall have the same meanings,
respectively, in this Second Supplemental Indenture as such terms are given in said Section 1.01
of the Master Indenture.
(b) Additional Definitions. The following terms shall, with respect to the
2008 Series B Bonds and for all purposes hereof, have the meanings set forth below:
"Authorized Denominations" means with respect to the 2008 Series B Bonds
$5,000 and any integral multiple thereof.
"Business Day" means any day of the year other than (a) a Saturday, (b) a
Sunday, (c) any day which shall be in Los Angeles, California or New York, New York a legal
holiday or a day on which banking institutions are authorized or required by law or other
government action to close, and (d) any day the city or cities in which the principal or other
designated corporate office of the Trustee, is located are required or authorized to close.
"Comparable Treasury Issue" means, with respect to any redemption date for a
particular 2008 Series B Bond, the US Treasury security or securities selected by the
Independent Investment Banker which has an actual or interpolated maturity comparable to the
remaining average life of the applicable 2008 Series B Bond to be redeemed, and that would be
utilized in accordance with customary financial practice in pricing new issues of debt securities
of comparable maturity to the remaining average life of the 2008 Series B Bond to be redeemed.
"Comparable Treasury Price" means, with respect to any redemption date for a
2008 Series B Bond, (1) the average of the Reference Treasury Deal Quotations for such
redemption date, after excluding the highest and lowest Reference Treasury Deal Quotations, or
(2) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the
average of all such quotations.
"Continuing Disclosure Agreement" means the Continuing Disclosure
Agreement, dated as of 1, 2008, between the City and the Trustee relating to the 2008
Series B Bonds.
"Delivery Date" means , 2008.
OHS West:260528941.1 -2-
"First Supplemental Indenture" shall mean the First Supplemental Indenture of
Trust, supplementing the Master Indenture, dated as of September 1, 2008, between the City and
the Trustee.
"Independent Investment Banker" means that Reference Treasury Dealer
appointed as such by the City.
"Interest Payment Date" each 1 and 1 commencing 1,
2009.
"Make Whole Redemption Price" means a redemption price equal to the greater
of (i) one hundred percent (100%) of the principal amount of the 2008 Series B Bonds to be
redeemed; or (ii) the sum of the present values of the remaining scheduled payments of principal
and interest on the 2008 Series B Bonds to be redeemed (exclusive of interest accrued to the date
fixed for redemption) discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 12.5 basis points),
plus in each case, accrued and unpaid interest on the 2008 Series B Bonds being redeemed to the
date fixed for redemption.
"Principal Office" means, with respect to the Trustee, the designated corporate
trust office of the Trustee in Los Angeles, which as of the date hereof is located at 700 South
Flower Street, Suite 500, Los Angeles, CA 90017-4104, Attention: Corporate Trust Department,
except that with respect to presentation of Bonds for payment or for registration of transfer and
exchange such term shall mean the office or agency of the Trustee at which, at any particular
time, its corporate trust agency business shall be conducted.
"Record Date" means, with respect to an Interest Payment Date, the fifteenth day
of the month preceding the month in which such Interest Payment Date falls, whether or not such
day is a Business Day.
"Reference Treasury Dealer" means RBC Capital Markets Corporation and its
successor and three other firms, specified by the City from time to time, that are primary U.S.
Government securities dealers in the City of New York (each a "Primary Treasury Dealer");
provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will
substitute another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date for a particular 2008 Series B Bond, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day
preceding such redemption date.
"Second Supplemental Indenture" shall mean this Second Supplemental Indenture
of Trust, supplementing the Master Indenture, as the same may be amended and supplemented in
accordance with the provisions of the Master Indenture.
OHS West:260528941.1 -3-
"Sinking Fund Installment" means, with respect to the 2008 Series B Bonds
maturing on 1, 20_ the amount required by Section 3.01(c) hereof to be paid by the City
on any single date for the retirement of such 2008 Series B Bonds.
"Treasury Rate" means, with respect to any redemption date for a particular 2008
Series B Bond, the rate per annum equal to the semiannual equivalent yield to maturity or
interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury
Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price.
"2008 Capital Improvements Fund" shall mean the 2008 Capital Improvements
Fund established pursuant to the First Supplemental Indenture.
"2008B Costs of Issuance Fund" shall mean the 2008 Series B Bonds Costs of
Issuance Fund established pursuant to Section 4.02 hereof.
"2008 Series B Bonds" shall mean the City's Electric System Revenue Bonds,
2008 Taxable Series B Bonds authorized by Article II hereof.
Section 1.04. Interpretation.
(a) Unless the context otherwise indicates, defined terms shall include all
variants thereof, words expressed in the singular shall include the plural and vice versa and the
use of the neuter, masculine or feminine gender is for convenience only and shall be deemed to
mean and include the neuter, masculine or feminine gender, as appropriate.
(b) Headings of articles and sections herein and the table of contents hereof
are solely for convenience of reference, do not constitute a part hereof and shall not affect the
meaning, construction or effect hereof.
(c) References herein to the Securities Depository shall include both the
Securities Depository and any nominee of the Securities Depository in whose name the 2008
Series B Bonds may be registered.
(d) Unless otherwise indicated, references herein to Articles and Sections
shall, be to the Articles and Sections of this Second Supplemental Indenture. The words
"herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Second
Supplemental Indenture as a whole and not to any particular Article, Section or subdivision
hereof.
ARTICLE II
THE 2008 SERIES B BONDS
Section 2.01. Principal Amount and Designation; Conditions to Issuance.
(a) Pursuant to the provisions of the Master Indenture and this Second
Supplemental Indenture and the provisions of the Charter and the Bond Ordinance, a Series of
Bonds entitled to the benefit, protection and security of such provisions are hereby authorized in
OHS West:260528941.1 -4-
the aggregate principal amount of $ . Such Bonds shall be designated as, and shall be
distinguished from the Bonds of all other Series by the title, "City of Vernon Electric System
Revenue Bonds, 2008 Taxable Series B Bonds." The 2008 Series B Bonds shall be in
substantially the form attached hereto as Exhibit A with such variations and omissions as are
necessary to reflect the particular terms of each 2008 Series B Bond.
(b) The 2008 Series B Bonds are issued for the purpose of providing moneys
to finance the Costs of Capital Improvements by reimbursing the Electric System for amounts
previously paid from the Light and Power Fund, to fund the Debt Service Reserve Fund and to
pay the Costs of Issuance of the 2008 Series B Bonds.
(c) All (but not less than all) of the 2008 Series B Bonds shall be executed by
the City for issuance under the Indenture and delivered to the Trustee and thereupon shall be
authenticated by the Trustee and delivered to the City or upon its order but only upon receipt by
the Trustee of the applicable items required pursuant to Section 2.04 and Section 2.07 of the
Master Indenture with respect to the 2008 Series B Bonds.
Section 2.02. Terms of the 2008 Series B Bonds; Registration; Denominations;
Payment of Principal and Interest
(a) The 2008 Series B Bonds shall be issued as fully registered Bonds without
coupons in Authorized Denominations. The 2008 Series B Bonds shall be registered initially in
the name of "Cede & Co.," as nominee of DTC, the initial Securities Depository, and shall be
evidenced by one bond certificate in the total aggregate principal amount of the 2008 Series B
Bonds of each maturity. Registered ownership of the 2008 Series B Bonds, or any portion
thereof, may not thereafter be transferred except as set forth in Section 3.04 of the Master
Indenture
(b) The 2008 Series B Bonds shall be dated the Delivery Date.
(c) The 2008 Series B Bonds shall mature on 1 of the years, in the
principal amounts, and shall bear interest at the rates, in each case as set forth below:
Maturity Date
( 1) Principal Amount Interest Rate
$
ARTICLE III
REDEMPTION OF 2008 SERIES B BONDS
Section 3.01. Terms of Redemption.
(a) The 2008 Series B Bonds are [subject to redemption prior to their stated
maturity, at the option of the City and from any source of available funds, in whole or in part (in
such amounts as may be specified by the City), on any date at a Redemption Price equal to the
OHS West:260528941.1 -5-
Make Whole Redemption Price, as calculated by an Independent Investment Banker, plus
accrued but unpaid interest to the date fixed for redemption].
(b) The 2008 Series B Bonds maturing on 1, 20_ are also subject to
mandatory redemption in part prior to their stated maturity from Sinking Fund Installments
established pursuant to subsection (c) of this Section on any 1 on or after 1,
20_, at a Redemption Price equal to the principal amount of the 2008 Series B Bonds to be
redeemed, without premium.
(c) The following shall be the Sinking Fund Installments for the 2008 Series
B Bonds maturing on 1, 20_. Such installments shall be due on 1 of each of the
years set forth in the following table in the respective amounts set forth opposite such years in
said table:
Sinking Fund
Installment Due
Date ( 1)
* Maturity
Sinking Fund
Installment
(d) The City shall provide the Trustee with revised sinking fund schedules in
the event of partial redemption pursuant to this Section 3.01.
ARTICLE IV
APPLICATION OF PROCEEDS
Section 4.01. Application of Proceeds of 2008 Series B Bonds. The proceeds of the
sale of the 2008 Series B Bonds (equal to the principal amount thereof, [less original issue
discount of $ ,] less underwriter's discount of $ ) shall be applied simultaneously
with the delivery of the 2008 Series B Bonds, as follows:
(a) There shall be deposited in the Debt Service Reserve Fund the sum of
$ , representing the amount required so that the balance on deposit in such Fund shall
equal the Debt Service Reserve Requirement calculated immediately after the authentication and
delivery of the 2008 Series B Bonds;
(b) There shall be deposited in the 2008B Costs of Issuance Fund the sum of
$
(c) The City represents and warrants that there has previously been expended
from the Light and Power Fund an amount not less than $ which has not been
OHS West:260528941.1 -6-
financed or otherwise reimbursed for the Costs of Capital Improvements to distribution and
interconnection facilities of the Electric System. The City further represents and warrants that
such facilities have a book value to the Electric System of not less than such amount. The
$ net proceeds of the 2008 Series B Bonds not deposited in the Debt Service
Reserve Fund or the 2008B Costs of Issuance Fund are hereby deemed to be applied as a
reimbursement to the Electric System for the previous payment of the Costs of such Capital
Improvements to the Electric System and such amount shall be deposited in the 2008 Capital
Improvements Fund.
Section 4.02. 2008B Costs of Issuance Fund.
(a) The Trustee shall establish and maintain in trust a separate fund
designated as the "2008 Series B Bonds Costs of Issuance Fund." Money deposited in said fund
shall be used to pay Costs of Issuance with respect to the 2008 Series B Bonds as provided in
this Section.
(b) The Trustee shall make payments from the 2008B Costs of Issuance Fund,
except payments and withdrawals pursuant to subsection (e) of this Section, in the amounts, at
the times, in the manner and on the other terms and conditions set forth in this subsection.
Before any such payment from the 2008B Costs of Issuance Fund shall be made, there shall be
filed with the Trustee a requisition therefor, signed by an Authorized City Representative. Each
such requisition shall state, in respect of the payment to be made (a) the name of the Person to
whom payment is due, (b) the amount of such payment, and (c) the particular item of the cost to
be paid and that such payment in the stated amount is a proper charge against the 2008B Costs of
Issuance Fund and that no part of such payment shall be applied to any item which has
previously been paid as a Costs of Issuance of the 2008 Series B Bonds. The Trustee shall
promptly issue its check to the City or to the Person identified in the requisition in the amount or
amounts specified in each such requisition or, if requested pursuant to any such requisition, shall
by wire transfer, interbank transfer or other method arrange to promptly make each payment
required by such requisition. The City shall apply, or cause to be applied, all such moneys
received from the 2008B Costs of Issuance Fund to the payment of the Costs of Issuance of the
2008 Series B Bonds identified in the requisition relating to such moneys.
Each such requisition shall be sufficient evidence to the Trustee of the facts stated
therein and the Trustee shall have no duty to confirm the accuracy of such facts. Upon receipt of
each such requisition, signed by an Authorized City Representative, the Trustee shall pay the
amount set forth therein as directed by the terms thereof.
(c) Upon the receipt by the Trustee of a certificate of an Authorized City
Representative requesting the Trustee to close the 2008B Costs of Issuance Fund, and after
payment from the 2008B Costs of Issuance Fund of all amounts included in requisitions
submitted by the City pursuant to Section 4.02(b) hereof, the Trustee shall transfer any moneys
remaining in the 2008B Costs of Issuance Fund to the 2008 Capital Improvements Fund. Upon
such transfer the Trustee shall close the 2008B Costs of Issuance Fund.
(d) Moneys held in the 2008B Costs of Issuance Fund may, be invested and
reinvested to the fullest extent practicable in Permitted Investments which mature not later than
OHS West:260528941.1 -7-
such times as shall be necessary to provide moneys when needed for payments to be made from
the 2008B Costs of Issuance Fund. Any investment earnings on moneys on deposit in the 2008B
Costs of Issuance Fund shall be deposited in the 2008B Costs of Issuance Fund and be used in
the same manner as other amounts on deposit in the 2008B Costs of Issuance Fund.
(e) Notwithstanding any of the other provisions of this Section, to the extent
that other moneys are not available therefor, amounts in the 2008B Costs of Issuance. Fund shall
be applied to the payment of Bond debt service when due.
ARTICLE V
MISCELLANEOUS
Section 5.01. Indenture to Remain in Effect. Save and except as supplemented by the
First Supplemental Indenture and this Second Supplemental Indenture, the Master Indenture
shall remain in full force and effect.
Section 5.02. Continuing Disclosure. The City hereby covenants and agrees to comply
with and carry out all the provisions of the Continuing Disclosure Agreement. Notwithstanding
any other provision of the Indenture, failure of the City to comply with the Continuing
Disclosure Agreement shall not be considered an Event of Default and the Trustee shall have no
right to accelerate amounts due under the Indenture as a result thereof; provided, however, that
the Trustee, upon receipt of indemnification reasonably satisfactory to it, and the Owners of not
less than 25% in principal amount of the Outstanding 2008 Series B Bonds may take such
actions as may be necessary and appropriate, including seeking mandate or specific performance
by court order, to cause the City to comply with its obligations in this Section and the Continuing
Disclosure Agreement.
Section 5.03. Notice to Rating Agencies. The Trustee or the City, as appropriate, shall
provide each Rating Agency with prompt written notice of (a) the appointment of any successor
Trustee, (b) the date no 2008 Series B Bonds are Outstanding, (c) any material amendments to
the Master Indenture or this Second Supplemental Indenture, (d) any acceleration of the 2008
Series B Bonds pursuant to Section 10.04 of the Indenture, (g) any redemption in whole of the
2008 Series B Bonds.
Section 5.04. Notices. Unless otherwise provided herein, all notices, certificates or
other communications hereunder shall be deemed sufficiently given upon actual receipt thereof
when received by the City, the Trustee, and the Rating Agencies, as the case may be, at the
respective address provided pursuant to this Section or, if mailed by first class mail, postage
prepaid, addressed to the appropriate address provided pursuant to this Section, six Business
Days after deposit in the United States mail, the initial address for notices, counterparts and other
communications hereunder is as follows:
If to the City: City of Vernon
4305 Santa Fe Avenue
Vernon, CA 90058
Attention: City Attorney
OHS West:260528941.1 1 -8-
If to the Trustee: The Bank of New York Mellon Trust Company, N.A.
700 South Flower Street, Suite 500
Los Angeles, CA 90017
Attention: Corporate Trust Department
If to S&P, to: Standard & Poor's Ratings Services
55 Water Street, 38th Floor
New York, New York 10041
Attention: Municipal Structured Group
If to Moody's, to: Moody's Investors Service, Inc.
7 World Trade Center at 250 Greenwich Street
New York, NY 10007
Attn: Public Finance Municipal Structure Group
The City, the Trustee, and the Rating Agencies may, by notice given hereunder, designate
any further or different addresses to which subsequent notices, certificates or other
communications shall be sent. Unless otherwise requested by the City, the Trustee or the Rating
Agencies, any notice required to be given hereunder in writing may be given by any form of
Electronic Notice capable of making a written record. Each such party shall file with the Trustee
information appropriate to receiving such form of Electronic Notice.
Section 5.05. Counterparts. This Second Supplemental Indenture may be executed in
any number of counterparts and by the different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original; but such counterparts shall together
constitute but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
OHS West:260528941.1 -9-
IN WITNESS WHEREOF, City of Vernon has caused these presents to be signed
in its name and on its behalf by its Mayor and attested by its City Clerk and to evidence its
acceptance of the trusts hereby created, the Trustee has caused these presents to be signed in its
name and on its behalf by one of its authorized officers, all as of the first day of 92008.
CITY OF VERNON
Im
ATTEST:
Manuela Giron, City Clerk
APPROVED AS TO FORM:
Jeff A. Harrison, City Attorney
Leonis C. Malburg, Mayor
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee
to
Authorized Officer
OHS West:260528941.1
EXHIBIT A
FORM OF 2008 SERIES B BONDS
[bracketed language applies only to 2008 Series B Bonds to be registered in the name of CEDE
& CO.]
[UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE CITY OF VERNON OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
No. R-
CITY OF VERNON
ELECTRIC SYSTEM REVENUE BONDS,
2008 TAXABLE SERIES B
Interest Rate Dated Date
2008
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT:
Maturity Date
1, 20_
CUSIP No.
CITY OF VERNON (herein called the "City"), a municipal corporation and
chartered city of the State of California, acknowledges itself indebted to, and for value received
hereby promises to pay (but only out of the Net Revenues (capitalized terms used herein shall
have the meanings given such terms pursuant to the Indenture mentioned below) and other assets
pledged therefor and available for such payment pursuant to the Indenture) to the Registered
Owner specified above or registered assigns, on the Maturity Date specified above (unless this
Bond shall have been previously called for redemption in whole or in part and payment of the
Redemption Price shall have been duly made), the Principal Amount specified above, in lawful
money of the United States of America and to pay interest thereon (but only from said Net
Revenues and other pledged assets available for such payment pursuant to the Indenture) in like
lawful money until payment of such principal sum shall be discharged as provided in the
Indenture, at the rate set forth above.
The principal or, if applicable, the Redemption Price hereof is payable upon
surrender hereof at the designated corporate trust office of The Bank of New York Mellon Trust
OHS West:260528941.1 A-1
Company, N.A., in Los Angeles, California, as trustee under the Indenture (together with any
successor trustee under the Indenture, the "Trustee"). Interest hereon is payable by check mailed
on each Interest Payment Date to the Owner hereof as of the applicable Record Date at the
address appearing on the Bond Register maintained by the Trustee; provided Owners of at least
$1,000,000 aggregate principal amount of 2008 Series B Bonds may, at any time prior to a
Record Date, give the Trustee written instructions for payment of such interest on each
succeeding Interest Payment Date for such 2008 Series B Bonds by wire transfer or by deposit to
an account within the United States of America.
This Bond is one of a duly authorized issue of bonds of the City designated as
"City of Vernon, Electric System Revenue Bonds" (the "Bonds") and of a Series of the Bonds
designated as `Electric System Revenue Bonds, 2008 Taxable Series B" (the "2008 Series B
Bonds"). The 2008 Series B Bonds are issued pursuant to the Charter and the Bond Ordinance.
The 2008 Series B Bonds have been issued in the aggregate principal amount of $
The 2008 Series B Bonds are issued under, and, together with all other Bonds issued and
outstanding thereunder, are equally and ratably secured by a pledge of the Trust Estate under,
and entitled to the protection given by, the Indenture of Trust, dated as of September 1, 2008
between the City and the Trustee, as amended and supplemented, including as supplemented by
the Second Supplemental Indenture of Trust, dated as of 1, 2008 between the City and
the Trustee (said Indenture of Trust, as heretofore supplemented and as the same maybe further
amended and supplemented, is herein called the "Indenture").
As provided in the Indenture, Bonds of the City may be issued thereunder from
time to time pursuant to Supplemental Indentures in one or more Series, in various principal
amounts, may mature at different times, may bear interest at different rates and may otherwise
vary as in the Indenture provided. The aggregate principal amount of Bonds which may be
issued under the Indenture is not limited except as provided in the Indenture, and all Bonds
issued and to be issued under the Indenture are and will be equally secured by the pledge and
covenants made therein, except as otherwise expressly provided or permitted in the Indenture.
Copies of the Indenture are on file at the City Hall of the City and at the Principal
Office of the Trustee and reference is hereby made to the Indenture and to all amendments and
supplements thereto for a description of the provisions, among others, with respect to the nature
and extent of the security, the rights, duties and obligations of the City, the Trustee and the
Owners of the Bonds and the terms upon which the Bonds are secured and payable under the
Indenture, the rights and remedies of the Owners of the 2008 Series B Bonds, the limitations on
such rights and remedies and the terms and conditions upon which Bonds are issued and may be
issued thereunder. The Indenture provides that other Parity Obligations secured by a pledge of
Revenues and amounts in the Light and Power Fund on a parity with the Bonds may be issued or
incurred by the City on the terms set forth therein. By acceptance of this Bond, the Registered
Owner accepts and agrees to the terms of the Indenture.
This Bond is a special obligation of the City and the principal of, Redemption
Price, if any, and interest on this Bond are payable solely from the Net Revenues, the amounts in
the Light and Power Fund available for such payment pursuant to the Indenture, and the amounts
in the Funds held by the Trustee under the Indenture other than the Rebate Fund. The City's
obligation to pay and the principal of, Redemption Price, if any, and interest on this Bond shall
OHS West:260528941.1 A-2
not constitute a charge against the general credit of the City. This Bond is not secured by a legal
or equitable pledge of, or lien or charge upon, any property of the City or any of its income or
receipts except the Trust Estate pledged pursuant to the Indenture which pledge is subject to the
provisions of the Indenture permitting the application of the Trust Estate for the purposes and on
the terms and conditions set forth therein. Neither the faith and credit nor the taxing power of
the State of California, the City or any other public agency is pledged to the payment of the
principal or Redemption Price of or the interest on this Bond. The issuance of this Bond shall
not directly, indirectly or contingently obligate the City Council of the City to levy or pledge any
form of taxation or to make any appropriation for the payment of this Bond. The payment of the
principal or Redemption Price of or interest on this Bond does not constitute a debt, liability or
obligation of the State of California or any public agency (other than the special obligation of the
City as provided in the Indenture). Neither the members of the City Council of the City, nor any
person executing this Bond, nor any officer or employee of the City shall be individually liable
for the principal or Redemption Price of or interest on this Bond or be subject to any personal
liability or accountability by reason of the issuance of this Bond or in respect of any undertakings
by the City under the Indenture.
The 2008 Series B Bonds were issued for the purpose of providing moneys to
finance the Costs of Capital Improvements by reimbursing the Electric System for amounts
previously paid from the Light and Power Fund, to fund the Debt Service Reserve Fund and to
pay the Costs of Issuance of the 2008 Series B Bonds.
Interest on the 2008 Series B Bonds shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
The term "Interest Payment Date" means each 1 and 1, commencing
1, 2009.
The term "Record Date" means, with respect to an interest Payment Date, the
fifteenth day of the month preceding the month in which such Interest Payment Date falls.
The 2008 Series B Bonds are subject to redemption at the option of the City from
any source of available funds, in whole or in part (in such amounts as may be specified by the
City), on any date at a Redemption Price equal to the Make Whole Redemption Price.
The 2008 Series B Bonds maturing on 1, 20_ are subject to mandatory
redemption, in part, on any 1 on and after 1, 20_, at a Redemption Price equal to
the principal amount of such 2008 Series B Bonds to be redeemed, without premium, from the
Sinking Fund Installments established for such 2008 Series B Bonds in the Indenture.
If less than all of the 2008 Series B Bonds of a maturity are to be redeemed, the
particular 2008 Series B Bonds of such maturity to be redeemed shall., be selected as provided in
the Indenture.
The 2008 Series B Bonds are payable upon redemption upon surrender thereof at
the Principal Office of the Trustee. The Trustee shall give notice, in the name of the City, of the
redemption of 2008 Series B Bonds, which notice shall be mailed, by first class mail, postage
prepaid, not more than sixty (60) nor less than thirty (30) days before the Redemption Date to the
OHS West:260528941.1 A-3
Owners of any 2008 Series B Bonds to be redeemed (in whole or in part) at their addresses
appearing in the Bond Register. Such notice shall specify the Series and maturity of the Bonds
to be redeemed, the redemption date and the place or places where amounts due upon such
redemption shall be payable and, if less than all of the 2008 Series B Bonds of a maturity are to
be redeemed, the letters and numbers or other distinguishing marks of such 2008 Series B Bonds
so to be redeemed, and, in the case of 2008 Series B Bonds to be redeemed in part only, such
notice shall also specify the respective portions of the principal amount thereof to be redeemed.
Subject to the provisions of the next paragraph, such notice shall further state that on such
redemption date there shall become due and payable upon each 2008 Series B Bond to be
redeemed the Redemption Price thereof (or the Redemption Price of the specified portion of the
principal amount thereof to be redeemed in the case of a 2008 Series B Bond to be redeemed in
part only) and that from and after such date interest on such 2008 Series B Bond (or the portion
of such 2008 Series B Bond to be redeemed) shall cease to accrue and be payable.
In the event that funds required to pay the Redemption Price of 2008 Series B
Bonds to be redeemed at the option of the City are not on deposit with the Trustee at the time the
Trustee gives notice of redemption to the Owners of such 2008 Series B Bonds, such notice shall
state that such redemption is conditional upon the receipt by the Trustee, on or prior to the date
fixed for such redemption, of moneys sufficient to pay the Redemption Price of the 2008 Series
B Bonds to be redeemed, and that if such moneys shall not have been so received said notice
shall be of no force and effect and the City shall not be required to redeem such 2008 Series B
Bonds. In the event a notice of redemption of 2008 Series B Bonds contains such a condition
and such moneys are not so received, the redemption of 2008 Series B Bonds as described in the
conditional notice of redemption shall not be made and the Trustee shall, within a reasonable
time after the date on which such redemption was to occur, give notice to the Persons and in the
manner in which the notice of redemption was given that such moneys were not so received and
that there shall be no redemption of 2008 Series B Bonds pursuant to the conditional notice of
redemption.
Receipt of such notice of redemption shall not be a condition precedent to the
redemption of 2008 Series B Bonds and failure of any Owner of a 2008 Series B Bond to receive
any such notice or any insubstantial defect in such notice shall not affect the validity of the
proceedings for the redemption of 2008 Series B Bonds.
To the extent and in the manner permitted by the terms of the Indenture, the
provisions of the Indenture, or any indenture amendatory thereof or supplemental thereto, may
be modified or amended by the City with, in certain cases, the written consent of the Owners of
at least a majority in principal amount of the Bonds then Outstanding under the Indenture; and,
in case less than all of the Bonds would be affected thereby, with such consent of the Owners of
a majority in principal amount of the affected Outstanding Bonds; provided, however, that, if
such modification or amendment will, by its terms, not take effect so long as any Bonds of any
specified like Series and maturity remain Outstanding, the consent of the owners of such Bonds
shall not be required and such Bonds shall not be deemed to be Outstanding for the purpose of
the calculation of Outstanding Bonds for purposes of such consent. No such modification or
amendment shall permit a change in the terms of any Sinking Fund Installment or the terms of
redemption or maturity of the principal of any Bond or of any installment of interest thereon or a
reduction in the principal amount or Redemption Price thereof or in the rate of interest thereon
OHS West:260528941.1 A-4
without the consent of the Owner of such Bond, or -:shall reduce the percentages or otherwise
affect the classes of Bonds the consent of the Owners of which is required to effect any such
modification or amendment, or shall change or modify any of the rights or obligations of the
Trustee or of any Paying Agent without its written assent thereto.
The Indenture may also be amended or supplemented without the necessity of the
consent of the Owners of the 2008 Series B Bonds for any one or more of the purposes specified
in the Indenture.
This Bond is transferable, as provided in the Indenture, only upon the Bond
Register kept for that purpose at the Principal Office of the Trustee, by the registered Owner
hereof, or by his duly authorized attorney, upon surrender of this Bond together with a written
instrument of transfer satisfactory to the Trustee duly executed by the registered Owner or his
duly authorized attorney. Thereupon and upon payment of the charges prescribed 'in the
Indenture a new registered 2008 Series B Bond or 2008 Series B Bonds, without coupons, and
for the same maturity and aggregate principal amount, shall be issued to the transferee in
exchange therefor as provided in the Indenture. The City, the Trustee and any Paying Agent may
deem and treat the Person in whose name this Bond is registered as the absolute owner hereof for
the purpose of receiving payment of, or on account of, the principal or Redemption Price hereof
and interest due hereon and for all other purposes.
The registered Owner of this Bond shall have no right to enforce the provisions of
the Indenture or to institute action to enforce the covenants therein, or to take any action with
respect to any Event of Default under the Indenture, or to institute, appear in or defend any suit
or other proceedings with respect thereto, except as provided in the Indenture. In certain events,
on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all
the Bonds issued under the Indenture and then Outstanding may become or may be declared due
and payable before the stated maturity thereof, together with interest accrued thereon.
It is hereby certified and recited that all conditions, acts and things required by
law, including the City Charter and the Bond Ordinance, and the Indenture to exist, to have
happened and to have been performed precedent to and in the issuance of this Bond, exist, have
happened and have been performed in due time, form and manner and that the 2008 Series B
Bonds, together with all other indebtedness of the City, comply in all respects with the applicable
laws of the State of California, including the City Charter and the Bond Ordinance.
This Bond shall not be entitled to any benefit under the Indenture or be valid or
become obligatory for any purpose until this Bond shall have been authenticated by the
execution by the Trustee of the Trustee's Certificate of Authentication hereon.
OHS West:260528941.1 A-5
IN WITNESS WHEREOF, CITY OF VERNON has caused this Bond to be
signed in its name and on its behalf by the manual or facsimile signature of its Mayor and the
seal (or a facsimile thereof) to be hereunto affixed, imprinted, engraved or otherwise reproduced
and attested by the manual or facsimile signature of its City Clerk, as of the Dated Date specified
above.
[SEAL]
CITY OF VERNON
Mayor
ATTEST:
City Clerk
OHS West:260528941.1 A-6
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 2008 Series B Bonds delivered pursuant to the within
mentioned Indenture.
Dated: 12008
THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A., as Trustee
an
Authorized Signatory
OHS West:260528941.1 A-%
ASSIGNMENT
FOR VALUE RECEIVED the undersigned sells, assigns and transfers unto
(Name, Address and Tax Identification or
Social Security Number of Assignee)
the within Bond of the City of Vernon and does hereby irrevocably constitute and appoint
attorney to
transfer the said Bond on the books kept for registration thereof with full power of substitution in
the premises.
Dated:
Notice: The Signature of this assignment and
transfer must correspond with the name
as written upon the face of this Bond in
every particular, without alteration or
enlargement or any change whatsoever.
Signature guaranteed by:
Notice: Signature guarantee shall be made by a
guarantor institution participating in the
Securities Transfer Agents Medallion
Program or in such other guarantee
program acceptable to the Trustee.
OHS West:260528941.1 A-8
EXHIBIT B
Stradling Yocca Carlson & Rauth Draft of 10121108
CITY OF VERNON
Electric System Revenue Bonds
2008 Taxable Series B
CONTRACT OF PURCHASE
City of Vernon
4305 Santa Fe Avenue
Vernon, California 90058
Ladies and Gentlemen:
, 2008
RBC Capital Markets Corporation, as underwriter (the "Underwriter"), hereby offers to enter
into this Contract of Purchase (this "Purchase Contract") with you, the City of Vernon ("the City").
This offer is made subject to acceptance by the City prior to 11:00 P.M., California time, on the date
hereof, and upon such acceptance this Purchase Contract shall be in full force and effect in
accordance with its terms and shall be binding upon the City and the Underwriter.
1. Upon the terms and conditions and upon the basis of the representations herein set
forth, the Underwriter hereby agrees to purchase and the City hereby agrees to sell to the Underwriter
all (but not less than all) of the City's $ Electric System Revenue Bonds, 2008 Taxable
Series B (the "Bonds"). The purchase price for the Bonds shall be $ (representing the
$ aggregate principal amount of the Bonds less $ Underwriter's discount
and less an original issue discount of $ ).
The Bonds are to be issued pursuant to Article XI of the Vernon City Code and an Indenture
of Trust dated as of September 1, 2008, as supplemented, including by the Second Supplemental
Indenture of Trust providing for the issuance of the Bonds dated as of November 1, 2008 (as
supplemented, the "Indenture"), each by and between the City and The Bank of New York Mellon
Trust Company, N.A., as trustee (the "Trustee"), substantially in the form previously submitted to the
Underwriter, with only such changes therein as shall be mutually agreed upon. Terms used herein
and not defined shall have the meanings assigned to them in the Official Statement.
Proceeds of the Bonds will be used (i) to pay, the conversion costs for the conversion to fixed
rate bonds of $ aggregate principal amount of variable rate bonds (the "2006B and C
Bonds") of the Vernon Natural Gas Financing Authority (the "Authority"), (ii) to make the
termination payments associated with terminating four interest rate swap transactions (the "Swap
Agreements"), including three transactions between the City and Morgan Stanley Capital Services
Inc. related to electric revenue bonds issued by the City in 2004 (the "2004 Bonds") and a fourth
transaction between the Authority and Citibank, N.A. New York, (iii) to finance Capital
Improvements to the Electric System, including certain anticipated land acquisitions by the City, (iv)
to fund a deposit to the Debt Service Reserve Fund, and (v) to pay costs of issuing the Bonds.
DOCSOC/1309302v2/024450-0012
The City will undertake, pursuant to .a Continuing Disclosure Agreement, dated as of
November 1, 2008 (the "Continuing Disclosure Agreement"), by and between the City and the
Trustee, to provide certain annual financial information and notices of the occurrence of certain
events, if material. A form of the Continuing Disclosure Agreement is set forth in the Official
Statement (defined below).
The Indenture, the Continuing Disclosure Agreement and this Purchase Contract are
hereinafter referred to as the "Legal Documents."
2. The Underwriter agrees to reoffer the Bonds in a bona fide public offering at an
initial offering at the offering prices listed in the Official Statement. After the initial offering, the
Underwriter reserves the right to change such public offering prices as the Underwriter shall deem
necessary in marketing the Bonds. The Bonds shall be dated the date of their delivery and shall
mature on the dates and in the principal amounts and shall bear interest at the rates per annum shown
on Schedule 1 hereto.
3. At 8:00 A.M., California time, on , 2008, or at such other time or on such
earlier or later business day as shall have been mutually agreed upon by the City and the Underwriter
(the "Closing Date"), the City will deliver to the Underwriter at the offices of Orrick, Herrington &
Sutcliffe LLP, Los Angeles, California, the closing documents hereinafter mentioned. The Bonds,
registered to Cede & Co. and in definitive form, will be made available to the Underwriter one
business day prior to the Closing Date at the offices of Orrick, Herrington & Sutcliffe LLP, or at such
other place as may be designated by the Underwriter and shall be subsequently delivered on the
Closing Date to The Depository Trust Company ("DTC") or to the Trustee for DTC. It is anticipated
that CUSIP identification numbers will be printed on the Bonds, but neither the failure to print such
number on any of the Bonds nor any error with respect thereto shall constitute cause for a failure or
refusal by the Underwriter to accept delivery of and pay for the Bonds in accordance with the terms
of this Purchase Contract. Upon release of the Bonds, the Underwriter will pay the purchase price of
the Bonds as set forth in Section 1 hereof, in immediately available funds to the order of the City.
The releases and payments referenced to in this Section 3 are herein called the "Closing."
4. The City hereby ratifies, confirms and approves of the distribution and use by the
Underwriter prior to the date hereof of the preliminary official statement dated , 2008,
relating to the Bonds (the "Preliminary Official Statement") and the making available of the
Preliminary Official Statement to investors prior to the date hereof on the internet. The City has
deemed final the Preliminary Official Statement as of the date thereof for purposes of Rule 15c2-12
promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12"), except for information
permitted to be omitted therefrom in accordance with paragraph (b)(1) of Rule 15c2-12. The City
hereby agrees to deliver or cause to be delivered to the Underwriter, within seven (7) business days
of the date hereof, copies of the final Official Statement relating to the Bonds, dated the date hereof,
in the form of the Preliminary OfficialStatement, with such changes thereto, as may be approved by
the Underwriter (including the appendices thereto and any amendments or supplements as have been
approved by the City and the Underwriter, the "Official Statement"), in such quantity as the
Underwriter shall reasonably request. The City hereby approves of the distribution and use by the
Underwriter of the Official Statement in connection with the offer and sale of the Bonds. The
Underwriter hereby agrees to deliver a copy of the Official Statement to a national repository on or
before the Closing Date and the Underwriter agrees to deliver a copy of the Official Statement to
each investor that purchases any of the Bonds, and otherwise to comply with all applicable statutes
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DOCSOC/ 1309302v2/024450-0012
and regulations in connection with the offering and sale of the Bonds, including, without limitation,
MSRB Rule G-32.
5. The City represents to the Underwriter that, as of the date hereof and as of the
Closing Date:
(a) The City is duly existing as a chartered city organized under the laws of the
State of California (the "State");
(b) The City has full legal right, power and authority to cause the Bonds to be
authenticated and delivered, to execute and deliver the Legal Documents and to perform its
obligations contained herein and therein in accordance with the Act and other applicable laws; and,
by official action of the City prior to or concurrently with the acceptance hereof, the City has duly
authorized and approved the issuance and delivery of the Bonds, the execution, delivery and
distribution of the Official Statement, the execution and delivery of the Legal Documents and the
performance of its obligations contained herein and therein and the consummation by it of all other
transactions contemplated by the Legal Documents to have been performed or consummated at or
prior to the Closing Date, all in accordance with the Act and other applicable laws, and the City is
and will be in compliance with the provisions thereof in all material respects;
(c) The Official Statement does not and at all times subsequent hereto up to and
including the Closing Date will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading except that no representation is made as to any
information included in the Official Statement relating to DTC or its operations;
(d) Between the date hereof and the Closing Date, except as contemplated by the
Official Statement, the City will not have incurred any material liabilities, direct or contingent,
payable from Electric System Revenues or entered into any material transaction in connection with
the Electric System in either case other than in the ordinary course of business, and there shall not
have been any material adverse change in the financial condition or prospects of the Electric System;
(e) The performance of its obligations contained in the Bonds and the execution
and delivery or acknowledgement, as applicable, of the Legal Documents and the performance of its
obligations contained therein do not and will not in any material respect conflict with or constitute a
breach of or default under any law, administrative regulation, court decree, resolution or agreement
to which the City is subject or by which it is bound;
(f) Except as disclosed in the Official Statement, no litigation is, or at the
Closing Date, will be, pending or, to the knowledge of the City, threatened in any court (i) in any
way questioning the corporate existence of the City or, except for criminal matters with respect to the
Mayor's residency, the titles of the officers of the City to their respective offices; (ii) seeking to
restrain or enjoin the issuance or delivery of any of the Bonds, or the collection of Net Revenues of
the Electric System or other amounts pledged or to be pledged to pay the principal of, premium, if
any, and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds, the
Legal Documents or the collection of said Net Revenues, or the pledge thereof, or contesting the
powers of the City or any authority for the issuance and delivery of the Bonds or the performance of
its obligations contained therein or the execution and delivery of the Legal Documents or the
performance of its obligations contained therein, (iii) which would be likely to result in any material
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DOCSOC/1309302v2/024450-0012
adverse change in the business, properties, assets or financial condition of the Electric System or to
have a material adverse effect on the ability of the City to meet its obligations under the Bonds or the
Legal Documents or (iv) asserting that the Official Statement contained any untrue statement of a
material fact or omitted to state any material fact necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading; provided, however, that if
the Underwriter accepts at the Closing any change in the certificate referred to in Section 6(d)(3)
hereof, the representations contained in this Section 5(f) shall be deemed modified to a like extent;
(g) The Bonds, the Legal Documents and the other documents described in the
Official Statement conform in all material respects to the descriptions thereof contained in the
Official Statement, and the Bonds, when delivered as provided herein, will be validly issued and
outstanding obligations of the City entitled to the benefits of the Indenture;
(h) The City will furnish such information, execute such instruments and take
such other action not inconsistent with law in cooperation with the Underwriter as the Underwriter
may reasonably request in order (i) to qualify the Bonds for offer and sale under the Blue Sky or
other securities laws and regulations of such states and other jurisdictions of the United States as the
Underwriter may designate and (ii) to determine the eligibility of the Bonds for investment under the
laws of such states and other jurisdictions, and will use its best efforts to continue such qualification
in effect to the End of the Underwriting Period (as hereinafter defined); provided that the City shall
not be obligated to take any action that would subject it to the general service of process in any state
or jurisdiction where it is not now so subject;
(i) If between the date hereof and the date that is 25 days after the End of the
Underwriting Period (as hereinafter defined) for the Bonds, an event occurs which might or would
cause the information contained in the Official Statement, as then supplemented or amended, to
contain an untrue statement of a material fact or to omit to state a material fact necessary to make the
statements made therein, in the light of the circumstances under which they were made, not
misleading, the City will notify the Underwriter, and, if in the opinion of the City or the Underwriter,
or their respective counsel, such event requires the preparation and publication of a supplement or
amendment to the Official Statement, the City will forthwith prepare and furnish to the Underwriter
(at the expense of the City) a reasonable number of copies of an amendment of or supplement to the
Official Statement (in form and substance satisfactory to counsel for the Underwriter) which will
amend or supplement the Official Statement so that it will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
0) After the Closing, the City will not participate in the issuance of any
amendment of or supplement to the Official Statement to which, after being furnished with a copy,
the Underwriter shall reasonably object in writing or which shall be disapproved by counsel for the
Underwriter;
(k) The financial statements of the City contained as Appendix A to the Official
Statement do and will fairly present the financial position and results of operations of the City as of
the dates and for the periods therein set forth in accordance with the accounting principles described
in Appendix A to the Official Statement applied consistently, and there has not been a material
adverse change in the business, properties or financial condition of the City or the Electric System
from that set forth in or contemplated by the Official Statement; and
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DOC SOC/ 1309302v2/024450-0012
(1) The City (i) has all necessary licenses and permits required to carry on and
operate all of the facilities, equipment and other property comprising the Electric System the lack of
which would materially adversely affect the operations or financial condition of the Electric System,
and (ii) has not received any notice of an alleged violation and, to the best knowledge of the City, the
City is not in violation of any zoning, land use or other similar law or regulation applicable to any of
its property comprising the Electric System that would materially adversely affect its operations or
financial condition.
(m) Any certificate signed by an authorized officer of the City and delivered to
the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to
the statements made therein.
(n) The City has not previously been in default and is not currently in default
with respect to any undertaking entered into under Securities and Exchange Commission Rule 15c2-
12.
(o) All consents, approvals, authorizations and orders of governmental or
regulatory authorities which are required for. the consummation by the City of the transactions
contemplated on the part of the City by the Indenture, the Official Statement, the Bonds and this
Purchase Contract have been obtained.
(p) As used herein and for the purposes of the foregoing, the term "End of the
Underwriting Period" for the Bonds shall mean the earlier of (i) the Closing Date unless the City
shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date
as a result of all the Bonds not being distributed, or (ii) the date on which the End of the
Underwriting Period for the Bonds has occurred under Rule 15c2-12; provided, however, that the
City may treat as the End of the Underwriting Period for the Bonds the date specified as such in a
notice from the Underwriter stating the date which is the End of the Underwriting Period;
6. The Underwriter has entered into this Purchase Contract in reliance upon the
representations herein and the performance by the City of the City's obligations hereunder, both as of
the date hereof and as of the Closing Date. The Underwriter's obligations under this Purchase
Contract are and shall be subject to the following further conditions:
(a) The representations of the City contained herein shall be true and correct in
all material respects at the date hereof and on the Closing Date;
(b) At the time of the Closing, the Legal Documents shall be in full force and
effect, and shall not have been amended, modified or supplemented (except as may be agreed to in
writing by the Underwriter); the ratings quoted in the Official Statement shall be in effect; and the
City shall perform or have performed its obligations required under or specified in the Legal
Documents to be performed at or prior to the Closing;
(c) The Underwriter may terminate this Purchase Contract by notification to the
City if at any time after the date hereof and prior to the Closing (i) there shall have occurred any new
outbreak or escalation of hostilities, declaration by the United States of a national emergency or war,
calamity or crisis, the effect of which on financial markets is such as, to make it, in the sole
judgement of the Underwriter, impracticable or inadvisable to proceed with the offering and delivery
of the Bonds, or (ii) there shall be in force a general suspension of trading on the New York Stock
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DOC SOC/ 1309302v2/024450-0012
Exchange or minimum or maximum prices for trading shall have been fixed and be in force, or
maximum ranges for prices for securities shall have been required and be in force on the New York
Stock Exchange, whether by virtue of a determination by that Exchange or by order of the Securities
and Exchange Commission or any other governmental authority having jurisdiction, or (iii) a general
banking moratorium shall have been declared by Federal, New York or California authorities having
jurisdiction and shall be in force, or (iv) there shall exist any event which, in the sole reasonable
judgment of the Underwriter, causes the Official Statement as then amended and supplemented in
accordance herewith to either (A) make an untrue statement of a material fact or (B) omit to state a
material fact necessary in order to make the statements made in the Official Statement as so amended
and supplemented, in light of the circumstances under which they were made, not misleading;
(d) At or prior to the Closing, the Underwriter shall receive the following
documents:
(1) the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to
the City, dated the Closing Date, substantially in the form attached as Appendix E to the Official
Statement;
(2) a certificate or certificates, dated the Closing Date, of the City
executed by its City Administrator or other appropriate official, to the effect that (A) on the date of
the Official Statement and on the date of the certificate (i) the descriptions and statements of or
pertaining to the City, the Electric System contained in the Official Statement were and are true and
correct in all material respects; and (ii) the Official Statement did not and does not contain an untrue
statement of a material fact or omit to state a material fact which is necessary to make the statements
made therein, in the light of the circumstances under which they were made, not misleading
(provided that no representation need be made regarding information relating to DTC and its
operations); and (B) the representations and warranties of the City in this Purchase Contract are true
and correct on and as of the Closing Date as if made on and as of the Closing Date, and the City has
complied with and performed all of its covenants and agreements in this Purchase Contract on its part
to be complied with and performed at or prior to the Closing;
(3) a certificate dated the Closing Date, by the City Administrator or
other appropriate official of the City, and by the City Attorney to the effect that other than as
described in the Official Statement, no litigation is pending (with the City having received service of
process) or, to their knowledge, threatened in any court (i) in any way questioning the corporate
existence of the City or, except for criminal matters with respect to the Mayor's residency, the titles
of the officers of the City to their respective offices; (ii) seeking to restrain or enjoin the delivery of
the Bonds, or the collection of Net Revenues of the Electric System or other amounts pledged to pay
the principal of, premium, if any, and interest on such Bonds; (iii) in any way contesting or affecting
the validity of the Bonds or the Legal Documents; (iv) in any way contesting or affecting the
collection.of said Net Revenues or the pledge thereof, or contesting the powers of the City or any
authority for the issuance and delivery of the Bonds and the performance of its obligations contained
therein or the execution and delivery of the Legal Documents and the performance of its obligations
contained therein; (v) which would be likely to result in any material adverse change in the business,
properties, assets or the financial condition of the Electric System or which would be likely to have a
material adverse effect on the ability of the City to meet its obligations under the Indenture; or
(vi) asserting that the Official Statement contained any untrue statement of a material fact or omitted
to state any material fact necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, which certificate shall be in form and substance
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DOC SOC/ 1309302v2/024450-0012
acceptable to the Underwriter (but in lieu of such certificate, the Underwriter may in its sole
discretion accept an opinion of Bond Counsel or Counsel to the City, acceptable to the Underwriter
in form and substance, that in their opinion the issues raised in any such pending or threatened
litigation are without substance or that the contentions of any plaintiffs therein are without merit);
(4) an opinion of counsel to the Trustee, dated the Closing Date and
addressed to the City and the Underwriter, to the effect that: (i) the Trustee is a national banking
association duly organized and validly existing under the laws of the United States of America;
(ii) the Trustee is duly eligible and qualified to act as Trustee under the Indenture; (iii) the Trustee
has all requisite power, authority and legal right to execute and deliver the Indenture and the
Continuing Disclosure Agreement and to perform its obligations under such documents; and (iv) the
Trustee has duly executed and delivered the Indenture and the Continuing Disclosure Agreement and
assuming the due authorization, execution and delivery thereof by the other parties thereto, such
documents are the legal, valid and binding agreements of the Trustee, enforceable in accordance with
their terms, except to the extent enforceability thereof may be subject to (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights
and remedies heretofore or hereafter enacted, and (b) the application of equitable principles and the
exercise of judicial discretion in appropriate cases.
(5) a certificate of the Trustee, dated the Closing Date, to the effect that
(i) the Trustee is a national banking association duly organized and existing under the laws of the
United States of America; (ii) the Trustee have full corporate trust powers and authority to serve as
Trustee under the Indenture, and as Dissemination Agent under the Continuing Disclosure
Agreement; and (iii) the Trustee has full power and authority to carry out its respective obligations
under the Indenture and the Continuing Disclosure Agreement, as applicable, and that such
acceptance is in full compliance with, and does not conflict with, any applicable law or governmental
regulation currently in effect, and does not conflict with or violate any contract to which the Trustee
is a party or any administrative or judicial decision by which the Trustee is bound;
(6) an opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel,
dated the Closing Date, substantially in the form attached hereto as Exhibit A;
(7) an opinion of the City Attorney or other counsel to the City
acceptable to the Underwriter, dated the Closing Date, substantially in the form attached hereto as
Exhibit B;
(8) an opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation, Counsel to the Underwriter, dated the Closing Date, to the effect that (a) the Bonds are
exempt from registration under the Securities Act of 1933, as amended, and the Indenture is exempt
from qualifications under the Trust Indenture Act of 1939, as amended, and the Continuing
Disclosure Agreement complies with paragraph (b) (5) of Rule 15c2-12; and (b) without having
undertaken to determine independently the accuracy, completeness or fairness of the statements
contained in the Official Statement and based upon the information made available to them in the
course of their participation in the preparation of the Official Statement as counsel for the
Underwriter, nothing has come to their attention which would cause them to believe that the Official
Statement (excluding therefrom the financial statements and the statistical data included in the
Official Statement, and the appendices thereto, and information regarding DTC and its book -entry
only system, as to which no opinion need be expressed), as of the date thereof and the Closing Date,
contained any untrue statement of a material fact or omitted to state a material fact required to be
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DOCSOC/ 1309302v2/024450-0012
stated therein or necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(9) copies of the documents referred to in Section 6(b);
(10) certified copies of all proceedings relating to the authorization and
issuance of the Bonds certified by the City Administrator or other appropriate official of the City;
(11) evidence that the ratings on the Bonds of "AY from Moody's
Investor Services and "A-" from Standard and Poors Rating Services are in full force and effect as of
the Closing Date;
(12) the Blanket Issuer Letter of Representations of the City;
(13) a copy of any Preliminary Blue Sky Survey with respect to the Bonds,
prepared by Counsel to the Underwriter;
(14) evidence that the Swap Agreements have been terminated;
(15) executed certificate delivered pursuant to Section 2.07 of the
Indenture; and
(16) such additional certificates, instruments and other documents as the
Underwriter may reasonably deem necessary to evidence the truth and accuracy as of the Closing
Date of the City's representations and warranties contained in this Purchase Contract and the due
performance or satisfaction by the City at or prior to such time of all agreements then to be
performed and all conditions then to be satisfied by the City pursuant to this Purchase Contract.
The opinions and certificates and other material referred to above shall be in form and
substance satisfactory to the undersigned and to Stradling Yocca Carlson & Rauth, a Professional
Corporation, Counsel to the Underwriter.
If the City shall be unable to satisfy the conditions to the obligations of the Underwriter to
purchase, accept delivery of and pay for the Bonds contained in this Purchase Contract or if the
obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be
terminated for any reason permitted by this Purchase Contract, this Purchase Contract and all
obligations of the Underwriter hereunder may be terminated by the Underwriter at, or at any time
prior to, the Closing Date by written notice to the City, and neither the Underwriter nor the City shall
have any further obligations hereunder.
7. The Underwriter shall be under no obligation to pay, and the City shall pay, any
expenses incident to the performance of the City's obligations hereunder, including but not limited
to: (i) the cost of preparation, printing and distribution of the Legal Documents, the Official
Statement and any supplements or amendments thereto; (ii) the cost of preparing and printing the
Bonds; (iii) the fees and disbursements of Bond Counsel and the fees and expenses of counsel to the
City; (iv) the fees and disbursements of any engineers, accountants and other experts, consultants or
advisors retained by the City; (v) fees for bond ratings (which include fees of rating agencies and
travel expenses of the City); and (vi) expenses (included in the expense component of the
underwriting spread) incurred on behalf of the City's employees which are incidental to
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DOCSOC/ 1309302v2/024450-0012
implementing this agreement, including, but not limited to, meals, transportation, and lodging of
those employees, if any.
8. The Underwriter shall pay: (i) the cost of preparation and printing of this Purchase
Contract and the Preliminary Blue Sky Survey; (ii) all advertising expenses and Blue Sky filing fees
in connection with the public offering of the Bonds; (iii) fees, if any, payable to the California Debt`
and Investment Advisory Commission in connection with the execution and delivery of the Bonds;
and (iv) all other expenses incurred by the Underwriter in connection with the public offering of the
Bonds, including the fees and disbursements of Underwriter's Counsel.
9. Any notice or other communication to be given to the City under this Purchase
Contract may be given by delivering the same in writing to: City of Vernon, 4305 Santa Fe Avenue,
Vernon, California 90058, Attention: City Attorney; and any notice or other communication to be
given to the Underwriter under this Purchase Contract may be given by delivering the same in
writing to: RBC Capital Markets Corporation, 345 California Street, Suite 2800, San Francisco, CA
94104, Attention: Celeste Davis, Managing Director.
10. This Purchase Contract shall be construed in accordance with and governed by the
Constitution and laws of the State of California applicable to contracts made and performed in the
State.
11. This Purchase Contract may be executed in several counterparts, each of which shall
be an original, and all of which shall constitute but one and the same instrument.
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DOCSOC/ 1309302v2/024450-0012
12. This Purchase Contract, when accepted by the City in writing as heretofore specified,
shall constitute the entire agreement between the City and the Underwriter in connection with the
subject matter hereof and is made solely for the benefit of the City and the Underwriter (including
any successor in business of the Underwriter). No other person shall acquire or have any right
hereunder or by virtue hereof. All the representations and agreements in this Purchase Contract shall
remain, operative and in full force and effect, regardless of (a) any investigation made by or on behalf
the Underwriter, (b) delivery of and payment for the Bonds hereunder, and (c) any termination of this
Purchase Contract.
Very truly yours,
RBC CAPITAL MARKETS CORPORATION
Managing Director
Accepted on , 2008
CITY OF VERNON
IM
ATTEST:
an
City Attorney
City Clerk
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DOCSOC/ 1309302v2/024450-0012
SCHEDULEI
CITY OF VERNON
Electric System Revenue Bonds
2008 Taxable Series B
Maturity Date
(July 1) Principal Amount Interest Rate Yield
DOC SOC/ 1309302v2/024450-0012
EXHIBIT A
[Letterhead of Orrick, Herrington & Sutcliffe LLP]
[Closing Date]
RBC Capital Markets Corporation, as underwriter
345 California Street
San Francisco, CA 94104
Re: City of Vernon
Electric System Revenue Bonds,
2008 Taxable Series B,
( Supplemental Opinion)
Ladies and Gentlemen:
This letter is addressed to you, as Underwriter, pursuant to (i) Section 6(d)(6) of the
Contract of Purchase, dated , 2008 (the "Contract of Purchase"), between you and the
City of Vernon, California (the "City"), providing for the purchase of the City's $ Electric
System Revenue Bonds, 2008 Taxable Series B (the "Bonds"). The Bonds are being issued pursuant
to the City of Vernon Municipal Facilities Revenue Bond Law, constituting Article XI of the Vernon
City Code, and an Indenture of Trust dated as of September 1, 2008, as supplemented by the First
Supplemental Indenture of Trust dated as of September 1, 2008 and the Second Supplemental
Indenture of Trust (collectively, the "Indenture"), dated as of November 1, 2008 and each between
the City and The Bank of New York Mellon Trust Company, N.A., as trustee. Capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Indenture or, if not defined
in the Indenture, the Contracts of Purchase.
We have delivered our final legal opinion (the "Bond Opinion") as bond counsel to
the City concerning the validity of the Bonds and certain other matters, dated the date hereof and
addressed to the City. You may rely on such opinion as though the same were addressed to you.
In connection with our role as bond counsel to the City, we have reviewed the
Contract of Purchase, the printed version of the Official Statement, dated , 2008, relating
to the Bonds (the "Official Statement"), the Continuing Disclosure Agreement, the documents,
certificates, opinions and matters mentioned in the second paragraph of our Bond Opinion, and such
other documents, opinions and matters to the extent we deemed necessary to express the opinions set
forth in the numbered paragraphs below.
The opinions expressed herein are based on an analysis of existing laws, regulations,
rulings and court decisions and cover certain matters not directly addressed by such authorities. Such
opinions may be affected by actions taken or omitted or events occurring after the date hereof. We
have not undertaken to determine, or to inform any person, whether any such actions are taken or
omitted or events do occur or any other matters come to our attention after the date hereof. We have
assumed the genuineness of all documents and signatures presented to us (whether as originals or as
copies) and the due and legal execution and delivery thereof by, and validity against, any parties
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DOCSOC/ 1309302v2/024450-0012
other than the City. We have assumed, without undertaking to verify, the accuracy of the factual
matters represented, warranted or certified in the documents, and of the legal conclusions contained
in the opinions, referred to in the third paragraph hereof. We have further assumed compliance with
all covenants and agreements contained in such documents. In addition, we call attention to the fact
that the rights and obligations under the Bonds, the Indenture, the Continuing Disclosure Agreement
and the Contract of Purchase and their enforceability may be subject to bankruptcy, insolvency,
reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or
affecting creditors' rights, to the application of equitable principles, to the exercise of judicial
discretion in appropriate cases and to the limitations on legal remedies against cities in the State of
California. We express no opinion with respect to any indemnification, contribution, penalty, choice
of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing
documents, nor do we express any, opinions with respect to the state or quality of title to or interest in
any assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the
description contained therein of, or the remedies available to enforce liens on, any such assets.
Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official
Statement or other offering material relating to the Bonds and express no opinion relating thereto
except as expressly set forth in numbered paragraph 3 below.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof,
we are of the following opinions:
1. The Bonds are not subject to the registration requirements of the Securities
Act of 1933, as amended, and the Indenture is exempt from qualification pursuant to the Trust
Indenture Act of 1939, as amended.
2. The Contract of Purchase and the Continuing Disclosure Agreement have
each been duly authorized, executed and delivered by the City and each of the Contract of Purchase
and the Continuing Disclosure Agreement is a valid and binding agreement of the City.
3. The statements contained in the Official Statement under the captions
"INTRODUCTION," "THE 2008 BONDS," "SECURITY AND SOURCES OF PAYMENT FOR
THE 2008 Bonds," and "TAX MATTERS," and in "APPENDIX B—SUMMARY OF CERTAIN
PROVISIONS OF THE INDENTURE," "APPENDIX D —PROPOSED FORM OF OPINION OF
BOND COUNSEL" and APPENDIX E—FORM OF CONTINUING DISCLOSURE
AGREEMENT," excluding any material that may be treated as included under such captions by
cross-reference, insofar as such statements expressly summarize certain provisions of the Indenture,
the Continuing Disclosure Agreement and the Bond Opinion, are accurate in all material respects.
We are not passing upon and do not assume any responsibility for the accuracy
(except as explicitly stated in numbered paragraph 3 above), completeness or fairness of any of the
statements contained in the Official Statement and make no representation that we have
independently verified the accuracy, completeness or fairness of any such statements. We do not
assume any responsibility for any electronic version of the Official Statement and assume that any
such version is identical in all respects to the printed version. In our capacity as bond counsel in
connection with issuance of the Bonds, we participated in conferences with your representatives,
your counsel, representatives of certain consultants to the City, the City and counsel to the City,
during which conferences the contents of the Official Statement and related matters were discussed.
Based on our participation in the above -referenced conferences (which did not extend beyond the
date of the Official Statement), and in reliance thereon and on the records, documents, certificates,
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DOCS OC/ 1309302v2/024450-0012
opinions and matters herein mentioned (as set forth above), subject to the limitations on our role as
bond counsel, we advise you that no facts came to the attention of the attorneys in our firm rendering
legal services in connection with such issuance which caused us to believe that the Official Statement
as of its date (except for any CUSIP numbers, financial, accounting, statistical, engineering,
demographic or economic data or forecasts, numbers, charts, tables, graphs, estimates, projections,
assumptions or expressions of opinion, any management analysis or discussion or any information
about book -entry, The Depository Trust Company, and the information contained in Appendices A
and C, included or referred to therein, which we expressly exclude from the scope of this paragraph
and as to which we express no view), contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No responsibility is undertaken or view
expressed with respect to any other disclosure document, materials or activity.
This letter is furnished by us as bond counsel. No attorney -client relationship has
existed or exists between our firm and you in connection with the Bonds or by virtue of this letter.
Our engagement with respect to the Bonds has concluded with their issuance. We disclaim any
obligation to update this letter. This letter is delivered to you as the Underwriter of the Bonds, is
solely for your benefit as such Underwriter and is not to be used, circulated, quoted or otherwise
referred to or relied upon for any other purpose or by any other person. This letter is not intended to,
and may not, be relied upon by owners of the Bonds or by any other parry to whom it is not
specifically addressed.
Very truly yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
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DOC SOC/ 1309302v2/024450-0012
EXHIBIT B
FORM OF OPINION OF CITY ATTORNEY
[Closing Date]
RBC Capital Markets Corporation
As Underwriter
Re: $ City of Vernon Electric System Revenue Bonds
2008 Taxable Series B
Ladies and Gentlemen:
I am the City Attorney of the City of Vernon (the "City") and as such I have served as
counsel to the City in connection with the issuance of the City's $ Electric System
Revenue Bonds, 2008 Series A (the `Bonds"). As such counsel, I have examined and am familiar
with (i) those documents relating to the existence, organization and operation of the City; (ii) all
necessary documentation of the City relating to the authorization, execution and delivery of (a) the
Indenture of Trust dated as of September 1, 2008, as supplemented by the First Supplemental
Indenture of Trust, dated as of September 1, 2008, and the Second Supplemental Indenture of Trust
dated as of November 1, 2008 (collectively, the "Indenture"), each by and between the City and The
Bank of New York Mellon Trust Company, N.A., as trustee thereunder (the "Trustee"), providing for
the issuance of the Bonds, (b) the Continuing Disclosure Agreement, dated as of November 1, 2008
(the "Continuing Disclosure Agreement"), between the City and the Trustee, as dissemination agent;
and (c) the Contract of Purchase, dated , 2008 with respect to the Bonds (the "Purchase
Contract"), between the City and the Underwriter; (iii) an Official Statement of the City, dated
, 2008 (the "Official Statement"), relating to the Bonds. The Indenture, the Continuing
Disclosure Agreement and the Purchase Contract are collectively referred to herein as the "Legal
Documents."
I am of the opinion that:
1. The City is a chartered city, duly created, organized and existing under the
Constitution and laws of the State of California and duly qualified to furnish electric service within
said City.
2. The City has the authority and right to execute, deliver and perform the Legal
Documents, and the City has complied with the provisions of applicable law in all matters relating to
the transactions contemplated by the Legal Documents.
3. The Official Statement and the Legal Documents have been duly authorized,
executed and delivered by the City and, assuming that the Legal Documents constitute the legal,
valid and binding agreements of the other respective parties thereto, the Legal Documents constitute
the legal, valid and binding agreements of the City enforceable against it in accordance with their
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DOCSOC/ 1309302v2/024450-0012
respective terms, except, in each case, as enforceability may be limited by laws relating to
bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by
the application of equitable principles if equitable remedies are sought.
4. No approval, consent or authorization of any governmental or public agency,
authority or person is required for the execution and delivery by the City of the Legal Documents or
the performance by the City of its obligations thereunder or the execution and delivery, on the part of
the City, of the Bonds. Under the laws of the State of California, the City has the authority to
determine, fix, impose and collect rates and charges for electric service and is not presently subject to
the regulatory jurisdiction of any state, regional or local governmental regulatory authority other than
to the extent described in the Official Statement.
5. The execution and delivery of the Legal Documents by the City and compliance with
the provisions thereof will not conflict with or constitute a breach of or default under any instrument
relating to the organization, existence or operation of the City, or commitment, agreement or other
instrument to which the City is a party or by which it or its property is bound or affected, or any
ruling, regulation, ordinance, judgment, order or decree to which the City or any of its officers in
their respective capacities as such are subject or any provision of the laws of the State of California
relating to the City and its affairs.
6. There is no action, suit, proceeding, inquiry or investigation at law or in equity, or
before any court, public board or body, pending or, to the best of my knowledge, threatened against
or affecting the City or any entity affiliated with the City or any of its officers in their respective
capacities as such (nor to the best of my knowledge, is there any basis therefor) that questions the
powers of the City referred to in paragraph 2 above or in connection with the transactions
contemplated by the Official Statement, or the validity of the proceedings taken by the City in
connection with the authorization, execution or delivery of the Legal Documents, or wherein any
unfavorable decision, ruling or finding would adversely affect the transactions contemplated by the
Legal Documents or the Official Statement, or that, in any way, would adversely affect the validity or
enforceability of the Legal Documents or, in any material respect, the ability of the City to perform
its obligations under the Legal Documents.
Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto
in the Purchase Contract.
Respectfully submitted,
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DOCSOC/ 1309302v2/024450-0012
EXHIBIT C
Orrick, Herrington & Sutcliffe LLP
Draft of 10124108
PRELIMINARY OFFICIAL STATEMENT DATED , 2008
NEW ISSUE —FULL BOOK -ENTRY ONLY
RATINGS: Moody's:
S&P:
In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, interest on the 2008B Bonds is exempt
from State of California personal income taxes and is not excluded from gross income for federal income tax purposes under
Section 103 of the Internal Revenue Code of 1986. Bond Counsel expresses no opinion regarding any federal or other state tax
consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the 2008B Bonds. See "TAX
MATTERS" herein.
$ [PAR AMOUNT] *
CITY OF VERNON
Electric System Revenue Bonds
2008 Taxable Series B
Dated: Date of Delivery
Due: July 1, as shown below
This cover page contains certain information for general reference only. It is not intended to be a summary of the
security or terms of this issue. Investors must read the entire Official Statement to obtain information essential to the making
of an informed investment decision. Capitalized terms used on this cover page not otherwise defined shall have the meanings
set forth in Appendix B attached hereto.
The City of Vernon Electric System Revenue Bonds, 2008 Taxable Series B (the "2008B Bonds") are being issued by
the City of Vernon, California (the "City") pursuant to the City's Municipal Facilities Revenue Bond Law, constituting
Article XI of the Vernon City Code and an Indenture of Trust, dated as of September 1, 2008 (as amended and supplemented, the
"Indenture"), between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), as
supplemented by a Second Supplemental Indenture of Trust, dated as of 1, 2008.
The 2008B Bonds are being issued to provide funds (i) to finance the Costs of certain Capital Improvements to the
City's Electric System; (ii) to fund a deposit to the Debt Service Reserve Fund; and (iii) to pay costs of issuance of the 2008B
Bonds. See "PLAN OF FINANCE" and "ESTIMATED SOURCES AND USES OF FUNDS" herein.
The 2008B Bonds will be issued in fully registered form, registered in the name of Cede & Co., as nominee of The
Depository Trust Company, New York, New York, ("DTC") under the book -entry only system maintained by DTC. While DTC
is the securities depository for the 2008B Bonds, principal of premium, if any, and interest on the 2008B Bonds will be payable
by the Trustee to DTC, which is obligated in turn to remit such payments to its DTC participants for subsequent disbursement to
beneficial owners of the 2008B Bonds, as more fully described herein. See APPENDIX C—"Book-Entry Only System."
The 2008B Bonds are subject to optional and mandatory redemption prior to maturity, as described herein.
Interest on the 2008B Bonds will be payable on each I and 1, commencing 1, 2009.
MATURITY SCHEDULE
(See Inside Cover)
The 2008B Bonds are special obligations of the City. The principal and Redemption Price of and interest on the 2008B
Bonds are payable by the City solely from the Net Revenues of the City's Electric System, amounts in the Light and Power Fund
other than the Operating Reserve, and the amounts in the Funds, other than the Rebate Fund, held by the Trustee under the
Indenture.
The issuance of the 2008B Bonds does not directly, indirectly or contingently obligate the City to levy or pledge
any form of taxation or to make any appropriation for their payment. The 2008B Bonds are not secured by a legal or
equitable pledge of, or lien or charge upon, any property of the City or any of its income or receipts except the Trust
Estate pledged therefor pursuant to the Indenture. Neither the faith and credit nor the taxing power of the City, the
' Preliminary, subject to change.
OHS West:260528796.1
State of California (the "State") or any other public agency is pledged to the payment of the principal of, premium, if any,
or interest on the 2008B Bonds. The 2008B Bonds do not constitute a debt, liability or obligation of the State or any
public agency (other than the special obligation of the City as provided in the Indenture).
The 2008B Bonds are offered, when, as and if issued and delivered to the Underwriter, subject to the approval of
legality by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel, and certain other conditions. Certain
legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional Corporation, as
counsel to the Underwriter, and for the City by the City Attorney. It is expected that the 2008B Bonds will be available for
delivery through the DTC's book -entry system in New York, New York on or about , 2008.
RBC CAPITAL MARKETS
Dated: 2008
OHS West:260528796.1
MATURITY SCHEDULE
$ Serial 2008B Bonds
Maturity Date Principal Price or
( 1) Amount Interest Rate Yield CUSIP No. '
$ % Term 2008B Bond due 1, 20_ Yield: % CUSIP No.: '
� CUSIP Copyright 2008, American Bankers Association. CUSIP data herein is provided by Standard & Poor's CUSIP Service Bureau, a
division of The McGraw-Hill Companies, Inc., and is set forth herein for convenience of reference only.
OHS West:260528796.1
No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give
any information or to make any representations 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 any of the foregoing. 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 2008B Bonds by any person in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of such jurisdiction.
Statements contained in this Official Statement that include forecasts, estimates or matters of opinion,
whether or not expressly stated as such, are intended solely as such and are not to be construed as representations of
fact. The information set forth herein has been furnished by the City and by other sources that are believed to be
reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as representations by the
Underwriter. The information and expressions of opinions herein are subject to change without notice, and neither
the delivery of this Official Statement nor any sale made hereunder shall create, under any circumstances, any
implication that there has been no change in the affairs of the City since the date hereof. This Official Statement,
including any supplement or amendment hereto, is intended to be deposited with one or more repositories.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with, and
as part of, its responsibilities to investors under the federal securities laws as applied to the facts
and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or
completeness of such information.
IN CONNECTION WITH THE OFFERING OF THE 2008B BONDS, THE UNDERWRITER MAY
OVERALLOT OR EFFECT TRANSACTIONS THAT MAY STABILIZE OR MAINTAIN THE MARKET
PRICE OF THE 2008B BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The City maintains a website. However, the information presented there is not part of this Official
Statement and should not be relied upon in making an investment decision with respect to the 2008B Bonds.
CAUTIONARY STATEMENTS REGARDING
FORWARD -LOOKING STATEMENTS IN
THIS OFFICIAL STATEMENT
Certain statements included or incorporated by reference in this Official Statement and the Appendices
hereto constitute "forward -looking statements." Such statements are generally identifiable by the terminology used
such as "plan," "expect," "estimate," "budget" or other similar words. Such forward -looking statements include, but
are not limited to, certain statements contained in the information under the captions "PLAN OF FINANCE," "THE
ELECTRIC SYSTEM" and "DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS" in this Official
Statement. Forward -looking statements in this Official Statement are subject to risks and uncertainties, including
particularly those relating to natural gas costs and availability, wholesale and retail electric energy and capacity
prices, federal and state legislation and regulations, competition and industry restructuring, and the economy of the
service area of the City's Electric System.
The achievement of any results or the realization of other expectations contained in such forward -looking
statements involve known and unknown risks, uncertainties and other factors that may cause actual results,
performance or achievements to be materially different from any future results, performance or achievements
expressed or implied by such forward -looking statements. The City does not plan to issue any updates or revisions
to those forward -looking statements.
OHS West:260528796.1
CITY OF VERNON
City Council
Leonis C. Malburg, Mayor
Hilario Gonzales, Mayor Pro Tem
William J. Davis, Councilmember
W. Michael McCormick, Councilmember
Thomas A. Ybarra, Councilmember
City Officers
Eric T. Fresch, City Administrator
Donal O'Callaghan, Director of Light and Power and Gas
Jeff A. Harrison, City Attorney and Director of Industrial Development
Manuela Giron, City Clerk
Samuel Kevin Wilson, Director of Community Services and Water
Lewis Pozzebon, Director of Environmental Health
Steve Towles, Police Chief
Mark Whitworth, Fire Chief
Avigal Horrow, Director of Human Resources
Light and Power Executive Management
Peter Hervish, Technical Services Manager, Light and Power Department
Krishna Nand, Environmental Compliance Manager, Light and Power Department
Carlos Fandino, Transmission and Distribution Manager, Light and Power Department
SPECIAL SERVICES
Orrick, Herrington & Sutcliffe LLP
Los Angeles, California
Bond Counsel
Bond Logistix LLC
Los Angeles, California
Financial Advisor
The Bank of New York Mellon Trust Company, N.A.
Los Angeles, California
Trustee
OHS West:260528796.1
TABLE OF CONTENTS
Page
INTRODUCTION...............................................................................................................................................1
Purposeof Official Statement................................................................................................................1
Authorityand Use of Proceeds..............................................................................................................
I
TheCity.................................................................................................................................................
I
TheElectric System...............................................................................................................................
I
Security and Sources of Payment...........................................................................................................2
DebtService Reserve Fund....................................................................................................................2
ContinuingDisclosure............................................................................................................................2
OtherMatters.........................................................................................................................................
2
PLANOF FINANCE..........................................................................................................................................3
ESTIMATED SOURCES AND USES OF FUNDS...........................................................................................3
THE2008B BONDS...........................................................................................................................................3
General.................................................................................................................................................. 3
Redemptionof 2008B Bonds.................................................................................................................3
SECURITY AND SOURCES OF PAYMENT................................................................................................... 5
PledgeEffected by the Indenture........................................................................................................... 5
Deposit and Application of Revenues....................................................................................................
7
Paymentsto Trustee for Bonds..............................................................................................................
7
RateCovenant.....:..................................................................................................................................9
DebtService Reserve Fund....................................................................................................................
9
ExpenseStabilization Fund....................................................................................................................9
OutstandingParity Obligations............................................................................................................10
Additional Parity Obligations..............................................................................................................10
Transfersto General Fund....................................................................................................................
I I
Limitationson Remedies.....................................................................................................................
I I
THEELECTRIC SYSTEM...............................................................................................................................
I I
General................................................................................................................................................
I I
ServiceArea.........................................................................................................................................
I I
City Plan to Optimize Resource Utilization.........................................................................................12
Implementation of Resource Optimization Plan..................................................................................12
Management.........................................................................................................................................13
PowerSupply Resources......................................................................................................................14
Interconnection and Distribution Facilities..........................................................................................21
OHS West:260528796.1
Recent Developments Affecting the Power Supply.............................................................................21
CapitalRequirements...........................................................................................................................24
RetailEnergy Sales..............................................................................................................................
25
ElectricRates.......................................................................................................................................
26
RevenueObligations............................................................................................................................
28
Summary of Operating Results............................................................................................................
29
EmployeeRelations.............................................................................................................................
34
Insurance...............................................................................................................................................
35
RateRegulation....................................................................................................................................35
SeismicActivity...................................................................................................................................36
DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS...............................................................
36
Background; California Electric Market Deregulation........................................................................
36
State Environmental Legislation..........................................................................................................37
Impactof Developments on the City...................................................................................................
37
FutureRegulation.................................................................................................................................38
OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY.................................................38
EnergyPolicy Act of 1992...................................................................................................................38
FederalEnergy Legislation..................................................................................................................38
OtherGeneral Factors..........................................................................................................................
39
EnvironmentalIssues...........................................................................................................................
39
CONSTITUTIONAL LIMITATIONS ON TAXES.........................................................................................40
Articles XIIIC and XIIID of the State Constitution.............................................................................40
FutureInitiatives..................................................................................................................................
40
LITIGATION....................................................................................................................................................
40
TAXMATTERS...............................................................................................................................................41
Tax Status of the 2008B Bonds............................................................................................................41
Saleand Exchange of 2008B Bonds....................................................................................................42
ForeignInvestors.................................................................................................................................42
Circular230.........................................................................................................................................42
Possible Recognition of Taxable Gain or Loss upon Defeasance of the 2008B Bonds.......................42
APPROVALOF LEGALITY...........................................................................................................................42
RATINGS.......................................................................................................................................................... 42
UNDERWRITING............................................................................................................................................43
FINANCIALSTATEMENTS...........................................................................................................................43
EXECUTIONAND DELIVERY......................................................................................................................44
ii
OHS West:260528796.1
APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL
YEARS ENDED JUNE 30, 2007 AND JUNE 30, 2006..................................................... A-1
APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE...................................B-1
APPENDIX C BOOK -ENTRY ONLY SYSTEM........................................................................................C-1
APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL ................................................ D-1
APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT ................................................E-1
r-
iii
OHS West:260528796.1
OFFICIAL STATEMENT
$[PAR AMOUNT]`
CITY OF VERNON
Electric System Revenue Bonds
2008 Taxable Series B
INTRODUCTION
This Introduction is qualified in its entirety by reference to the more detailed information included and
referred to elsewhere in this Official Statement. The offering of the 2008B Bonds to potential investors is made only
by means of the entire Official Statement. Terms used in this introduction and not otherwise defined shall have the
respective meanings assigned to them elsewhere in this Official Statement. See APPENDIXB—"SUMMARY OF
CERTAINPROVISIONS OF THE INDENTURE" herein.
Purpose of Official Statement
The purpose of this Official Statement (which includes the cover page and the appendices attached hereto)
is to provide information concerning the sale and delivery by the City of Vernon, California (the "City") of its
$[PAR AMOUNT]* Electric System Revenue Bonds, 2008 Taxable Series B (the "2008B Bonds").
Authority and Use of Proceeds
The 2008B Bonds are being issued pursuant to the City of Vernon Municipal Facilities Revenue Bond Law,
constituting Article XI of the Vernon City Code, and an Indenture of Trust, (as amended and supplemented, the
"Indenture"), dated as of September 1, 2008, between the City and The Bank of New York Mellon Trust Company,
N.A., as trustee (the "Trustee"), as supplemented by the Second Supplemental Indenture of Trust, dated as of
1, 2008.
The 2008B Bonds are being issued to provide funds to (i) finance the Costs of certain Capital
Improvements to the City's Electric System, (ii) fund a deposit to the Debt Service Reserve Fund, and (iii) pay costs
of issuance of the 2008B Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS" and "PLAN OF
FINANCE" herein.
The City has issued and there remains outstanding $ aggregate principal amount of Electric
System Revenue Bonds, 2008 Taxable Series A (the "2008A Bonds") under the Indenture. The Indenture permits
the issuance of Additional Bonds and Refunding Bonds in addition to the 2008A Bonds and the 2008B Bonds (the
2008A Bonds, the 2008B Bonds and any such Additional Bonds and Refunding Bonds issued under the Indenture
being referred to as the "Bonds") on the terms and conditions set forth in the Indenture. See "SECURITY AND
SOURCES OF PAYMENT — Additional Parity Obligations."
The City
The City is a chartered city of the State of California (the "State"), consisting of approximately 5.2 square
miles located in Los Angeles County, approximately four miles southeast of downtown Los Angeles. The City was
established in 1905 with a view of promoting industrial activity. There are approximately 1,800 companies doing
business in the City employing approximately 50,000 persons. The City is almost exclusively industrial, with an
estimated resident population of approximately 110 as of January 1, 2008.
The Electric System
Pursuant to California law and its Charter, the City has established its Light and Power Department, which
is responsible for the operation of the City's Electric System. The function of the Electric System is to supply the
Preliminary, subject to change.
OHS West:260528796.1
City's inhabitants and the businesses and industries within the City with electricity. The Electric System has been in
operation since 1933. For the Fiscal Year ended June 30, 2008, the Electric System provided approximately 1,232
million kilowatt hours (' Whs") of electricity to over 1,959 customers, almost all of which are commercial and
industrial entities. See "THE ELECTRIC SYSTEM" herein.
Security and Sources of Payment
The 2008B Bonds are special obligations of the City. The principal and Redemption Price of and interest
on the 2008B Bonds are payable by the City solely from the Net Revenues of the City's Electric System, amounts in
the Light and Power Fund other than the Operating Reserve, and the amounts in the Funds, other than the Rebate
Fund, held by the Trustee under the Indenture and are secured by a pledge of the Trust Estate. See "SECURITY
AND SOURCES OF PAYMENT — Pledge Effected by the Indenture."
The issuance of the 2008B Bonds shall not directly, indirectly or contingently obligate the City to levy
or pledge any form of taxation or to make any appropriation for their payment. The 2008B Bonds are not
secured by a legal or equitable pledge of, or lien or charge upon, any property of the City or any of its income
or receipts except the Trust Estate pledged therefor pursuant to the Indenture. Neither the faith and credit
nor the taxing power of the City, the State or any other public agency is pledged to the payment of the
principal of, premium, if any, or interest on the 2008B Bonds. The 2008B Bonds do not constitute a debt,
liability or obligation of the State or any public agency (other than the special obligation of the City as
provided in the Indenture).
Debt Service Reserve Fund
Pursuant to the Indenture, the Debt Service Reserve Fund is required to be maintained in an amount equal
to the Debt Service Reserve Requirement. Amounts on deposit in the Debt Service Reserve Fund will be applied to
make up any deficiency in any account of the Debt Service Fund for the payment when due of principal or
Redemption Price of or interest on the Bonds issued under the Indenture, including the 2008B Bonds. See
"SECURITY AND SOURCES OF PAYMENT — Debt Service Reserve Fund" herein.
Continuing Disclosure
The City has covenanted for the benefit of the holders and beneficial owners of the 2008B Bonds to
provide certain financial information and operating data relating to the Electric System by not later than 180 days
following the end of the City's fiscal year (which currently begins on July 1 and ends on June 30 of each year (a
"Fiscal Year")) (the "Annual Report"), commencing with the Annual Report for Fiscal Year 2007-08, and to provide
notices of the occurrence of certain enumerated events, if material. See "CONTINUING DISCLOSURE" herein.
These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange
Commission Rule 15c2-12. The City has not failed to comply in any material respect with the terms of any prior
continuing disclosure undertaking. See APPENDIX E — "FORM OF CONTINUING DISCLOSURE
AGREEMENT" hereto.
Other Matters
The summaries of and references to all documents, statutes, reports and other instruments referred to herein
do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its
entirety by reference to each document, statute, report or instrument. The capitalization of any word not
conventionally capitalized or otherwise defined herein indicates that such word is defined in a particular agreement
or other document and, as used herein, has the meaning given to it in such agreement or document.
Attached to this Official Statement are summaries of certain provisions of the Indenture. Copies of the
Indenture are available for inspection at the offices of the Trustee, and copies of the Indenture will be provided by
the Trustee upon request and payment of duplication costs.
2
OHS West:260528796.1
PLAN OF FINANCE
The portion of the net proceeds of the 2008B Bonds not applied to the costs of issuance of the 2008B
Bonds or funding the Debt Service Reserve Fund will be applied to financing the Costs of certain Capital
Improvements to the City's Electric System. As the City has paid the costs of these facilities from the Light and
Power Fund, the proceeds of the 2008B Bonds will be used to reimburse the Electric System. See "ESTIMATED
SOURCES AND USES OF FUNDS."
ESTIMATED SOURCES AND USES OF FUNDS
The estimated sources and uses of funds with respect to the 2008B Bonds as described under "PLAN OF
FINANCE" is set forth below.
SOURCES:
Principal amount of 2008B Bonds $[PAR AMOUNT]
[Original Issue Discount A
TOTAL SOURCES: $
USES:
Reimbursement to Light and Power Fund
Debt Service Reserve Fund
Underwriter's Discount
Costs of Issuance (2)
TOTAL USES:
Amounts to reimburse the Electric System for prior payment of costs of Capital Improvements to the
distribution facilities of the Electric System. See "PLAN OF FINANCE."
(2) Includes legal fees, fees of the Trustee, rating agency fees, financial and consulting fees, printing costs and
other expenses in connection with the issuance of the 2008B Bonds.
THE 2008B BONDS
The following is a summary of certain provisions of the 2008B Bonds. Reference is made to the 2008B
Bonds for the complete text thereof and to the Indenture for a more detailed description of such provisions. The
discussion herein is qualified by such reference. See APPENDIX B — "SUMMARY OF CERTAIN PROVISIONS
OF THE INDENTURE."
General
The 2008B Bonds will be issued in the aggregate principal amounts, will bear interest at the rates and will
mature in the years and amounts all as set forth on the cover page of this Official Statement. The 2008B Bonds will
be issued in denominations of $5,000 or any integral multiple thereof. The 2008B Bonds will be dated and shall
bear interest from their date of original issuance. Interest on the 2008B Bonds will be payable on each 1
and 1, commencing 1, 2009. The 2008B Bonds will be registered in the name of Cede & Co.,
the nominee of The Depository Trust Company, New York, New York ("DTC"), and held in DTC's book -entry
system. So long as the 2008B Bonds are held in the book -entry system, DTC or its nominee will be the registered
owner of the 2008B Bonds for all purposes of the Indenture. For purposes of this Official Statement, DTC or its
nominee, and its successors and assigns, are referred to as the "Securities Depository." So long as the 2008B Bonds
are held in book -entry form through DTC, all payments with respect to principal of, premium, if any, and interest on
each 2008B Bond will be made pursuant to DTC's rules and procedures. See APPENDIX C — "BOOK -ENTRY
ONLY SYSTEM" hereto.
Redemption of 2008B Bonds
Optional Redemption. The 2008B Bonds are subject to redemption prior to their respective stated
maturities, at the option of the City and from any source of available funds, as a whole or in part on any date (by
OHS West:260528796.1
such maturities as may be specified by the City and by lot within a maturity), at a Redemption Price equal to the
Make Whole Redemption Price.
"Make Whole Redemption Price" means a redemption price equal to the greater of (i) one hundred percent
(100%) of the principal amount of the 2008B Bonds to be redeemed; or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest on the 2008B Bonds to be redeemed (exclusive of interest
accrued to the date fixed for redemption) discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 12.5 basis points), plus in each case,
accrued and unpaid interest on the 2008B Bonds being redeemed to the date fixed for redemption.
"Comparable Treasury Issue" means, with respect to any redemption date for a particular 2008B Bond, the
US Treasury security or securities selected by the Independent Investment Banker which has an actual or
interpolated maturity comparable to the remaining average life of the applicable 2008B Bond to be redeemed, and
that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of
comparable maturity to the remaining average life of the 2008B Bond to be redeemed.
"Comparable Treasury Price" means, with respect to any redemption date for a 2008B Bond, (1) the
average of the Reference Treasury Deal Quotations for such redemption date, after excluding the highest and lowest
Reference Treasury Deal Quotations, or (2) if the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Independent Investment Banker" means that Reference Treasury Dealer appointed as such by the City.
"Reference Treasury Dealer" means RBC Capital Markets Corporation and its successor and three other
firms, specified by the City from time to time, that are primary U.S. Government securities dealers in the City of
New York (each a "Primary Treasury Dealer"); provided, however, that if any of them ceases to be a Primary
Treasury Dealer, the City will substitute another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any
redemption date for a particular 2008B Bond, the average, as determined by the Trustee, of the bid and asked prices
for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing
to the Trustee by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day
preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date for a particular 2008B Bond, the rate per
annum equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury
Issue, assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the
Comparable Treasury Price.
Mandatory Sinking Fund Redemption. The 2008B Bonds maturing on 1, 20_ are subject to
redemption in part prior to their stated maturity date from mandatory sinking fund payments on each 1 on
or after 1, 20_, at a Redemption Price equal to the principal amount of the 2008B Bonds of such
maturity to be redeemed without premium, in the amounts and on the dates set forth below:
Sinking Fund Principal Amount
Redemption Date to be
Redeemed
* Maturity
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OHS West:260528796.1
Notice of Redemption. The Trustee is to give notice of the redemption of any 2008B Bonds by first class
mail, postage prepaid, not more than sixty (60) nor less than thirty (30) days before the redemption date to the
Owners of any 2008B Bonds to be redeemed (in whole or in part) at their addresses appearing in the Bond Register.
Such notice shall specify the maturity date of the 2008B Bonds to be redeemed, the redemption date and the place or
places where amounts due upon such redemption shall be payable and, if less than all of the 2008B Bonds of any
like maturity are to be redeemed, the letters and numbers or other distinguishing marks of such 2008B Bonds so to
be redeemed, and, in the case of 2008B Bonds to be redeemed in part only, such notice shall also specify the
respective portions of the principal amount thereof to be redeemed. Such notice is to further state that on such date
there shall become due and payable upon each 2008B Bond to be redeemed the Redemption Price thereof, or the
Redemption Price of the specified portions of the principal amount thereof to be redeemed in the case of 2008B
Bonds to be redeemed in part only, and that from and after such date interest on such 2008B Bond or the portion of
such 2008B Bond to be redeemed shall cease to accrue and be payable.
Receipt of such notice shall not be a condition precedent to the redemption of 2008B Bonds and failure of
any Owner of a 2008B Bond to receive any such notice or any insubstantial defect in such notice shall not affect the
validity of the proceedings for the redemption of 2008B Bonds.
In the event that funds required to pay the Redemption Price of 2008B Bonds are not on deposit with the
Trustee at the time the notice with respect to any redemption of 2008B Bonds at the option of the City is given, such
notice shall state that such redemption is conditional upon the receipt by the Trustee, on or prior to the date fixed for
such redemption, of moneys sufficient to pay the Redemption Price of the 2008B Bonds to be redeemed, and that if
such moneys shall not have been so received said notice shall be of no force and effect and the City shall not be
required to redeem such 2008B Bonds. In the event a notice of redemption of 2008B Bonds contains such a
condition and such moneys are not so received, the redemption of 2008B Bonds as described in the conditional
notice of redemption shall not be made and the Trustee, within a reasonable time after the date on which such
redemption was to occur, is to give notice to the persons and in the manner in which the notice of redemption was
given that such moneys were not so received and that there shall be no redemption of 2008B Bonds pursuant to the
conditional notice of redemption.
Effect of Redemption. Notice of redemption having been given and moneys for the payment of the
Redemption Price being held by the Trustee, the 2008B Bonds so called for redemption will on the date fixed for
redemption designated in such notice, become due and payable at the Redemption Price specified in such notice,
interest on the 2008B Bonds to be redeemed will cease to accrue, said Bonds shall cease to be entitled to any lien,
benefit or security under the Indenture and the Owners thereof will have no rights except to receive payment of the
Redemption Price of and unpaid interest, if any, accrued to the date fixed for redemption on the 2008B Bonds.
Selection of 2008E Bonds to be Redeemed. Whenever provision is made in the Indenture for the
redemption of less than all of the 2008B Bonds of a maturity, the Trustee shall select the 2008B Bonds to be
redeemed from all 2008B Bonds of such maturity subject to redemption and not previously called for redemption,
by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair.
SECURITY AND SOURCES OF PAYMENT
Pledge Effected by the Indenture
The 2008B Bonds are special obligations of the City. The principal and Redemption Price of and interest
on the 2008B Bonds are payable solely from the Net Revenues, amounts in the Light and Power Fund other than the
Operating Reserve, and the amounts in the Funds, other than the Rebate Fund, held by the Trustee under the
Indenture.
The payment of the principal and Redemption Price of and interest on the 2008B Bonds is secured by a
pledge of the Trust Estate under the Indenture. The Trust Estate consists of (i) the Revenues, (ii) all amounts on
deposit in the Light and Power Fund, including the investments, if any, thereof, and (iii) all amounts on deposit in
the Funds, other than the Rebate Fund, held by the Trustee under the Indenture, including the investments, if any,
thereof. The pledge of the Trust Estate in the Indenture is subject to the provisions of the Indenture permitting the
application thereof for the purposes and on the terms and conditions set forth therein.
OHS West:260528796.1
The 2008B Bonds and any other Bonds issued under the Indenture are equally and ratably secured by the
pledge of the Trust Estate pursuant to the Indenture. The 2008B Bonds and any other Bonds issued under the
Indenture are equally and ratably payable from the Net Revenues, amounts in the Light and Power Fund other than
the Operating Reserve, and amounts held in the Funds, other than the Rebate Fund, held by the Trustee under the
Indenture. The City may issue Parity Obligations which are secured by a pledge of the Revenues and amounts in the
Light and Power Fund on a parity with the Bonds and payable from the Net Revenues and amounts in the Light and
Power Fund other than the Operating Reserve on a parity with the Bonds.
"Revenues" includes all gross income and revenue received or receivable by the City from the ownership
or operation of the Electric System, including all rates and charges for the Electric Service and the other services and
facilities of the Electric System, all proceeds of insurance covering business interruption loss relating to the Electric
System and all other income and revenue howsoever derived by the City from the ownership or operation of the
Electric System or otherwise arising from the Electric System, including all net receipts pursuant to Public Finance
Contracts entered into in connection with any Obligations or program of investments relating to the Electric System
and all income from the deposit or investment of any money in the Light and Power Fund, but excluding
(i) proceeds of taxes, (ii) refundable deposits made to establish credit, (iii) advances or contributions in aid of
construction and (iv) line extension fees.
"Net Revenues" is defined in the Indenture to mean, for any period of time, "Revenues" for such period
less Operation and Maintenance Expenses for such period.
"Operation and Maintenance Expenses" is defined in the Indenture to mean the costs paid or incurred by
the City for operating and maintaining the Electric System including, but not limited to (a) all costs of electric
energy and power generated or purchased by the City for resale, costs of transmission, fuel supply and water supply
in connection with the foregoing; (b) all costs and expenses of management of the Electric System; (c) all costs and
expenses of maintenance and repair, and other expenses necessary or appropriate in the judgment of the City to
maintain and preserve the Electric System in good repair and working order; (d) all administrative costs of the
several departments of the City that are charged directly or apportioned to the operation or maintenance of the
Electric System, such as salaries and wages (including retirement benefits) of employees, overhead, taxes (if any)
and insurance premiums; (e) payments in -lieu of taxes to any public agency other than the City in connection with
the Electric System, (0 all costs, expenses and charges of the City required to be paid by it to comply with the terms
of any Issuing Instrument authorizing the issuance of Parity Obligations, such as compensation, reimbursement and
indemnification of the trustee, or fees and expenses of Independent Certified Public Accountants, Independent
Engineers and other consultants; (g) the fees, expenses and indemnification of Credit Providers and Reserve
Financial Guaranty Providers; (h) all amounts required to be paid by the City under contracts with joint powers
agencies for the purchase of capacity rights in an electric generating station or electric transmission facilities,
transmission capability or any other commodity right or service in connection with the Electric System, which
contracts require payments to be made by the City thereunder to be treated as operation and maintenance expenses
of the Electric System; (i) all deposits to be made to a rebate fund established with respect to Parity Obligations to
provide for any required rebate to the United States required to maintain the Tax -Exempt status of interest on such
Parity Obligations; 0) any cost or expense paid by the City to comply with requirements of law applicable to the
Electric System or the City's ownership or operation thereof or in any capacity with respect thereto or any activity in
connection therewith, including without limitation the public benefit uses required by Section 385 of the California
Public Utilities Code; and (k) any other costs or expense which, in accordance with Generally Accepted Accounting
Principles, is to be treated as a cost of operating or maintaining the Electric System; but excluding in all cases
depreciation, replacement and obsolescence charges or reserves therefor, amortization of intangibles, Franchise
Payments to the City and Unrealized Items. Except as provided in clause (d) of this paragraph, no transfer of
Revenues to the City, including Franchise Payments, shall constitute an Operation and Maintenance Expense.
"Operating Reserve" means, as of any date of calculation, an amount in the Light and Power Fund equal to
the amount contained in the then current Budget for Operations and Maintenance Expenses for the four months next
succeeding the month in which the date of calculation occurs.
"Obligations" is defined in the Indenture to include (a) obligations with respect to borrowed money and
includes bonds, notes or other evidences of indebtedness, installment purchase payments under any contract, and
lease payments under any financing or capital lease (determined to be such in accordance with Generally Accepted
OHS West:260528796.1
Accounting Principles), which are payable from the Net Revenues and/or amounts in the Light and Power Fund;
(b) obligations to replenish any debt service reserve fund with respect to obligations of the City described in (a)
above; (c) obligations under a Public Finance Contract payable from the Net Revenues and/or amounts in the Light
and Power Fund; and (d) Credit Provider Reimbursement Obligations.
"Public Finance Contract" is defined in the Indenture to mean (i) any contract providing for payments
based on levels of, or changes in, interest rates, currency exchange rates, stock or other indices, (ii) any contract to
exchange cash flows or a series of payments, or (iii) any contract to hedge payment, currency, rate spread or similar
exposure, including but not limited to interest, any interest rate swap agreement, currency swap agreement, forward
payment conversion agreement or futures contract, any contract providing for payments based on levels of, or
changes in, interest rates, currency exchange rates, stock or other indices, any contract to exchange cash flows or a
series of payments, or any contract, including, without limitation, an interest rate floor or cap, or an option, put or
call, to hedge payment, currency, rate, spread or similar exposure, between the City and a counterparty.
For definitions of certain other terms used herein, see APPENDIX B — "SUMMARY OF CERTAIN
PROVISIONS OF THE INDENTURE" herein.
The issuance of the 2008B Bonds shall not directly, indirectly or contingently obligate the City to levy
or pledge any form of taxation or to make any appropriation for their payment. The 2008B Bonds are not
secured by a legal or equitable pledge of, or lien or charge upon, any property of the City or any of its income
or receipts except the Trust Estate pledged pursuant to the Indenture which is subject to the provisions of the
Indenture permitting the application thereof for the purposes and on the terms and conditions set forth
therein. Neither the faith and credit nor the taxing power of the City, the State or any other public agency is
pledged to the payment of the principal of, or premium, if any, or interest on, the 2008B Bonds. The 2008B
Bonds do not constitute a debt, liability or obligation of the State or any public agency (other than the special
obligation of the City as provided in the Indenture). The members of the City Council of the City, and the
officers and employees of the City, shall not be individually liable on the 2008B Bonds or in respect of any
undertakings by the City under the Indenture.
Deposit and Application of Revenues
Pursuant to the Indenture, the City is to deposit or cause to be deposited all Revenues into the Light and
Power Fund upon receipt thereof. Without limiting the provisions of the Indenture regarding investment of certain
funds, the City is to apply the Revenues for each Fiscal Year, as received, first to the payment of Operation and
Maintenance Expenses then due and payable, and then to the payment of amounts required to be paid with respect to
Debt Service on, and reserves for, the Bonds and other Parity Obligations. The City may then apply any remaining
Revenues to any lawful purpose in connection with the Electric System, including the payment of amounts required
to be paid with respect to Subordinate Obligations, the payment of Costs of Capital Improvements and, to the extent
permitted by the Indenture, to transfers to the City's General Fund.
Payments to Trustee for Bonds
During each Fiscal Year the City shall pay the Trustee, from the Net Revenues of such Fiscal Year, the
following amounts at the following times:
(a) on the fourth Business Day prior to each Interest Payment Date for any Outstanding Bonds, an
amount equal to the interest payable on the Outstanding Bonds on such Interest Payment Date; provided, however,
that such payments shall be reduced by any available amounts on deposit in the Interest Account which are to be
applied to such upcoming interest payment;
(b) on the fourth Business Day prior to each date on which the principal of Outstanding Bonds which
are Serial Obligations mature, an amount equal to the principal of such Outstanding Bonds maturing on such date;
provided, however, that such payments shall be reduced by any available amounts on deposit in the Principal
Account which are to be applied to the upcoming principal payment;
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OHS West:260528796.1
(c) on the fourth Business Day prior to each Sinking Fund Installment due date for Outstanding Bonds
which are Term Obligations, an amount equal to the Sinking Fund Installments due with respect to all Outstanding
Bonds which are Term Obligations on such Sinking Fund Installment due date; provided, however, that such
payments shall be reduced by any available amounts on deposit in the Sinking Fund Account which are to be applied
to the redemption or payment of such Bonds on such Sinking Fund Installment due date and by the amount by which
the City's obligations to make payments with respect to such Sinking Fund Installments have been satisfied pursuant
to the Indenture;
(d) at least one Business Day prior to each date fixed for the redemption of Outstanding Bonds (other
than from Sinking Fund Installments and other than an optional redemption of Bonds as to which a conditional
notice of redemption has been sent to the Owners pursuant to the Indenture), an amount equal to the Redemption
Price of the Bonds to be redeemed;
(e) on the date on which the principal of or interest on any Outstanding Bond becomes due and
payable, other than as provided in (a) through (d) above, the City shall pay an amount in funds which are
immediately available to the Trustee by 10:00 a.m. (Pacific Time) on the due date, equal to the principal of and
interest on the Outstanding Bonds due on such date;
(f) in the event that on any date upon which the City is to make a payment pursuant to paragraphs (a),
(b), (c), (d), and/or (e) above and the amount of Net Revenues and the amount in the Light and Power Fund
available therefor in accordance with the Indenture is not sufficient to make such payment and any payment required
to be made on such date with respect to the principal and redemption premium of and interest on other Parity
Obligations (including, with respect to transactions under Qualified Swap Agreements, the Net Payments due), then
the City shall apply the Net Revenues and amounts in the Light and Power Fund available therefor in accordance
with the Indenture to the payments required by paragraphs (a), (b), (c), (d), and/or (e) above and such payments with
respect to the other Parity Obligations ratably (based on the respective amounts to be paid), without any
discrimination or preferences;
(g) on each Debt Service Reserve Valuation Date, the City shall pay an amount for deposit in the Debt
Service Reserve Fund, such that, after the deposit, the amount on deposit in such Fund shall be at least equal to the
Debt Service Reserve Requirement, including the amount of any Reserve Financial Guaranties on deposit in the
Debt Service Reserve Fund;
(h) in the event that on any date upon which the City is to make a payment pursuant to paragraph (g)
above and the amount of Net Revenues and the amount in the Light and Power Fund available therefor in
accordance with the Indenture is not sufficient to make such payment and any payment required to be made on such
date with respect debt service reserves for Parity Obligations, then the City, after making the payments required by
paragraphs (a), (b), (c), (d), (e), and (f) above, shall apply the Net Revenues and amounts in the Light and Power
Fund available therefor in accordance with the Indenture to the payments required by paragraph (g) above and such
payments with respect to debt service reserves for Parity Obligations ratably (based on the respective amounts to be
paid), without any discrimination or preferences;
(i) in the event that on any date all payments required to be made pursuant to the preceding
paragraphs are not made in full from Net Revenues, then the City shall make up any deficiency from amounts in the
Light and Power Fund after setting aside in the Light and Power Fund an amount equal to the Operating Reserve;
and
(j) in the event that on any date all payments required to be made pursuant to the preceding
paragraphs are not made in full, then no payment shall be made which has a priority pursuant to the preceding
paragraphs lower than the delinquent payment until all delinquent payments with a higher priority have been made
in full
OHS West:260528796.1
Rate Covenant
Pursuant to the Indenture, the City has covenanted, at all times, to fix, prescribe and collect rates and
charges for the Electric Service of the Electric System during each Fiscal Year which shall be at least sufficient to
yield: (a) Adjusted Revenues for such Fiscal Year at least equal to the sum of the following for such Fiscal Year:
(i) Operation and Maintenance Expenses; (ii) Adjusted Debt Service, and (iii) all other payments required to be paid
in such Fiscal Year to meet any other obligations of the City which are charges, liens or encumbrances upon or
payable from the Revenues (including Net Revenues), including all amounts owed to a Credit Provider under the
terms of its Credit Support Agreement and amounts owed to a Reserve Financial Guaranty Provider under the terms
of its Reserve Financial Guaranty; and (b) Adjusted Revenues less Operation and Maintenance Expenses for such
Fiscal Year equal to at least one hundred ten percent (110%) of Adjusted Debt Service for such Fiscal Year.
"Adjusted Revenues" is defined in the Indenture to mean, for any period of time, the Revenues for such
period less the amount of such Revenues which have been deposited in the Expense Stabilization Fund plus the
amount of withdrawals during such period from the Expense Stabilization Fund.
"Adjusted Debt Service" is defined in the Indenture to mean, for any period of time, the Debt Service for
such period minus the sum of the amount of such Debt Service with respect to Outstanding Parity Obligations to be
paid during such period from the proceeds of Parity Obligations or Subordinate Obligations as set forth in a
certificate of the City.
Debt Service Reserve Fund
The Debt Service Reserve Fund is required to be maintained in an amount equal to the Debt Service
Reserve Requirement. Upon the issuance of the 2008B Bonds, there will be deposited into the Debt Service Reserve
Fund from the proceeds of the 2008B Bonds an amount equal to the Debt Service Reserve Requirement upon the
issuance of the 2008B Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS." Amounts in the Debt
Service Reserve Fund are to be used to pay principal and Redemption Price of and interest on the Bonds then due
and payable in the event of any insufficiency in the amount or deposit in the Debt Service Fund available therefor.
Pursuant to the Indenture, in lieu of the required deposits and transfers of money to the Debt Service
Reserve Fund, the City may cause to be deposited in the Debt Service Reserve Fund a Reserve Financial Guaranty
or Guaranties in an amount equal to the difference between the Debt Service Reserve Requirement and the sums, if
any, then on deposit in the Debt Service Reserve Fund or being deposited in such fund concurrently with such
Reserve Financial Guaranty or Guaranties.
"Reserve Financial Guaranty" is defined in the Indenture to mean a policy of municipal bond insurance or
surety bond issued by a municipal bond insurer or a letter of credit issued by a bank or other institution if the
obligations insured by such insurer or issued by such bank or other institution, as the case may be, have ratings at the
time of issuance of such policy or surety bond or letter of credit in the highest rating category (without regard to
qualifiers) by S&P and Moody's and, if rated by A.M. Best & Company, also in the highest rating category (without
regard to qualifiers) by A.M. Best & Company.
Expense Stabilization Fund
Moneys may be deposited in the Expense Stabilization Fund in such amounts, at such times and from such
sources as shall be determined by the City in its sole discretion. Moneys on deposit in the Expense Stabilization
Fund may be withdrawn by the City at any time no Event of Default exists under the Indenture and applied to any
lawful purpose in connection with the Electric System, including without limitation, payment of Operation and
Maintenance Expenses, payment of Debt Service on the Bonds or Parity Obligations, payment of principal or
premium or interest on Subordinate Obligations, payment of costs of Capital Improvements, payment of the costs of
issuance of Parity Obligations or Subordinate Obligations; provided, however, that if an Event of Default under the
Indenture shall have occurred and is continuing, the Trustee shall transfer all moneys in the Expense Stabilization
Fund to the Interest Account and the Principal Account of the Debt Service Fund as provided in the Indenture.
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OHS West:260528796.1
Outstanding Parity Obligations
Upon the issuance of the 2008B Bonds, the 2008A Bonds, the 2008B Bonds and net payments due under
certain interest rate swap transactions will be the only Parity Obligations of the City payable from the Electric
System Net Revenues or amounts in the Light and Power Fund. For a description of other obligations of the City
payable from Electric System Revenues, including certain "take -or -pay" obligations payable as Operation and
Maintenance Expenses, see "THE ELECTRIC SYSTEM — Revenue Obligations."
Additional Parity Obligations
The City has covenanted pursuant to the Indenture that it shall not issue any bond, note, or other evidence
of indebtedness payable from or secured by the Trust Estate or any part thereof on a basis which is: (i) in any
manner prior or superior to the lien on, pledge of and security interest in the Trust Estate securing the Outstanding
Bonds pursuant to the Indenture; or (ii) except for Parity Obligations with respect to the Revenues and amounts in
the Light and Power Fund, in any manner on a parity with the lien on, pledge of and security interest in the
Revenues and amounts in the Light and Power Fund Trust Estate securing the Outstanding Bonds pursuant to the
Indenture. Nothing in the Indenture shall prevent the City from issuing Subordinate Obligations.
Pursuant to the Indenture, the City may, at any time and from time to time, issue any Additional Parity
Obligations, provided the City obtains or provides either:
(a) a certificate or certificates, prepared by the City or at the City's option by an Independent
Engineer, showing: (i) that the Adjusted Net Revenues for the applicable Calculation Period, which Calculation
Period shall be selected by the City in its sole discretion, shall have amounted to at least 1.25 times the Maximum
Adjusted Annual Debt Service on all Parity Obligations to be Outstanding immediately after the issuance of the
proposed Additional Parity Obligations; and (ii) that the Net Revenues for such applicable Calculation Period shall
have amounted to at least 1.00 times the Maximum Adjusted Annual Debt Service on all Parity Obligations to be
Outstanding immediately after the issuance of the proposed Additional Parity Obligations; or
(b) a certificate or certificates, prepared by the City or at the City's option by an Independent
Engineer, showing: (i) that the projected Adjusted Net Revenues during each of the five complete Fiscal Years
beginning with the first Fiscal Year following the issuance of such Parity Obligations in which interest thereon is not
capitalized, in whole or in part, from the proceeds of Parity Obligations or Subordinate Obligations, shall have
amounted to at least 1.25 times the Maximum Adjusted Annual Debt Service on all Parity Obligations to be
Outstanding during such Fiscal Years; and (ii) that the projected Net Revenues during each of the five complete
Fiscal Years beginning with the first Fiscal Year following the issuance of such Parity Obligations in which interest
thereon is not capitalized, in whole or in part, from the proceeds of Parity Obligations or Subordinate Obligations,
shall have amounted to at least 1.00 times the Maximum Adjusted Annual Debt Service on all Parity Obligations to
be Outstanding during such Fiscal Years.
For purposes of preparing such certificate or certificates, the City and any Independent Engineer shall
utilize and rely on financial statements prepared by the City which have been audited by an Independent Certified
Public Accountant but may utilize and rely upon the books and records of the City or any unaudited financial
statements prepared by the City if audited financial statements for the particular Calculation Period selected by the
City are not available.
Notwithstanding the foregoing (and without satisfying the revenue tests above), the City may at any time
but subject to the applicable requirements of the Indenture: (i) issue or enter into an obligation or commitment
which is a Qualified Swap Agreement; (ii) issue Refunding Parity Obligations, provided that the Aggregate
Adjusted Annual Debt Service for all Parity Obligations to be Outstanding after the issuance of such Refunding
Parity Obligations, shall not exceed the Aggregate Adjusted Annual Debt Service for all Parity Obligations
Outstanding immediately prior to the issuance of such Refunding Parity Obligations in each Fiscal Year from the
date of issuance of such Refunding Parity Obligations to the last Fiscal Year in which any Parity Obligations
Outstanding immediately prior to and subsequent to the issuance of such Refunding Parity Obligations are scheduled
to remain Outstanding; and (iii) enter into Credit Support Instruments or otherwise become obligated for Credit
Provider Reimbursement Obligations with respect to Parity Obligations.
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OHS West:260528796.1
See APPENDIX B — "SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE" for the
definition of certain terms used above, including the definition of "Debt Service Adjustments and Assumptions" to
be used for purposes of determining Aggregate Adjusted Annual Debt Service and Maximum Adjusted Annual Debt
Service.
Transfers to General Fund
The City covenants in the Indenture not to transfer Net Revenues for any Fiscal Year to the City's General
Fund, including the Franchise Payment, in an amount exceeding the Net Transferable Income for such Fiscal Year,
which amount shall be determined at the end of such Fiscal Year; provided that so long as an Event of Default has
occurred and is continuing under the Indenture, the City shall not transfer any Net Transferable Income to the City's
General Fund.
Limitations on Remedies
The rights of the Owners of the 2008B Bonds are subject to the limitations on legal remedies against cities
in the State. Additionally, enforceability of the rights and remedies of the Owners of the 2008B Bonds, and the
obligations incurred by the City, may become subject to the following: the Federal Bankruptcy Code and applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of
creditor's rights generally, now or hereafter in effect; 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 Constitution; and the reasonable and necessary exercise, in appropriate situations, of the police powers inherent
in the sovereignty of the State and its governmental bodies in the interest of serving 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 2008B Bonds to judicial discretion and interpretation of their rights in bankruptcy or
otherwise, and consequently may entail risks of delay, limitation, or modification of their rights.
THE ELECTRIC SYSTEM
General
The City established its Electric System in 1933 through the acquisition of the existing electric distribution
system within the City and the construction of a diesel generating station at Station A (located at 2715 East 50th
Street, Vernon, California) ("Station A"). The City operates the Electric System through its Light and Power
Department with all revenues of the Electric System being credited to, and all expenses of the Electric System being
payable from, the Light and Power Fund. The Electric System serves all electric users within the City. In keeping
with the character of the City, the Electric System serves primarily industrial and commercial customers. During the
Fiscal Year ended June 30, 2008, the Electric System served 1,959 customers, supplied approximately 1,232 million
kWhs of electric energy and had a peak demand of approximately 206 megawatts ("MWs"). See "THE ELECTRIC
SYSTEM — Retail Energy Sales" below.
Service Area
The City's service area encompasses the entire approximately 5.2 square miles of the City. The City is
located in Los Angeles County, approximately four miles southeast of downtown Los Angeles. The City was
established in 1905 with a view of promoting industrial activity. There are approximately 1,800 companies doing
business in the City employing more than 50,000 persons. The City is almost exclusively industrial, with an
estimated resident population of approximately 110 as of January 1, 2008.
The City is a developed industrial rail city, with major railroads, including Union Pacific ("UP") and the
Burlington Northern Santa Fe (`BNSF"), running through it. Part of the City's northern border is formed by some
of the country's largest intermodal freight yards operated by UP and the BNSF. These 200-acre rail facilities handle
1.5 million containers and trucks on flatcars per year heading for domestic and world markets. The City's location
next to major railroads and its proximity to the 10, 710, 5 and 105 highways, allows the City's businesses to
manufacture and ship products in a cost effective and efficient manner.
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City Plan to Optimize Resource Utilization
Historically, the City supplied only a modest portion of its customers' load requirements from its own
generation resources. The Electric System relied first on a partial requirements wholesale power contract with the
Southern California Edison Company ("Edison") and then on a combination of wholesale power contracts. See
"Power Supply Resources" below. Due to changes in the California electric industry such as the now -abandoned
deregulation of the California electric energy markets, unprecbdented volatility of energy prices in 2000-2001 and
the blackouts and power interruptions due to inadequate supplies of electric energy, the City determined it was in the
best interests of its mostly industrial and commercial customers to establish a significant generation resource
connected directly to the City's distribution system. This would mitigate any dependence on imported energy to
maintain electric service within the City without exposing the Electric System to overdependence on a single source
of power. The City constructed the Malburg Generating Station (the "MGS"), a 120 MW base load, 134 MW full
load combined cycle electric generation plant located at Station A designed to provide approximately 60% of the
City's then expected requirements for base load electric power. The MGS commenced commercial operation in
October 2005 and, except for a period of equipment repair, has been operating as a base load generation resource for
the City since such date. See "Power Supply Resources — Malburg Generating Station — Operation of Facility to
Date."
After the commencement of commercial operation of the MGS, the City reviewed its portfolio of Electric
System resources in light of the City's ultimate objective in having the Electric System serve as part of the economic
stabilization and development program for its industrial and commercial customer base. The City had already
commenced a program of acquiring and realigning properties within the City to assemble parcels of land consistent
with the requirements of prospective industrial and commercial customers. In addition, the City continued its
program of providing superior municipal services to support both existing and new industrial and commercial
residents such as fire and police services, community health services and infrastructure improvements. The City
also studied options to optimize the benefits of the existing Electric System resources and to serve projected Electric
System requirements in light of the current state of, and anticipated developments in, the California electric markets.
After reviewing the available alternatives, the City determined to sell virtually all of its major transmission
assets and rely on the California transmission system controlled by the California Independent System Operator
("CAISO") to provide for transmission of energy imported into the City. The City determined that private
ownership and operation of the MGS, with the City retaining the rights to the capacity and energy of the facility,
provided the City with a resource base that was consistent with its original plan for significant "behind the meter"
generation with less operational risk than City ownership, while affording the City an opportunity to fund a portion
of its economic development program.
Implementation of Resource Optimization Plan
On April 10, 2008, pursuant to the Amended and Restated Purchase and Sale Agreement, dated as of
December 13, 2007, between the City and Bicent (California) Power LLC ("Bicent"), an affiliate of Bicent Holdings
and Natural Gas Partners, the City sold the MGS to Bicent in a cash transaction.
Bicent has assigned its rights and obligations with respect to the MGS to its affiliate, Bicent (California)
Malburg LLC, a Delaware limited liability company (`BCM"). BCM has sold the capacity and the energy of the
MGS to the City pursuant to the Power Purchase Tolling Agreement, dated as of April 10, 2008 (the "PPTA" ). See
"Power Supply Resources — Malburg Generating Station — Power Purchase Tolling Agreement." In addition, Bicent
(California) Hoover LLC, a Delaware limited liability company (`BCH"), an affiliate of Bicent, has acquired the
benefits and burdens of the City's interest in the Hoover Uprating Project (described below) on the terms set forth in
the Hoover Contract for Differences, dated as of April 10, 2008 (the "Hoover Contract for Differences"), between
BCH and the City. See "Power Supply Resources — Hoover Uprating Program — Hoover Contract, for Differences.
In a separate transaction, pursuant to a Purchase and Sale Agreement (the "TANC Agreement"), dated
September 28, 2007, between the City and the Transmission Agency of Northern California ("TANC"), the City
sold TANC its interest in the California Oregon Transmission Project. Additionally, in a separate transaction, the
City sold its interests in the Mead-Adelanto Transmission Project and the Mead -Phoenix Transmission Project
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pursuant to a Purchase and Sale Agreement (the "Starwood Agreement"), dated as of December 13, 2007, between
the City and Starwood Energy Infrastructure Fund, L.P.
The proceeds from the sale of the Electric System assets described above have been used to redeem all then
outstanding Electric System revenue bonds, provide funds for economic development in the City, increase the
Electric System's cash reserves and to fund a portion of the Debt Service Reserve Requirement for the Authority's
Variable Rate Revenue Bonds (Vernon Gas Project), 2006 Series A, 2006 Series B and 2006 Series C (the "2006
Authority Bonds"). A portion of such Electric System reserves are expected to be applied to payment due under the
PPTA during the first four years of the contract.
After the completion of the transmission facility sales described above, the City no longer receives
Transmission Revenue Requirements ("TRR") relating to such assets. The City continues to receive TRR associated
with existing transmission service contracts with Edison and the Department of Water and Power of the City of Los
Angeles ("LADWP").
As more fully described below, the Electric System continues to include ownership interests or capacity
rights in other electric facilities and the interconnection and distribution system within the boundaries of the City.
Management
The Electric System is operated and maintained through the City's Light and Power Department which is
governed by the City Council. The Light and Power Department is managed by the Director of Light and Power
whose duties include overseeing the operation and maintenance of the Electric System's generation, transmission
and distribution facilities, metering, power purchasing, scheduling, billing and settlements. The Director of Light
and Power reports to the City Administrator. The Director of Light and Power is also responsible for the
management of the City's Gas System.
City Officials
The current members of the City Council are as follows:
Leonis C. Malburg, Mayor, was first elected to the City Council in 1956 and was first appointed as Mayor
in 1974. Mr. Malburg was born in the City and is the grandson of the City's founding father, John B. Leonis.
Hilario Gonzales, Mayor Pro Tempore, was first appointed to the City Council in 1974 and has been a
resident of the City since 1952.
William J. Davis, Council Member, was first elected to the City Council in 1981. Mr. Davis was born in
Manila, Philippines and came to the United States in 1969. Prior to retiring, Mr. Davis worked at Edison.
W. Michael McCormick, Council Member, was first elected to the City Council in 1974 and has been a
resident of the City since 1969. Prior to retiring, Mr. McCormick worked at the Safeway meat processing plant in
the City.
Thomas A. Ybarra, Council Member, was first elected to the City Council in 1966. After serving with the
U.S. Army's 20th Infantry Regiment of the 6th Infantry Division in Korea, Mr. Ybarra worked for the American
Can Company in the City for over 30 years.
Eric T. Fresch, City Administrator, was appointed to this office in November, 2006. Previously Mr. Fresch
served as the City Attorney from November, 2003 to January, 2007 and prior to that time Mr. Fresch served as
outside counsel to the City's Light & Power Department on various matters, including the licensing and financing of
electric generating stations. Mr. Fresch graduated from the University of California at Los Angeles (UCLA), Magna
Cum Laude, with a degree in Economics in 1976, completed the Masters of Science program in Industrial
Organization with First Honors at the UCLA Graduate School of Management in 1977 and received a Juris Doctor
of Laws Degree from the University of San Diego School of Law in 1980.
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Light and Power Executive Management
The following are brief resumes of the senior Light and Power Department management personnel whom
are responsible for Electric System operations.
Donal O'Callaghan, the Director of Light and Power, and Gas Departments, provides overall direction,
structure, conduct, control and reporting of the Electric System and the Gas System. Prior to joining the City in
March, 2005, Mr. O'Callaghan was employed by the City of Santa Clara as a Project Manager assigned to the Pico
Power Project, 154 MW combined cycle power plant. In addition, Mr. O'Callaghan has held positions in various
locations throughout North America as a Project Manager for several companies including NEPCO/ENRON and S
& B Engineers in which he was responsible for management of the construction and operation of several power
plants. Mr. O'Callaghan received a Bachelor of Science Degree from the University of Ulster, Jordanstown in 1981
and is a member of the Mechanical Engineers Institute and the Chartered Engineers Institute. Mr. O'Callaghan has
27 years of global experience in the power industry including engineering, power generation, transmission,
distribution, operations, commissioning/startup, facility and projects management.
Peter Hervish is the Technical Services Manager of the Light and Power Department responsible for
engineering and operations support. Mr. Hervish has over 29 years of experience in the power industry spanning all
facets of power plant engineering and maintenance. Prior to joining the City in April 2005, Mr. Hervish held several
positions at Progress Energy, Inc., including Manager of Plant Maintenance and Construction Projects and Lead
Engineer. Prior to his tenure at Progress Energy, Mr. Hervish held several positions at what is now
Siemens/Westinghouse Power Corporation and at Foster -Wheeler Corporation, including Site Installation and
Commissioning Manager, Consortium Site Manager, Project Manager Latin America and Senior Plant Thermal
Systems Engineer. Mr. Hervish holds a Bachelor of Science degree and a Masters degree from the State University
of New York. During his tenure at Siemens/Westinghouse and Foster -Wheeler, Mr. Hervish was granted several
patents and published a number of articles on engineering and plant maintenance/operations.
Carlos Fandino is the Transmission and Distribution Operations and Maintenance Manager of the Light and
Power Department. Mr. Fandino has over 17 years of experience in the Light and Power Department and is
responsible for the day-to-day operations of the electric transmission and distribution facilities. Mr. Fandino holds a
Bachelor of Science Degree in Engineering from the University of Woodbury, magna cum laude.
Krishna Nand has been the Environmental Compliance Manager for the Light and Power Department since
March 2005. Dr. Nand has over 40 years of experience in the area of environmental impacts and permit compliance.
Prior to joining the City, Dr. Nand worked for 20 years at Parsons Engineering, Inc. where he achieved the position
of Senior Project Manager. While at Parsons Engineering, Inc., Dr. Nand was the Application for Certification
Project Manager for the MGS as well as the repowering projects at the Haynes Electrical Generating Station and the
Valley Electrical Generation Station of the Los Angeles Department of Water and Power and for the Glenarm
Electrical Generation Station of the City of Pasadena Water and Power Department. Dr. Nand holds a Masters of
Science and a PhD in Physics, as well as a Bachelor of Science in Physics, Chemistry, and Mathematics, from the
University of Lucknow, India.
Power Supply Resources
General
The Electric System's current power supply resources consist of. (i) the PPTA; (ii) a long-term power
purchase contract with the Southern California Public Power Authority ("SCPPA') with respect to a portion of
SCPPA's interest in the Palo Verde Nuclear Generating Station ("PVNGS"); (iii) the Contract for Electric Services
(the "CES") with the United States Department of Energy -Western Area Power Association ("Western") with
respect to the Hoover Uprating Project; (iv) two small gas generating units (the "H. Gonzales Generating Station")
at Station A used for reserve purposes; and (v) a long-term contract with American Electric Power. The City also
owns the Johnson & Heinz Diesel Plant consisting of five diesel generator units installed in 1933, which is currently
used only for emergency purposes. The PPTA, the power purchase contract with SCPPA for PVNGS, the CES and
the H. Gonzales Generating Station are collectively referred to as the "Committed Resources." For the Fiscal Year
ended June 30, 2008, the Committed Resources provided approximately 48% of the energy supplied by the Electric
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System. The City expects to provide for the Electric System's load requirements not supplied by the Committed
Resources through power purchases.
The power supply resources of the Electric System for the past five Fiscal Years are described in the
following table.
[Remainder of Page Intentionally Left Blank]
CITY OF VERNON
ELECTRIC SYSTEM
POWER SUPPLY RESOURCES
Fiscal Year Ended June 30
2004
2005
2006
2007
2008
Short -Term Contracts
Actual Energy
376,996
401,460
522,181
438,270
664,941
Percentage of Total Energy
28.15%
29.33%
32.54%
25.86%
37.66%
Long -Term Contracts (2)
Actual Energy
857,600
868,000
356,000
245,600
245,600
Percentage of Total Energy
64.04%
63.42%
22.18%
14.49%
13.91%
SCPPA Palo Verde
Actual Energy
78,785
79,168
65,888
81,260
77,017
Percentage of Total Energy
5.88%
5.78%
4.11%
4.79%
4.36%
Hoover Uprating
Actual Energy
25,752
20,004
24,993
24,732
24,061
Percentage of Total Energy
1.92%
1.46%
1.56%
1.46%
1.36%
MGS and other City -Owned
Generation(3)
Actual Energy(4)
0
0
635,782
904,839
754,108
Percentage of Total Energy
0.00%
0.00%
39.62%
53.39%
42.71%
Total Energy
1,339,133
1,368,632
1,604,844
1,694,701
1,765,727
(t) Term of less than one year.
(2) Term of one year or longer.
(3) As discussed above in the caption "Implementation of Resource Optimization Plan," the City has sold the MGS
and entered into a long term contract with the purchaser for 100% of the output from the Station. See "THE
ELECTRIC SYSTEM — Power Supply Resources — Malburg Generating Station —Power Purchase Tolling
Agreement" below. In addition, there was a reduction in actual energy due to a shutdown commencing in
September, 2007. See "THE ELECTRIC SYSTEM — Power Supply Resources — Malburg Generating Station —
Operation of Facility to Date" below.
(4) Megawatt hours ("MWhs").
Malburg Generating Station
Power Purchase Tolling Agreement. Pursuant to the PPTA, the City acquired all of the capacity and
energy of the MGS for a fifteen year term. The term can be extended by Bicent for an additional five years. The
City will dispatch the MGS and will be the Scheduling Coordinator for the transmission of MGS energy over the
CAISO — controlled transmission grid. The City has the right to designate a portion of the MGS capacity and
associated energy to provide resource adequacy for the Electric System and ancillary services.
The City is to pay a fixed capacity charge under the PPTA based on the per kilowatt demonstrated capacity
of the MGS. The fixed capacity payments escalate over the term of the PPTA. The amount of MGS capacity on
which the capacity payments are based is subject to periodic testing and adjustment. If the MGS is not available for
specified hours during specified times of the year, the amount of the capacity payment is reduced.
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The City is to pay a fixed amount (subject to escalation) for each MWh of electricity produced by MGS. In
addition, a change in the heat rate of MGS from the standards specified in the PPTA trigger an adjustment to the
energy charge. If the heat rate improves, BCM will be entitled to additional payments from the City. If the heat rate
deteriorates, the City will be entitled to payments from BCM.
The City will be responsible for supplying the MGS with natural gas. Because the 2006 Authority Bonds
bear tax-exempt interest, since the sale of the MGS to Bicent the City has not used the Gas Supply as fuel for the
MGS. Instead, the City has been selling the monthly deliveries of the Gas Supply in spot market transactions and
using the proceeds to purchase electricity to serve load not met by City -owned facilities, the MGS or power
purchase contracts in existence when the 2006 Authority Bonds were issued. The City has been providing natural
gas as fuel for the MGS primarily through spot market purchases. The City continues to monitor the market for
natural gas and may, in the future, enter into contracts for the purchase of natural gas for the MGS if the City
determines the terms of such contracts are beneficial to the City. In connection with its purchase of natural gas, the
City has established the Fuel Cost Adjustment Billing Factor (the "FCABF") to pass through to customers increased
costs related to fuel. See "Electric Rates."
To the extent the City fails to provide sufficient natural gas for operation of the MGS, BCM will be
excused from providing energy from the MGS in response to dispatched notices from the City. Except as otherwise
provided in the PPTA with respect to scheduled outages and events of force majeure, in the event a dispatch notice
to deliver energy cannot be met by the MGS, BCM may provide substitute energy. The amount of substitute energy
is limited by California law to 15% of the total contracted energy under the PPTA. In the event BCM cannot satisfy
a dispatch notice to provide energy either from MGS or with substitute energy, then BCM is obligated to pay the
City the costs of replacement energy in accordance with the PPTA.
Scheduled outages are limited to three hundred thirty-six hours in any contract year except for major
overhauls which permit additional hours of scheduled outage. No scheduled outage is permitted from June 1
through October 31 of each year. BCM has covenanted in the PPTA to operate, inspect, maintain and repair the
MGS in accordance with applicable law, required permits and good utility practices.
A party's obligation to perform pursuant to the PPTA, other than the obligation to make payments, are to
be suspended when such performance is prevented by an event of force majeure. If the party cannot resume
performance within six months due to the event of force majeure, the other party may terminate the PPTA with no
payment obligation other than for accrued amounts.
The PPTA limits the amount of BCM's debts secured by a security interest in, or mortgage on, the MGS.
The City has a security interest in and mortgage on the MGS to secure amounts owed to it under the PPTA. The
City's security interest and mortgage is subordinate to the security interest and mortgage granted by BCM to lenders
in connection with its financing of the purchase of the MGS. Under the PPTA, BCM is to take the actions specified
in the PPTA to establish and continue the City's security interest in, and mortgage on, the MGS.
Events of default under the PPTA applicable to both parties are: a failure to make a payment due
thereunder within ten days of notice; any materially false or misleading representation or warranty; unexcused
failure to perform a material covenant or obligation (other than those constituting a separate event of default) within
fifteen days of notice; a bankruptcy event (as defined in the PPTA); or a merger, transfer of assets or consolidation
occurs and the resulting surviving or transferee entity fails to assume obligations under the PPTA to the satisfaction
of the other party. Events of default under the PPTA with respect to BCM are to be: unless otherwise excused
under the PPTA, failure of MGS to maintain capacity at specified a level for a specified time; failure to provide
required credit support; BCM sells, or enters into a contract to sell, capacity or energy of the MGS to an entity other
than the City; or BCM assigns the PPTA in violation of its terms. Upon the occurrence of an event of default, the
non -defaulting party can designate an early termination date for the PPTA with all events of default other than a
failure to pay amounts due under the PPTA or a bankruptcy event requiring an opportunity to cure. If an early
termination date for the PPTA is established, the defaulting party is to pay the other party its economic loss, if any,
as a result of such termination plus costs.
Description of Facility. The MGS is a 120 MW base load/134 MW full load combined cycle, natural gas -
fired, electric power plant located at Station A. The MGS achieved commercial operation in October 2005. The
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MGS includes two Siemens (formerly Alstom) GTXI00 natural gas -fired combustion turbine generators ("CTGs")
known as Malburg Units 1 and 2. Hot exhaust gases from the CTGs are directed to two parallel heat recovery steam
generators ("HRSGs"). Steam from the HRSGs are directed to a steam turbine generator ("STG") known as
Malburg Unit 3. The HRSGs include duct burners to increase steam output and achieve higher levels of power
output from the steam, turbine in selected modes of operation. The CTGs are each equipped with an evaporative
inlet air cooler/filter to cool combustion turbine inlet air and achieve higher levels of power from the CTGs in
selected modes of operation. The exhaust gases from each HRSG are released to the atmosphere through a 110-foot
high stack. Each CTG and the STG are separate electric generators. Each generator, rated at 13.2 kilo -volts
("Ws"), is connected to the existing 66 kV bus at the Vernon Substation, located at Station A, through three
separate 13.2/66 kV generator step up transformers.
Operation of Facility to Date. The City has been operating the MGS since commercial operation
commenced in 2005. Except for a 71 day shutdown commencing in September, 2007 due to equipment failure, the
facility has operated consistently as a baseload plant within warranted heat rates and emissions. The cost of
repairing the MGS equipment and the cost of replacement power were covered by warranties and the City's
insurance policies. In the Fiscal Year ended June 30, 2008, the MGS provided 754,108 MWhs of energy to the City.
As described under "Implementation of Resource Optimization Plan," the City has sold the MGS to Bicent, but
retains the rights to the capacity and energy of the facility for a fifteen year term pursuant to the PPTA.
SCPPA Palo Verde Nuclear Generating Station Interest
General. PVNGS is located approximately 50 miles west of Phoenix, Arizona. PVNGS consists of three
nuclear electric generating units (numbered 1, 2 and 3), with a design electrical rating of 1,333 MWs (unit 1), 1,336
MWs (unit 2) and 1,269 MWs (unit 3). PVNGS's combined dependable capacity is 3,872 MWs and its combined
maximum capacity is 3,938 MWs. Each PVNGS generating unit is designed for a 40-year life and operates under
40-year Full -Power Operating Licenses from the Nuclear Regulatory Commission (the "NRC") expiring in 2024,
2025 and 2027, respectively. Arizona Public Service Company ("APS") is the operating agent for PVNGS. After
the construction and maintenance discussed below is complete, the PVNGS generating units will have a design
electrical rating of 3,938 MWs and a combined dependable capacity of 3,872 MWs. SCPPA is a joint action agency
in which the City participates. SCPPA has a 5.91% ownership share in the PVNGS. The City has a 4.90%
generation entitlement interest in SCPPA's ownership share in PVNGS through the City's "take -or -pay" power
contract with SCPPA (totaling approximately 11 MWs of dependable capacity). Co -owners of PVNGS include
APS; the Salt River Project Agricultural Improvement and Power District, a political subdivision of the State of
Arizona, (the "Salt River Project"); Edison; El Paso Electric Company; Public Service Company of New Mexico;
SCPPA; and the City of Los Angeles. For the Fiscal Year ended June 30, 2008, PVNGS provided over 77,000
MWhs of energy to the Electric System.
Nuclear Regulatory Commission Inspection. Beginning in 2005, PVNGS experienced increased problems
with equipment reliability and plant availability resulting in increased scrutiny by the Nuclear Regulatory
Commission (the "NRC"). In October 2006, the NRC conducted an inspection of the PVNGS emergency diesel
generators after PVNGS Unit 3 generator started, but did not provide electrical output during routine inspections.
On February 22, 2007, the NRC issued a "white" finding (low to moderate safety significance) for this matter.
Under the NRC's Action Matrix, this finding, coupled with a previous NRC "yellow" fmding relating to a 2004
matter involving PVNGS's safety injection systems, resulted in PVNGS Unit 3 being placed in the
"multiple/repetitive degraded cornerstone column of the NRC's Action Matrix ("Column 4"), which has resulted in
an enhanced NRC inspection regime. Although only PVNGS Unit 3 is in NRC's Column 4, in order to adequately
assess the need for improvements, the management of APS advised that it has been conducting site -wide
assessments of equipment and operations.
Preliminary work in support of the NRC's enhanced inspection regime took place throughout the summer
of 2007. On June 21, 2007, the NRC issued an initial confirmatory action letter confirming the commitments of
APS regarding specific actions it is to take to improve PVNGS's performance. In'2007, a team of NRC inspectors
performed on -site in-depth inspections of PVNGS's equipment and operations. The NRC's inspection results were
documented in an NRC letter to APS dated February 1, 2008 (the "Inspection Report"). The Inspection Report
indicated that the facility is being operated safely, but also identified certain performance deficiencies. On
December 31, 2007, APS submitted its improvement plan to the NRC, which addresses issues identified by the
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management of APS during its site -wide assessments of equipment and operations that occurred during 2007. The
NRC reviewed the adequacy of this improvement plan and issued a revised confirmatory action letter on
February 15, 2008 that outlines the actions APS must take in order for the NRC to return the PVNGS site to the
NRC's routine inspection and assessment process.
A comprehensive recovery plan, the Site Integrated Improvement Plan, has been developed at PVNGS to
identify changes to be made in various aspects of operations, including in the areas of management, leadership,
personnel, engineering processes, work planning, work backlog reduction, equipment performance, safety, training,
emergency preparedness and human performance. The management of APS has advised that full implementation of
the plan will take several years but initial steps are underway, including organizational changes in management and
the hiring of additional experts and engineers. The NRC will continue to provide increased oversight at PVNGS
until the facility demonstrates sustained performance improvement.
Construction and Maintenance. As a result of stress corrosion cracking, the owners of PVNGS approved
the replacement of two steam generators in each of its generating units, to provide for the continued use of the units
to the end of their projected 40-year life. In 2003, generating unit 2 underwent a replacement of steam generators
and low-pressure turbine rotors, which resulted in an increase in power output of 68 MWs. In 2005, generating unit
1 underwent a similar replacement, which resulted in an increase in power output of 71 MWs. The steam generators
for generating unit 3 also experienced stress corrosion cracking and are expected to be replaced together with the
low-pressure turbine rotors in 2008. A power output increase similar to generating units 1 and 2 is expected. Due to
anticipated cracks, the PVNGS owners approved the replacement of the reactor vessel heads in all three generating
units beginning in 2009. In February 2007, the NRC increased the monitoring of PVNGS by placing it into
Category 4 of regulation for nuclear power units, making it one of the most monitored nuclear power plants in the
United States. The decision was made after the NRC discovered that electrical relays in a diesel generator did not
function during tests in July and September of 2006. Management and operational changes are being implemented
at PVNGS.
l
PVNGS's cooling water reservoirs and evaporation ponds show significant degradation. Such degradation,
if not remedied, could allow liquid discharge in violation of PVNGS's aquifer protection permit and thereby impact
the continuous operation of PVNGS. PVNGS constructed a new water reservoir and put it into service in 2007. The
owners of PVNGS have approved the relining of the prior cooling water reservoir and relining is in progress. The
current evaporation ponds are almost full and the owners of PVNGS have approved the construction of a new
evaporation pond, which is required to expand capacity for the storage of waste water.
The City is responsible for its share of the costs of all the items described above.
Decommissioning Costs. Without extension of the operating licenses, the PVNGS generating units will be
decommissioned shortly after the operating licenses expire. The owners of PVNGS have created external trusts in
accordance with the PVNGS participation agreement and NRC requirements to fund the costs of decommissioning
PVNGS. Based on a 2007 estimate, which is the most recent estimate of decommissioning costs, the City estimates
that its share of the amount required for decommissioning PVNGS is 100% funded. Such estimates are based on
certain assumptions as to decommissioning costs and investment returns. No assurance or guarantee can be given
that anticipated investment will be sufficient to fully fund the City's share of decommissioning PVNGS costs.
Nuclear Waste Storage and Disposal. Generally, federal and state efforts to provide adequate interim and
long-term storage facilities for low-level and high-level nuclear waste have proven unsuccessful to date. Although
federal and state efforts continue with respect to such storage and disposal facilities, the City is not able to predict
the schedule for the permanent disposal of radioactive wastes generated at PVNGS. APS, which currently stores
spent nuclear fuel in on -site pools near the units, has advised the City (through SCPPA) that until a permanent
repository for high-level nuclear waste becomes available, additional on -site spent fuel storage is required by using
dry casks similar to those currently used at 18 other nuclear plants. Since the spent fuel pools ran out of storage
capacity, an Independent Spent Fuel Storage Installation was built to provide additional spent fuel storage at the site
while awaiting permanent disposal at a federally developed facility. The installation uses dry cask storage and was
designed to accept all spent fuel generated by PVNGS during its lifetime. As of June 30, 2007, 54 casks, each
containing 24 spent fuel assemblies, have been put into storage in the Independent Spent Fuel Storage Installation.
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APS ships all of its low-level radioactive waste to available disposal sites in Utah and South Carolina. In
August 1995, a storage facility for low-level radioactive materials was opened at PVNGS to allow temporary on -site
storage in case the disposal sites are not available. APS estimates that the storage facility has sufficient storage
capacity to store up to nine years of low-level radioactive waste produced at PVNGS and that it could be expanded
to allow for additional storage of low-level waste until the end of operation of PVNGS.
Hoover Uprating Program
General. The City participated in the Hoover Uprating Project. The Hoover Uprating Project consists
principally of the uprating of the capacity of 17 generating units at the hydroelectric power plant (the "Hoover
Plant") of the Hoover Dam, located approximately 25 miles from Las Vegas, Nevada. Modern insulation
technology made it possible to "uprate" the nameplate capacity of the existing generators. The U.S. Bureau of
Reclamation (the "Bureau") owns and operates the Hoover Dam facility and Western markets the power from the
facility. Purusant to the CES with Western, the City made an upfront payment for its share of the construction cost
of the Hoover Uprating Project, is entitled to approximately 22 MWs of capacity (calculated based on 1.1 % of 1,951
MWs of total contingent capacity) and 28,000 MWhs of associated energy annually from the Hoover Uprating
Project through 2017. The City is responsible for its share of the operating costs of the facility.
Drought Conditions. Due to recent drought conditions and low lake levels, the City's capacity entitlement
at the Hoover Plant was reduced to 17 MWs (calculated based on 1.1% of 1,546 MWs available capacity.)
Environmental Considerations. The lower Colorado River has been included in a critical Habitat
Designated Area which required the Bureau of Reclamation to prepare and file with the United States Fish and
Wildlife Service a Biological Assessment on the effect of its operations of the lower Colorado River on endangered
species therein. Thereafter, the United States Fish and Wildlife Service issued a Biological and Conference Opinion
regarding the Bureau of Reclamation's operations and outlined remedial actions to be taken to correct adverse
effects to endangered species. Such remedial actions could affect the operation of the Hoover Plant, which would in
turn affect the Hoover Plant customers, such as the City. The City believes that any effect on future operations will
be minor; however there is a possibility that a "worst -case" scenario could reduce the Hoover Plant customers'
available capacity from the Hoover Plant by approximately 75%. The Hoover Plant customers, such as the City,
together with certain other parties, are working on a plan in cooperation with the Bureau of Reclamation and the
United States Fish and Wildlife Service to mitigate operational scenarios that would negatively affect the Hoover
Plant customers and the other parties.
Hoover Contract for Differences. At the time of the closing of the sale of the MGS (See "Implementation
of Resource Optimization Plan"), the City entered into the Hoover Contract for Differences with BCH. The Hoover
Contract for Differences generally provides for the City's swapping the economic benefits and burdens under the
CES for fixed energy and capacity payments. For each month through September 2017, a monthly payment (the
"Monthly Swap Payment") is to be determined. The Monthly Swap Payment is calculated by netting the City
payments for capacity and energy under the CES for the month against specified fixed (subject to escalation) energy
and capacity prices. To such netted amount certain credits under the CES are added and certain payments under the
CES are subtracted. If the resulting Monthly Swap Payment is a positive number, the City is to pay this amount to
BCH. If the resulting Monthly Swap Payment is a negative number, BCH is to pay the absolute value of this
amount to the City.
Payments under the Hoover Contract for Differences are to be made monthly as Operation and
Maintenance Expenses of the Electric System and amounts due from each of the parties under the Hoover Contract
for Differences for any month are to be netted against each other.
Events of default under the Hoover Contract for Differences applicable to both parties are: a failure to
make a payment due thereunder within ten days of notice; any materially false or misleading representation or
warranty; unexcused failure to perform a material covenant or obligation (other than those constituting a separate
event of default) within fifteen days of notice; a bankruptcy event (as defined in the Hoover Contract for
Differences); or a merger, transfer of assets or consolidation occurs and the resulting surviving or transferee entity
fails to assume obligations under the Hoover Contract for Differences to the satisfaction of the other party. Events
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of default under the Hoover Contract for Differences with respect to City are to be: a termination of the CES by the
City or a termination of the CES due to a default or any other action by the City.
Upon the occurrence of an event of default, the non -defaulting party can designate an early termination date
for the Hoover Contract for Differences with all events of default other than a failure to pay amounts due under the
Hoover Contract for Differences or a bankruptcy event requiring an opportunity to cure. If an early termination date
for the Hoover Contract for Differences is established, the non -defaulting party is to calculate an amount equal to the
present value of its loss or gain (exclusive of costs) resulting from the termination of the Hoover Contract for
Differences. Any such loss (plus costs) is to be paid by the defaulting party to the non -defaulting party. Any such
gain (less costs) is to be paid by the non -defaulting party to the defaulting party.
If the CES is terminated by Western other than as a result of a default or other action by the City, the
Hoover Contract for Differences will automatically terminate and no payments by either party will be due as a result
of such termination.
Power Purchase Agreements
Long -Term Power Contracts. The City has one fixed -price contract with American Electric Power for the
purchase of power for the on -peak period. The amount of power to be delivered under such contract decreases over
time from 50 MWs on -peak at the beginning of calendar year 2008 to 25 MWs on -peak by the end of calendar year
2010. This contract is in the form of the Western Systems Power Pool power purchase agreement.
Short -Term Power Contracts. The City expects to provide power for the Electric System's load
requirements that are not met from its own resources (including MGS power purchased pursuant to the PPTA) or
from the long-term power purchase contract described above through short-term power purchases. The cost of
power under such contracts will vary depending on then existing market conditions, which can be affected by a
number of factors.
Reserve Generating Facilities
H. Gonzales Generating Station. The City owns the H. Gonzales Generating Station consisting of two gas
turbine units located at Station A with each unit having a net capacity of 5.5 MWs. The two units are used for
peaking purposes and are not expected to be used more than 500 hours per year. Each of the units are restricted to
run on natural gas for no more than six hours per day.
Johnson & Heinz Diesel Plant. The City owns the Johnson & Heinz Diesel Plant consisting of five diesel
generator units installed in 1933. Each unit has a net capacity of 3.5 MWs for a total net capacity for the plant of
17.5 MWs. One of the units is currently inoperable. The other four units are currently used only for emergency
purposes. These units operate very few hours per year with an operational restriction of 199 hours each per year.
The Johnson & Heinz Diesel Plant is located at the City's existing Station A.
Renewable Energy Resources
In accordance with State law, the City has adopted renewable energy resource goals for the Electric System
which provide that a portion of the Electric System's power resources will be supplied by renewable energy. [As
Proposition 7, a State initiative statute was approved at the November 4, 2008 election, a percentage of the Electric
System's resource portfolio is now required to made up of renewable energy resources. See the discussion of
Proposition 7 under "Recent Developments Affecting the Power Supply — Resource Mix."] As of August 1, 2008,
the City did not own any renewable energy resources or have any renewable energy purchase contracts. The City is
pursuing a number of initiatives to satisfy its renewable energy resource goals and any required renewable portfolio
standard, including the purchase of renewable energy from projects to be developed. While no assurances can be
given that any of these initiatives will be successful, the City intends to take the necessary steps to satisfy its
renewable energy resource goals and any required renewable portfolio standard.
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Southeast Region Energy Project
The City, through its Industrial Development Department, is pursuing the necessary licenses and permits
for an approximately 900 MW natural gas fired combined cycle gas turbine known as the Southeast Region Energy
Project which would be located on an approximately 13.7 acre site within the City. No Electric System funds have
been expended for this project and the City does not intend to finance the facility with funds of the Electric System.
While the City may purchase a portion of the energy produced by the project, the project is designed as a regional
facility to serve other utilities as well. The Southeast Region Energy Project is still in the preliminary stages of
development and no assurance can be given that the project will be constructed.
Interconnection and Distribution Facilities
The Electric System is interconnected with the Edison system at the Laguna Bell substation. The City
owns the facilities within the City limits for the interconnection of the Electric System with the Edison system and
the distribution of electric power. The distribution facilities include approximately 30 miles of 66kV power lines (of
which approximately 5% are underground), and approximately 125 miles of 7kV power lines (of which
approximately 15% are underground). The Electric System has eight active primary substations, three of which are
dedicated customer substations and five are regular distribution substations. The City is implementing a multi -year
Electric System Distribution System Master Plan to replace older facilities and to upgrade the distribution system.
See "THE ELECTRIC SYSTEM - Capital Requirements."
The City currently operates and maintains the Electric System facilities located within the City, except that
Petrelli Electric Inc. currently maintains the City's electric distribution system under contract with the City.
Recent Developments Affecting the Power Supply
The City relied on power purchase contracts to provide over 50% of the energy delivered by the Electric
System in the Fiscal Year ended June 30, 2008. While the City has sold the MGS, it has entered into the PPTA for
the purchase of the output of the MGS. See "Power Supply Resources — Malburg Generating Station." The City
anticipates relying on new power purchase contracts to provide for current load and any growth in its customer load
not met by Committed Resources. A number of actions have recently been taken by government officials and
regulators which have an impact on the amount of power the City must have available to have resource adequacy
and the nature of generation resources which the City must include in its resource base. Certain elements of these
actions are described below.
Resource Adequacy
On February 9, 2006, the CAISO filed with FERC its Market Redesign and Technology Upgrade
("MRTU") tariff amendment to implement a comprehensive overhaul of the electricity markets administered by the
CAISO. The programs under the MRTU initiative are designed to implement market improvements to assure grid
reliability, more efficient and cost-effective use of resources, and to create technology upgrades that would
strengthen the entire CAISO computer system. The redesigned California energy market under the MRTU is
expected to include the following new features, among others, which are not part of the current CAISO real-time
only market:
(a) An integrated forward market for energy, ancillary services and congestion management that
operates on a day -ahead basis;
(b) Congestion management that represents all network transmission constraints;
(c) CRRs to allow market participants to manage their costs of transmission congestion;
(d) Local energy prices by price nodes (approximately 3,000 nodes in total), also known as locational
marginal pricing; and
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(e) New market rules and penalties to prevent gaming and illegal manipulation of the market as well
as modifications to certain existing market rules.
The MRTU was scheduled for implementation on March 31, 2008 and has been delayed until [later in
2008]. Power will be scheduled on a nodal basis, rather than the current zonal system, which will aid in grid
reliability and congestion management. Furthermore, the MRTU will incorporate the CPUC's resource adequacy
requirements to ensure that there are adequate energy resources in critical areas.
The MRTU requires that all scheduling coordinators for all load -serving entities ("LSEs"), which include
the City, meet standards concerning forward capacity and energy procurements to meet their load requirements. On
September 21, 2006, FERC issued an order conditionally accepting the CAISO's MRTU filing.
In September 2005, the Governor signed into law AB-380, which requires the California Public Utilities
Commission (the "CPUC") to establish resource adequacy requirements for all LSEs within the CPUC's
jurisdiction. Municipally -owned utilities such as the City's Electric System, were not included in AB-380. In
addition, AB-380 requires publicly -owned utilities to procure adequate resources to meet their peak demands and
reserves. In October 2005, the CPUC issued a decision stating that LSEs under its jurisdiction would be required,
by June 2006, to demonstrate that they have acquired capacity sufficient to serve their forecast retail customer load
plus a 15-17% reserve margin.
On March 13, 2006, CAISO filed with FERC a tariff amendment to establish an Interim Reliability
Requirements Program (the "IRR Program"). The IRR Program incorporates the CPUC's resource adequacy
requirements into the CAISO Tariff and maintains these requirements until the MRTU Tariff amendment is
implemented. The CAISO's FERC filing would impose the IRR Program requirements on LSEs that are not CPUC
jurisdictional entities such as the City. On May 12, 2006, FERC approved, for the most part, the CAISO's IRR
Program filing.
The City is unable at this time to predict the impact of these filings and decisions on the City and the
California electric utility industry generally. However, due to system requirements, a systematic regular planning
process to meet these requirements, and successful implementation of a strategic resource plan, the City believes it
has sufficient power resources to satisfy the system capacity requirements as required by MRTU, AB-380 and the
IRR Program.
Resource Mix
SB-1368 (Chapter 598, Statutes of 2006) provides for a restriction on the negotiation of contracts with
potential baseload fossil fuel electric generating resources that exceed the rate of emissions for greenhouse gases for
existing combined -cycle natural gas baseload generation and seeks to allow the California State Energy Resources
and Conservation Development Commission, commonly known as the California Energy Commission (the "CEC"),
to establish a regulatory framework, necessary to enforce the greenhouse gas emission performance standard for
publicly -owned utilities. The CEC adopted regulations establishing the same standards as were adopted by the
CPUC with respect to California's investor -owned utilities (the "IOUs") under SB-1368.
SB-1037 (Chapter366, Statutes of 2005) requires that each publicly owned electric utility prior to
procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and
renewable resources that are cost effective, reliable and feasible. SB-1037 also requires each municipal electric
utility to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction
programs.
SB-1078 (Chapter 516, Statutes of 2002) requires that the California IOUs adopt a renewables portfolio
standard ("RPS") to meet a minimum of 1% of retail energy sales needs each year from renewable resources and to
meet a goal of 20% of their retail energy needs from renewable energy resources by the year 2017. SB-107
(described below) advances this date to 2010. SB-1078 also directed the State's municipal electric utilities to
implement and enforce a RPS that recognizes the intent of the Legislature to encourage development of renewable
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resources, taking into consideration the impact of a utility's standard on rates, reliability, financial resources, and the
goal of environmental improvement. The City has adopted an RPS as required by SB-1078.
SB-107 (Chapter 464, Statutes of 2006) accelerates the State's RPS to require retail sellers of electricity
(excluding municipal utilities) to procure at least 20% of their retail sales from renewable power by 2010 instead of
2017. Municipal utilities are requested by the legislation to similarly accelerate their RPS goals.
Since the implementation of SB-1078, the CPUC and the CEC have taken a number of actions that have
had an impact on the renewable energy goals set by the legislation. These actions seek primarily to accelerate the
time line for meeting the renewable resource development goals and to provide additional standards for future
extension of the goals. In order to overcome the challenges associated with meeting accelerated renewable portfolio
goals, the CPUC and the CEC supported the implementation of a renewable energy certificate trading system to
meet the accelerated renewable portfolio goals, but that system is not yet in effect. Proceedings at the CPUC are in
progress that are investigating the potential use of tradable renewable energy certificates for use by Community
Choice Aggregators and Energy Service Providers in order to facilitate meeting the accelerated renewable portfolio
goal. Pursuant to SB-1078, the CEC collaboratively with the Western Governors' Association and the Western
Electricity Coordinating Council has undertaken the development and establishment of the Western Renewable
Energy Generation Information System, which will be used to ensure the integrity of renewable energy certificates
and prevent the double counting of the certificates. The tracking system has been operational since late 2007.
AB-2021 (Chapter 734, Statutes of 2006) is intended to enable the State to meet its goal of reducing total
forecasted electrical consumption by 10% over the next ten years. AB-2021 requires municipal electric utilities on
or before September 30, 2007 and by June 1 of every third year thereafter, to identify all potentially achievable cost-
effective electricity efficiency savings and to establish annual targets for energy efficiency savings and demand
reduction over the next 10 years and to report those targets to the CEC within 60 days of adoption. In accordance
with AB-2021, the City adopted energy efficiency "goals" or targets.
SB-1 (Chapter 132, Statutes of 2006) (also known as the "California Solar Initiative") requires municipal
utilities to establish a program supporting the stated goal of the legislation to install 3,000 MWs of photovoltaic
energy in California. Municipal utilities are also required to establish eligibility criteria in collaboration with the
CEC for the funding of solar energy systems receiving ratepayer funded incentives, which would be established
through a public process no later than January 1, 2008. The City established its energy efficiency and solar
photovoltaic program and goals in accordance with the California Solar Initiative. The legislation gives a municipal
utility the choice of selecting an incentive based on the installed capacity, starting at $2.80 per watt, or based on the
energy produced by the solar energy system, measured in kilowatt-hours. Incentives would be required to decrease
at a minimum average rate of 7% per year. Municipal utilities also have to meet certain reporting requirements
regarding the installed capacity, number of installed systems, number of applicants, and awarded incentives.
On July 11, 2008, the Environmental Protection Agency (the "EPA") issued an Advanced Notice of
Proposed Rulemaking (the "ANPR") requesting public comment on whether and how the EPA should regulate
emissions of greenhouse gases using its authority under the Clean Air Act. This proposal is in response to the
United States Supreme Court's 2007 decision in Massachusetts v. EPA, which found that the EPA had the authority
to regulate carbon dioxide as a pollutant under the Clean Air Act and directed the EPA to determine whether
greenhouse gases may reasonably be anticipated to endanger public health or welfare within the meaning of the
Clean Air Act. The ANPR makes no finding as to whether greenhouse gases pose a threat to human health or
welfare. Instead, the ANPR lays out numerous suggestions for reducing greenhouse gases from automobiles, ships,
trains, power plants, factories and refineries. No assurance can be given as to whether any regulation will be issued
by the EPA as a result of the ANPR or that any regulations that are issued in connection with greenhouse gases will
not have an adverse effect on the operations or financial condition of the Electric System.
[ASSUMES PROP 7 PASSES: Proposition 7 is a California initiative State statute which passed in the
November 4, 2008 election and provides for wide-ranging changes in connection with the RPS initiated by AB-32
(described below). Proposition 7, among other things, amends the RPS of AB-32 by increasing the renewable
energy requirement to 40% in 2020 and 50% in 2025 and requires California utilities to increase their purchase of
electricity generated from renewable resources by 2% annually. Proposition 7 makes such RPS provisions
applicable to publicly -owned utilities such as the Electric System. Proposition 7 also includes requirements to enter
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into renewable energy procurement contracts and penalties for failing to meet the RPS which penalties cannot be
recovered from ratepayers. Proposition 7 gives the CEC authority to enforce the RPS requirements on publicly -
owned utilities, but it is unclear how the provisions against passing on penalties to ratepayers will be applied to
publicly -owned utilities.
The manner of applying many of the provisions of Proposition 7 to publicly -owned utilities is unclear. The
City can give no assurances as to what effect the requirements of Proposition 7, will have on the operations or
financial condition of the Electric System.]
Capital Requirements
The City expects capital requirements for the Electric System for the five Fiscal Years ended June 30, 2013
to aggregate approximately $68.5 million. The capital requirements consist primarily of upgrades, improvements
and extensions of the Electric System's distribution system, switchyards and transmission interconnection facilities.
The City expects to fund these requirements from funds in the Light and Power Fund, but may issue additional
Bonds under the Indenture to pay a portion of the requirements. The following table lists the expected annual
capital requirements for the Electric System for the five Fiscal Years ending June 30, 2009 through 2013:
Fiscal Year
Capital Requirements
Ending June 30
(in thousands)
2009
$20,824
2010
13,619
2011
10,411
2012
4,792
2013
18,902
Total
$68,548
[Remainder of Page Intentionally Left Blank]
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Retail Energy Sales
Customers, Retail Energy Sales Revenues and Demand
The number of customers, retail kWh sales and revenues derived from retail sales, by classification of
service, and peak demand during the five Fiscal Years ended June 30, 2004-2008, are listed below. The City's
customer mix is primarily commercial and industrial with commercial customers comprising 30% and industrial
customers comprising 68% of the total revenues from retail sales.
CITY OF VERNON
ELECTRIC SYSTEM
CUSTOMERS, RETAIL SALES, REVENUES AND DEMAND
Fiscal Years Ended June 30
2004
2005
2006
2007
2008
Number of Customers:
Residential
26
30
29
28
25
Commercial
1,020
995
1,048
1,150
1,174
Industrial
858
837
810
707
676
Other
157
182
161
81
84
Total Customers(l)
2,061
2.044
2,048
1.966
1.959
Kilowatt -Hour Sales (in Millions):
Residential
0.1
0.1
0.1
0.1
0.1
Commercial
280.4
258.2
296.2
331.1
344.4
Industrial
898.5
852.5
848.1
842.3
876.1
Other
12.7
12.8
12.6
11.7
11.4
Total kWh Retail Sales
1.191.7
1.123.E
1,157.0
1.185.2
1.232.0
Revenues from Sale of Retail Energy
($000'8)(2):
Residential $ 7 $ 7 $ 8 $ 8
$ 7
Commercial 24,329 22,955 29,063 29,446
31,978
Industrial 63,838 63,190 65,600 66,751
71,829
Other 891 1,208 1,345 1,206
1,223
Total Revenues from Sale of Energy(3) 89 067 87 360 96 116
1105 037
Peak Retail Demand (MWs) 194.4 195.9 195.1 206.3
206.0
Source: City of Vernon
(1) Some businesses have more than one meter. The City considers each meter to be a customer.
(2) For the Fiscal Year ended June 30, 2008, the numbers are preliminary and based on unaudited City
records.
(3) Excludes 2.85% AB 1890 public benefit surcharge pursuant to Section 385 of the California Public Utilities
Code.
[Remainder of Page Intentionally Left Blank]
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Largest Customers
The Electric System's ten largest customers (by electricity usage) for the Fiscal Year ended June 30, 2008
accounted for approximately 34.6% of the Electric System's energy sales for such period, and the Electric System's
15 largest customers accounted for approximately 41.6% of the Electric System's energy sales for such period. No
single customer accounted for more than approximately 7.6% of the Electric System's energy sales during such
period. The table below sets forth such ten largest customers (by electricity usage) for the Fiscal Year ended June
30, 2008.
CITY OF VERNON
ELECTRIC SYSTEM
TEN LARGEST CUSTOMERS
For Fiscal Year Ended June 30, 2008
In Vernon
Business Name
Since
Type of Business
Matheson Tri-Gas
2006
Air Separation Plant
Owens Illinois Inc.
1944
Glass Containers
Clougherty Packing Co.
1944
Food Processing
Rehrig Pacific Co.
1973
Plastic Products
Overhill Farms, Inc.
1991
Food Processing
Service Packing (United Food Group)
1974
Food Processing
PABCO Paper Products Co.
1957
Building Materials
Exide Techonologies
1964
Environmental Recycling
U.S. Growers Cold Storage, Inc.
1974
Cold Storage
PWP Industries
2001
Plastic Products
Electric Rates
General
The Electric System's retail rates are established by the City Council and are not subject to regulation by
the California Public Utility Commission or any other state agency. See "THE ELECTRIC SYSTEM — Rate
Regulation" herein. The Electric System provides no free service. The retail rates include a 3% surcharge for
payments in lieu of franchise tax ("Franchise Payments") to the City's General Fund and the 2.85% public benefits
surcharge under AB 1890.
Prior to the addition of the AB 1890 public benefits surcharge to the rates in 1998, the rates had not been
adjusted by the City Council since 1984. Since June 30, 2000, the rates have been increased seven times as
indicated in the table below.
CITY OF VERNON
ELECTRIC SYSTEM
PERCENTAGE CHANGE IN
ELECTRIC RATES
Effective Date
December 1, 2007
November 1, 2006
June 1, 2005
November 1, 2003
May 1, 2001
October 1, 2000
July 1, 2000
Average Percent Increase
in Rate
5.00%
5.00
4.70
3.00
19.00
9.75
16.00
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Fuel Cost Adjustment Billing Factor
The Electric System has experienced volatility in the cost of natural gas since the disruption of the
California energy markets in 2001 and 2002, with unusual volatility from 2006 to the present. In response, in 2006,
the City entered into an agreement with the Authority for the purchase of a supply of prepaid natural gas (see "THE
ELECTRIC SYSTEM — Revenue Obligations — Gas Supply Agreement with the Authority"). In addition, the City
has established the FCABF in connection with the cost of natural gas related to power generation and purchases.
The FCABF went into effect on July 1, 2008 and will be added to all retail customer bills based on electrical
consumption. The FCABF, as amended in August 2008, will add an amount to each retail bill to recover the excess
over $7.50 per MMBtu the City pays for natural gas and the embedded cost of natural gas in power purchased by the
City.
Average Price
The table below sets forth the average billing price per kilowatt-hour of the Electric System's various
customer classes for the periods indicated.
CITY OF VERNON
ELECTRIC SYSTEM
AVERAGE BILLING PRICE
(CENTS PER KILOWATT-HOUR)
Fiscal Year Ended June 30,
2004 2005 2006 2007 2008
Residential
4.96
5.06
5.58
5.57
5.72
Commercial
9.86
8.89
8.46
8.64
9.29
Industrial
6.81
7.41
7.74
7.70
8.20
Other
11.03
9.44
10.64
10.01
10.73
Weighted Average
7.47
7.78
7.95
7.98
8.53
All electric bills are due and payable on the date of billing and become delinquent 20 days thereafter. If
such bills remain unpaid on the 35th day after billing, all electric services are subject to termination until all fees,
charges, penalties and the entire delinquent balance have been paid.
Comparison of Selected Monthly Electric Bills
The following tables show a comparison of selected monthly electric bills for commercial and industrial
customers by utilities operating in the Southern California region. The information concerning utilities, other than
the City's Electric System, was derived from schedules publicly available which may not reflect current billing
rates. The information concerning the Electric System was prepared by the City. The monthly electric bills shown
in the following tables are for comparison purposes only and may not be reflective of what the electric rates for any
category of customers or the average monthly electric bills of the respective utility (other than the City) are or will
be at any date subsequent to the date indicated. Since June, 2008, the City has implemented the FCABF. See
"Electric Rates — Fuel Cost Adjustment Billing Factor." As described above, the City's Electric System Revenues
come primarily from it's commercial customers (approximately 30% for the Fiscal Year ended June 30, 2008) and
industrial customers (approximately 68% for the Fiscal Year ended June 30, 2008).
[Remainder of Page Intentionally Left Blank]
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COMPARISON OF SELECTED MONTHLY ELECTRIC BILLS
Medium Commercial (June 2008)
250,000 kWh/350 kW
50,000 kWh/150 kW
LADWP(1) .............................
$ 20,889
$ 5,596
Edison ...................................
33,024
8,590
Riverside ...............................
67,528
7,115
Anaheim ...............................
20,832
5,253
Pasadena ................................
29,430
6,785
Burbank .................................
30,606
6,937
Glendale ...............................
30,196
7,509
Vernon ..................................
19,205
5,722
Source: City of Vernon
(1) Excludes utility user's taxes.
Large Commercial / Industrial (June 2008)
7,000,000 kWh/10,000 kW 2,000,000 kWh/5,000 kW
LADWP(11 ............................ $ 567,759 $ 197,475
Edison .................................. 644,808 316,930
Riverside .............................. - -
556,960
Anaheim .............................. - -
199,376
Pasadena ................................ 794,396
248,016
Burbank ................................ - -
261,324
Glendale .............................. 822,688- -
261,227
Vernon .................................. 509,199
171,891
Source: City of Vernon
(`) Excludes utility user's taxes.
Uncollectible Accounts
The City considers its write offs for uncollectible accounts to be low by electric utility industry standards
for urban areas. The write offs for uncollectible accounts have been less than 0.1% over the last five Fiscal Years.
CITY OF VERNON
ELECTRIC SYSTEM
UNCOLLECTIBLE ACCOUNTS
Fiscal Year
Uncollectible
Percent of
Ended June 30
Revenues
Gross Billings
2004
$48,435
0.054%
2005
46,499
0.053
2006
55,971
0.057
2007
70,774
0.068
2008
79,246
0.073
Revenue Obligations
Natural Gas Commodity Price Swap
In July 2006, the City entered into a natural gas commodity price swap transaction with Soci6t6 G6n6rale
with a notional amount equal to 25% of the monthly quantity of natural gas supplied under the Gas Purchase
Agreement. Under this swap transaction, the City receives a fixed price and pays a variable price based on an
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OHS West:260528796.1
indexed price of natural gas. Payments made by the City under the commodity price swap constitute Operation and
Maintenance Expenses of the Electric System. For more information concerning this swap transaction, see Note 7,
"Bond Interest Rate Swap Agreements — Natural Gas Commodity Swap" in the Basic Financial Statements, City of
Vernon, for the Fiscal Year ended June 30, 2007 included in Appendix A.
Power Sales Contract with SCPPA for PVNGS
As described under "Power Supply Resources — SCPPA Palo Verde Nuclear Generating Station Interest,"
the City has a 4.90% entitlement interest (11.03 MWs) in SCPPA's ownership interest in the PVNGS. The City has
entered into a power sales contract with SCPPA (the "PVNGS Contract"), which provides the City with its share of
capacity and energy from PVNGS. Under the PVNGS Contract, the City is obligated to pay its share of SCPPA
costs associated with PVNGS, including operation and maintenance costs and debt service on SCPPA bonds issued
for the project. The City's payment obligations under the PVNGS Contract are on a "take -or -pay" basis, that is the
City is required to make the payments whether or not the output of PVNGS is interrupted, suspended or terminated.
The City's payment obligations under the PVNGS Contract are required to be treated as Operation and Maintenance
Expenses under the Indenture and any future electric revenue bond indenture or contract. The PVNGS Contract
provides that under certain circumstances, the City's share of entitlement to the output of PVNGS and its related
payment obligations can be increased to compensate for failures by other SCPPA participants in PVNGS to meet
their obligations under contracts with SCPPA in connection with the project. As of June 30, 2008, SCPPA had
$101,820,000 principal amount of bonds outstanding for PVNGS and the City had a 4.90% entitlement to SCPPA's
ownership interest in PVNGS.
Gas Supply Agreement with the Authority
As described above, the Authority has acquired the Gas Supply from the Gas Supplier pursuant to the Gas
Purchase Agreement. Pursuant to the Gas Supply Agreement, the Authority assigned, sold and transferred to the
City the Authority's rights under the Gas Purchase Agreement and the Guarantee. Under the Gas Supply
Agreement, the City is obligated to make certain payments, including payments sufficient to pay when due debt
service on the Authority's bonds issued in connection with the Gas Supply, certain swap agreements the Authority
has entered into, and payments to the Gas Supplier under the Gas Purchase Agreement. The City's payment
obligations under the Gas Purchase Agreement are on a "take -or -pay" basis, that is the City is required to make the
payments whether or not the supply of gas under the Gas Purchase Agreement is interrupted, suspended or
terminated. The City's payment obligations under the Gas Supply Agreement are required to be treated as
Operation and Maintenance Expenses under the Indenture and any future electric revenue bond indenture or
contract. As of September 1, 2008, the Authority had $387,145,000 principal amount of bonds outstanding for the
Gas Supply and had five interest rate swap transactions related to such Bonds. The City has one commodity price
swap transaction related to the Gas Supply. In the Fiscal Year ended June 30, 2008, the City paid approximately
$44,000,000 under the Gas Supply Agreement.
Interest Rate Swap Transactions
[Update status of Morgan Stanley swap transactions and proceeds of 2008A Bonds available to make
termination payments.]
Summary of Operating Results
A summary of historical revenue, expenses, and debt service coverage for the City's Electric System for the
four Fiscal Years ended June 30, 2004 through 2007 as well as preliminary results for the Fiscal Year ended June
30, 2008 is shown in the following table. This summary was prepared by the City from information derived from its
audited annual financial statements for the four Fiscal Years ended June 30, 2004 through 2007 and preliminary
unaudited information for the Fiscal Year ended June 30, 2008. The summary below presents the calculation of Net
Revenues and Debt Service coverage based upon the flow of funds required under the Indenture and not in
accordance with the generally accepted accounting principles used in the preparation of the City's financial
statements. In accordance with the Indenture, depreciation and amortization and other non -cash items and Franchise
Payments are not included in Operation and Maintenance Expenses while amounts payable under the Gas Supply
Agreement are included in Operation and Maintenance Expenses.
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CITY OF VERNON
ELECTRIC SYSTEM
HISTORICAL REVENUE, EXPENSES and DEBT SERVICE COVERAGE
UNDER INDENTURE"' (21
Operating Revenues:
Electric Sales — Retail
Electric Sales — Wholesale
Transmission revenue requirement
Other
Total Operating Revenues
Operation and Maintenance Expenses:
Fuel Costs (3)
Gas Supply Agreement
Energy Cost (4)
Administrative Costs
City Allocated Administrative Costs
Total Operating Expenses
Operating Income (Loss)
Nonoperating Revenues (Expenses):
Investment Income (5)
Non -Recurring Income (Loss) (6)
Deposit to Stabilization Fund (7)
Total Nonoperating Revenue
Fiscal Year Ended June 30,
Preliminary
2004
2005
2006
2007
2008
$ 89,534,509
$ 87,411,719
$ 93,386,559
$ 97,349,384
$104,215,943
3,686,005
9,212,800
24,370,170
26,679,488
31,224,092
9,855,236
9,918,860
10,637,068
10,485,050
8,333,814
3,976,750
3,941,516
4,171,221
3,543,849
3,350,465
$107,052,500 $110,484,895 $132,565,018 $138,057,771 3147,124,314
$ -- $ -- $ 36,501,174
$ 2,977,927
$ 12,015,227
-- 199,083
33,859,098
43,372,894
65,102,748 63,195,378 52,902,570
43,377,814
57,225,642
15,827,925 17,003,918 29,934,613
23,127,223
28,057,182
7,816,886 8,392,771 8,213,412
8,301,118
8,397,734
$ 88,747,559 $ 88,592,067 $127,750,852 $121,643,180 $149,068,679
$ 18,304,941 $ 21,892,828 $ 4,814,166 $ 16,414,591 $ (1,944,365)
$ 2,837,609 $ 5,221,357 $ 4,128,341 $ 6,359,925 $ 4,156,556
7,148,889 (3,666,201) (5,257,580) 631,983 53,272,205
-- -- 20,000,000
$ 9,986,498 $ 1,555,156 $ 18,870,761 $ 6,991,908 $ 57,4289762
Net Revenues Available for Debt Service
$ 28,291,439
$ 23,447,984
$ 23,684,927
$ 23,406,499
$ 55,484,396
Electric Revenue Bond Debt Service (8)
$ 4,695,631
$ 9,544,616
$ 15,308,466
$ 15,037,639
$ 15,700,353
Debt Service Coverage Ratio
6.025x
2.457x
1.547x
1.557x
3.534x
Remaining Cash After Debt Service
$ 23,595,808
$ 13,903,367
$ 8,376,461
$ 8,368,860
$ 39,784,043
Source: City of Vernon.
(1) Totals may not add due to rounding.
(2) Excludes depreciation and amortization, and other non -cash items, and Franchise Payments.
(3) Does not include costs associated with natural gas purchased under the Gas Supply Agreement.
(4) Represents energy, capacity, and ancillary service costs (including the PPTA and Hoover Contract for Differences
in the Fiscal Year ended June 30, 2008). Excludes $11,250,000 paid from the proceeds of the sale of the MGS in
the Fiscal Year ended June 30, 2008.
(5) Does not include unrealized gain (loss) on investments or increase (decrease) in fair market value of investments.
(6) In the Fiscal Years ended June 30, 2004, June 30, 2005 and June 30, 2006, such amount represents funds received
from settlements of disputes with respect to power purchases and sales agreements. For the Fiscal Year ended June
30, 2007, represents primarily net payments received by the City in connection with suspension of interest rate
swaps. For the Fiscal Year ended June 30, 2008, represents the net proceeds from sale of certain generation and
transmission assets after repayment of 2004 Bonds, $39,250,000 reserved for PPTA capacity payments through
2011, and transaction costs.
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(7) Represents a deposit to the Expense Stabilization Fund primarily to provide for significantly increased fuel costs due
to Hurricane Katrina and other factors. The City has implemented the FCABF to provide for a pass -through to
customers of increased costs due to fuel. See "ELECTRIC RATES."
(g) For the Fiscal Year ended June 30, 2008, does not include principal paid on 2004 Bonds which was paid with
proceeds from the generation and transmission asset sale.
Management's Discussion of Operating Results
[To be updated to match MD&A in June 30, 2008 audited financials.]
Operating Revenues for the Fiscal Year ended June 30, 2008 as compared with the Fiscal Year ended June 30, 2007
Retail Energy Sales: Retail revenues increased $6.9 million over the Fiscal Year ended June 30, 2007, due
primarily to the City's 5% rate increase in December 2007.
Wholesale Energy Sales: Wholesale sales increased $4.5 million over the Fiscal Year ended June 30, 2007
due primarily to increased market power prices.
Operating Expenses for the Fiscal Year ended June 30, 2008 as compared with the Fiscal Year ended June 30, 2007
Gas Supply Agreement: Increase in cost of $9.5 million over the Fiscal Year ended June 30, 2007
primarily as a result of increased interest rates due to the auction rate and variable rate demand market deterioration
and the conversion of the 2006 A Authority Bonds to an interest rate period ending August 2, 2009.
Energy Costs: Increase of $13.8 million over the Fiscal Year ended June 30, 2007 due primarily to
increased market power costs during the -second half of the Fiscal Year ended June 30, 2008.
Non -Operating Revenues (Expenses) for the Fiscal Year ended June 30, 2008 as compared with the Fiscal Year
ended June 30, 2007
Investment Income: Reduction in investment income of $2.2 million due primarily to lower interest rates
and reallocation of portfolio to short-term liquid investments.
Non -Recurring Income (Loss): Represents primarily proceeds received from the sale of the City's
generation and transmission assets net of the repayment amount of the 2004 Bonds, amounts set -aside for certain
PPTA capacity payments through 2011, and transaction costs associated with the sale of the generation and
transmission assets.
Operating Revenues for the Fiscal Year ended June 30, 2007 as compared with the Fiscal Year ended June 30, 2006
Retail Energy Sales: Retail revenues increased approximately $4 million over the Fiscal Year ended June
30, 2006, due primarily to the City's 5% rate increase in November 2006.
Operating Expenses for the Fiscal Year ended June 30, 2007 as compared with the Fiscal Year ended June 30, 2006
Fuel Costs. Decrease in fuel costs of $33.5 million due primarily to the commencement of gas supply
delivery under the Gas Supply Agreement which replaced 75% of the City's market gas purchases.
Energy Costs: Decrease of $9.5 million over the Fiscal Year ended June 30, 2006 due primarily to reduced
market power costs post Hurricane Katrina.
Non -Operating Revenues (Expenses) for the Fiscal Year ended June 30, 2007 as compared with the Fiscal Year
ended June 30, 2006
Investment Income: Increase in investment income of $2.2 million due primarily to higher interest rates.
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Nonrecurring Income: Represents termination of interest rate swap resulting in an approximately $1
million payment to the City and $.4 million of expense relating to the settlement of a contract dispute.
Operating Revenues for the Fiscal Year ended June 30, 2006 as compared with the Fiscal Year ended June 30, 2005
Retail Energy Sales. Retail revenues increased approximately $6 million over the Fiscal Year ended June
30, 2005, due primarily to the City's 4.7% rate increase in June 2005 and load increase.
Wholesale Energy Sales: Wholesale sales increased $15 million over the Fiscal Year ended June 30, 2005
due primarily to sale of energy under long-term energy contracts entered into prior to commercial operation of MGS
in October 2005.
Operating Expenses for the Fiscal Year ended June 30, 2006 as compared with the Fiscal Year ended June 30, 2005
Fuel Costs. Increase in fuel costs of $36.5 million over the Fiscal Year ended June 30, 2005 due primarily
to commercial operation of MGS in October 2005.
Energy Costs: Decrease of approximately $10 million over the Fiscal Year ended June 30, 2005 due
primarily to commercial operation of MGS in October 2005.
Administration Costs: Increase of approximately $12.9 million over the Fiscal Year ended June 30, 2005
due primarily to commercial operation of MGS in October 2005.
Projected Operating Results and Debt Service Coverage
Set forth below are the City's projections of the revenue, expenses and debt service coverage of its Electric
System (determined in accordance with the Indenture) for the Fiscal Years ending June 30, 2009 through June 30,
2013. The projected operating results are based on the City's load forecasts, its estimated costs of power and other
operating and non -operating expenses. The City has forecasted such other operating and non -operating expenses
taking into consideration the Electric System's historical costs and trends, projected load growth and inflation. The
summary below presents the calculation of net revenues and debt service coverage based upon the flow of funds
required under the Indenture and not in accordance with the generally accepted accounting principles. In accordance
with the Indenture, depreciation and amortization, other non -cash items, and Franchise Payments, are not included in
Operation and Maintenance Expenses while amounts payable under the Gas Supply Agreement are included in
Operation and Maintenance Expenses.
Certain assumptions have been made by the City in the development of the forecasts. Among the
assumptions made by the City are the following:
1. The City's electric load is projected to increase 40 MWs in the Fiscal Year ending June 30, 2010,
50 MWs in the Fiscal Year ending June 30, 2012, and 1.5% thereafter.
2. Fuel Cost Adjustment includes fuel costs and embedded energy costs of the City in excess of
$7.50, including certain costs associated with the Gas Supply Agreement.
3. Electric service rates are projected to increase 5.0% in the Fiscal Year ending June 30, 2009 and
the Fiscal Year ending June 30, 2010 and 3% each Fiscal Year thereafter.
2009. 4. Other revenue is projected to increase 3.0% per year beginning in the Fiscal Year ending June 30,
5. The Gas Supply Agreement payments are based upon 2006 B and C Authority Bonds Conversion
to Fixed Rate Bonds and conversion in August 2009 of the 2006 A Authority Bonds to a weekly variable rate mode
for the projection period. See "PLAN OF FINANCE." The interest rate on the 2006 B and C Authority Bonds is
assumed to range from 2.75% to 5.25%. The interest rate on the 2006 A Authority Bonds is 5%, with a 2% basis
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OHS West:260528796.1
differential payment on the related interest rate swaps, until August 2009, and assumed to be a fixed rate of 3.683%
(with no basis differential) due to the existing interest rate swap plus a projected liquidity facility fee of 0.75% per
annum thereafter. Assumes the termination of the MS Swap Transactions and the B and C Authority Swap
Transaction.
6. City allocated administrative costs are projected to increase 3.0% per year.
7. Operating Expenses exclude $28,000,000 of the $39,250,000 set aside for certain PPTA capacity
payments during the Fiscal Years ending June 30, 2009 through 2011 which are to be paid from proceeds of the
MGS sale.
Fuel Costs are net of sales of gas delivered under the Gas Supply Agreement.
9. Fuel cost forecast based upon NYMEX forward pricing for SoCal Border as of August 26, 2008.
Energy Costs based upon fuel cost adjusted for market heat rate.
10. Investment Income assumed at 4.00% in the Fiscal Year ending June 30, 2009 and each Fiscal
Year thereafter.
11. The City issues $42,160,000 aggregate principal amount of Additional Bonds in fiscal year 2009
(the "2008 Additional Bonds") with interest rates ranging from 7.40% to 8.601/o per annum.
While the City believes its assumptions are reasonable, there can be no assurance that .the assumed
conditions will in fact occur. The City's projections may be affected (favorably or unfavorably) by unforeseen
future events which could cause actual results to differ materially from those presented below. Therefore, the results
projected below cannot be assured.
[Remainder of Page Intentionally Left Blank]
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CITY OF VERNON
ELECTRIC SYSTEM
PROJECTED REVENUE, EXPENSES and DEBT SERVICE COVERAGE
UNDER INDENTURE ill
Operating Revenues:
Energy Sales — Retail
Energy Sales — Wholesale (2)
Fuel Cost Adjustment (3)
Transmission Revenue Requirement (4)
Other
Total Operating Revenues
Operation and Maintenance Expenses:
Fuel costs
Gas Supply Agreement
Energy Costs (5)
Administrative costs
City allocated administrative costs
Total Operating Expenses
Operating Income
Nonoperating Revenues:
Investment income
Fiscal Year Ending June 30,
2009 2010 2011 2012 2013
$114,322,400 $145,291,836 $158,056,116 $200,119,676 $220,060,783
16,933,325
20,729,070
19,155,607
22,981,093
24,487,577
7,852,118
5,798,774
5,497,818
7,087,093
7,866,167
918,000
918,000
918,000
918,000
918,000
3,857,933
4,693,321
5,060,143
6,316,214
423,146
$143,883,776 $177,431,000 $188,687,683 $237,422,076 $253,755,673
$ 13,994,281 $ 14,774,341 $ 13,877,838 $ 13,950,833 $ 14,577,609
50,424,581
43,132,242
42,442,500
42,357,504
42,191,424
47,432,050
74,702,263
90,057,940
131,999,253
144,223,169
21,141,972
21,776,232
22,429,518
23,102,404
23,795,476
8,000,000
8,240,000
8,487,200
8,741,816
9,004,070
$140,992,885 $162,625,077 $177,294,996 $220,151,810 $233,791,749
$ 2,890,892 $ 14,805,922 $ 11,392,687 $ 17,270,266 $ 19,963,924
$ 7,116,839 $ 6,491,471 $ 5,847,447 $ 5,576,913 $ 5,771,152
Net Revenues Available for Debt Service $ 10,007,730 $ 21,297,393 $ 17,240,134 $ 22,847,179 $ 25,7359076
2008B Bonds Debt Service $ 1,002,484
$ 3,720,560
$ 3,975,755
$ 3,975,405
$ 3,973,575
2008 Additional Bonds Debt Service 593,902
3,563,413
3,948,613
3,947,903
3,949,788
$ 1,596,386
$ 7,283,973
$ 7,924,368
$ 7,923,308
$ 7,923,363
Debt Service Coverage Ratio (6)
Net Revenues Remaining After Debt
Service
6.269x 2.924x 2.176x 2.884x 3.248x
$ 8,411,344 $ 14,013,421 $ 9,315,766 $ 14,923,871 $ 17,811,714
Source: City of Vernon
(t) Totals may not add due to rounding.
(2) Represents sales of surplus power from all resources into spot market.
(3) See "ELECTRIC RATES".
(4) Receipts for use of transmission assets through Edison and LADWP contracts.
(5) Represents energy, capacity, and ancillary service costs and payments under the PPTA and Hoover Contract for
Differences. Does not include fuel costs associated with PPTA.
(6) Net Revenues divided by Debt Service on the 2008B Bonds and 2008 Additional Bonds. Assumes no Bonds other
than the 2008B Bonds and the 2008 Additional Bonds are outstanding during the projection period.
Employee Relations
As of June 30, 2008, 43 full-time equivalent City employees were assigned to the Electric System.
Additionally, other City personnel provide support services to the Electric System as required, including the City'
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Finance Department and the City Attorney. All of the City's employees, including those assigned to the Electric
System, are non -union. There have been no strikes or other work stoppages against the City within the last twenty
years.
Retirement benefits to City employees, including those assigned to the Electric System, are provided
through the City's participation in the California Public Employees Retirement System ("Ca1PERS"), an agent
multiple -employer retirement system that acts as a common investment and administrative agent for participating
public entities within the State of California.
The State -required City employee salary contributions of 7% for miscellaneous employees and 9% for
safety members are subsidized by the City. The City is required to contribute the remaining amounts necessary to
fund the benefits for its members, using the actuarial basis adopted by the CalPERS Board of Administration.
The City's total contribution to Ca1PERS for the year ended June 30, 2007 was $4,919,700. City
contribution rates as a percentage of covered payroll were 7.284% for miscellaneous plan members and 18.789% for
safety plan members. The City' s contribution was made in accordance with actuarially determined requirements.
The most recent actuarial valuation performed as of June 30, 2005, indicated the City had no unfunded pension
benefit obligation. The City has contributed its annual pension cost payments with respect to all employees as
required by CALPERS and estimates that it will not have any unfunded pension liability as of the next actuarial
valuation. See Note 10, "PENSION" in the Basic Financial Statements, City of Vernon, for the Fiscal Year ended
June 30, 2007 included in Appendix A.
The City Council approved a post -employment benefit plan for all employees with 20 years of service who
retire at 60 or after 30 years or more of service to the City. The plan pays for qualified employees' medical and
dental insurance premiums and claims from age 60 to 65. Funding of the plan is on a pay-as-you-go basis. During
the Fiscal Year ended June 30, 2007, approximately 352 employees (306 current employees and 46 retired
employees) were eligible to receive benefits. Amounts paid for premiums for the Fiscal Year ended June 30, 2007
totaled $62,898. See Note 13, "POSTEMPLOYMENT BENEFITS" in the Basic Financial Statements, City of
Vernon, for the Fiscal Year ended June 30, 2007 included in Appendix A.
Insurance
The City has obtained various insurance policies that provide coverage for "Special Form Perils" against
direct physical loss or damage, including earthquake and flood, to all real and personal property of the City. The
policy limits for perils other than earthquake and flood are $150 million per occurrence with deductibles of up to
$100,000 per occurrence. The earthquake and flood portion of the policies have limits of $50 million per occurrence
with a 5% deductible. Due to increasing premiums and limitations on available coverage, the City expects to reduce
and possibly eliminate, earthquake and flood insurance coverage. The City has also obtained various insurance
policies that provide general liability, automobile liability and employment benefits liability coverage with policy
limits of $20 million per occurrence and in the annual aggregate, with a deductible of $2 million. The City has a
workmen's compensation insurance policy with a $50 million limit and a $1 million deductible amount.
Deductibles and amounts in excess of policy limits are self -insured. There have been no significant
reductions of coverage from the prior year. There have,been no settlements exceeding insurance coverage for each
of the Fiscal Years ended 2005, 2006 and 2007. See Note 9 "RISK MANAGEMENT" in the Basic Financial
Statements, City of Vernon, for the Fiscal Year ended June 30, 2007 included in Appendix A.
Rate Regulation
The City sets rates, fees and charges for electric service provided at retail within its boundaries. The
authority of the City to impose and collect rates and charges for retail electric service is not subject to the general
regulatory jurisdiction of the CPUC. Currently neither the CPUC nor any other regulatory authority of the State of
California nor the FERC reviews such rates and charges. The CEC is authorized to evaluate rate policies for electric
energy as related to the goals of the Energy Resources Conservation and Development Act and to make
recommendations to the Governor, the Legislature and publicly owned electric utilities.
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Seismic Activity
The City is located in a region of seismic activity. The principal earthquake fault in the Los Angeles area is
the San Andreas Fault, which extends an estimated 700 miles from north of the San Francisco area to the Salton Sea.
The San Andreas Fault is about 35 miles north of the Los Angeles Civic Center.
In April 2008, the Uniform California Earthquake Rupture Forecast (the "Forecast") was issued by the
Working Group on California Earthquake Probabilities (the "Working Group"). Organizations sponsoring the
Working Group include the U.S. Geological Survey, the California Geological Survey and the Southern California
Earthquake Center. According to the Forecast, the probability of a magnitude 6.7 or larger earthquake over the next
30 years striking the greater Los Angeles area is 67%. For the entire California region, the fault with the highest
probability of generating at least one magnitude 6.7 quake or larger is the San Andreas Fault (59% in the next 30
years). Earthquake probabilities for many parts of the State are similar to those in previous studies, but the new
probabilities calculated for the Elsinore and San Jacinto Faults in southern California are about half those previously
determined. For the far northwestern part of the State, a major source of earthquakes is the offshore 750-mile-long
Cascadia Subduction Zone, the southern part of which extends about 150 miles into the State. For the next 30 years
there is a 10% probability of a magnitude 8 to 9 quake somewhere along that zone. Such quakes occur about once
every 500 years on average. There are hundreds of other faults throughout Southern California that could also cause
damaging earthquakes.
It is impossible to accurately predict the cost or effect of a major earthquake on the Electric System or to
predict the effect of such an earthquake on the Electric System's ability to provide continued uninterrupted service
to its customers. See "INSURANCE."
DEVELOPMENTS IN THE CALIFORNIA ENERGY MARKETS
Background; California Electric Market Deregulation
Financial Difficulties of the IOUs and Certain Other Market Participants. In 1996, California partially
deregulated its electric energy market. An independent system operator of the transmission system, the CAISO, was
established, as well as an independent power exchange, the California Power Exchange (the "PX"). The PX was
originally established to permit power generators to sell power on a competitive spot -market basis; however, the PX
has ceased all power exchange operations and filed for bankruptcy protection.
As a consequence of partial deregulation, the California IOUs sold a large portion of their generation
resources. As a result, three major IOUs in California, Pacific Gas & Electric Company ("PG&E"), San Diego
Gas & Electric Co. ("SDG&E") and Edison, were net buyers of electricity. Following the partial deregulation of the
California energy markets, the IOUs were purchasing electricity at fluctuating short-term and spot wholesale prices
while the retail prices that they could charge their residential and small business customers were capped at specified
levels. During portions of 2000 and 2001, the market price of electricity in California significantly exceeded such
capped retail prices, resulting in the deterioration of the creditworthiness of PG&E and Edison, and PG&E
eventually declared bankruptcy. Certain other marketers, power suppliers and power plant developers experienced
downgrades of their credit ratings. PG&E emerged from bankruptcy on April 12, 2004. The credit ratings of PG&E
and Edison have improved since the dislocations of the California energy markets in 2000 and 2001.
State and Federal Investigations. State of California and federal authorities are conducting investigations
and other proceedings concerning various aspects of the California energy markets. These include, for example,
investigations by FERC into alleged overcharging for the sale of electricity (including sales by municipal utilities)
and alleged manipulation of the electricity market. The City participated in these investigations, but all involvement
of the City has been terminated.
Shortages and Volatility. During 2000 and 2001, California experienced extreme fluctuations in the prices
and supplies of natural gas and electricity in much of the State. Licenses for new power plants have been issued by
the CEC, construction on several power plants has been completed and construction of additional power plants is
underway. Progress on new transmission line projects within California has been slow. There also has been a
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OHS West:260528796.1
substantial rise in the cost of natural gas, which is the fuel source for many of California's electric generating units.
State agencies have issued warnings that further power shortages are possible for Southern California. As a result of
the foregoing and other factors, no assurance can be given that measures undertaken during the last several years,
together with measures to be taken in the future, will prevent the recurrence of shortages, price volatility or other
energy problems that have adversely affected the City and other California electric utilities in the recent past.
State Environmental Legislation
In addition to recent legislation affecting the Electric System, a number of bills affecting the electric utility
industry have been enacted by the California Legislature. In general, these bills provide for reduced greenhouse gas
emission standards and greater investment in energy -efficient and environmentally friendly generation alternatives
through more stringent renewables resource portfolio standards and Executive Orders signed by the Governor. The
following is a brief summary of certain of these measures.
Greenhouse Gas Emissions. In its 2003 Integrated Energy Policy Report, the CEC recommended that
utilities account for the cost of greenhouse gas emission reductions in utility procurement decisions. In
December 2004, the CPUC also established an $8-$25/ton CO2 fossil fuel adder for the IOUs to reflect the amount
of carbon dioxide that would be emitted by a fossil fuel electric generating unit. The adder represents an estimate of
future costs associated with the purchase of carbon dioxide offsets and financial risk associated with potential future
regulation of greenhouse emissions.
Executive Order S-3-05 places an emphasis on efforts to reduce greenhouse gas emissions by establishing
statewide greenhouse gas reduction targets. The targets are: (i) a reduction to 2000 emissions levels by 2010; (ii) a
reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by 2050. Executive Order S-3-05
also called for the California Environmental Protection Agency to lead a multi -agency effort to examine the impacts
of climate change on California and develop strategies and mitigation plans to achieve the targets. Executive Order
S-06-06 directs the State to meet a 20% biomass utilization target within the renewable generation targets of 2010
and 2020 for the contribution to greenhouse gas emission reduction.
SB-1686 (Chapter 469, Statutes of 2006) authorizes the Wildlife Conservation Board (the "WCB") to take
into account the potential of forestlands to beneficially reduce or sequester greenhouse gas emissions when it
prioritizes funds available for proposed acquisitions. SB-1686 also specifies that the WCB may use policies,
protocols and other relevant information developed by the California Climate Action Registry in determining a
project's potential to reduce or sequester greenhouse gas emissions. AB-1925 (Chapter 471, Statutes of 2006)
requires the CEC to develop a cost effective strategy for the geologic sequestration and management of industrial
carbon dioxide.
AB-32, the Global Warming Solutions Act of 2006 (Chapter 488, Statutes of 2006) (the "GWSA")
prescribes a statewide cap on global warming pollution with a goal of reaching 1990 greenhouse gas emission levels
by 2020 and 80% below 1990 levels by 2050. In addition, the GWSA establishes a mandatory reporting program to
the Air Resources Board ("ARB") for significant greenhouse gas emissions and requires the ARB to adopt
regulations for significant greenhouse gas emission sources (allowing ARB to design a cap and trade program) and
gives ARB the authority to enforce such regulations beginning in 2012. The ARB has published a proposed plan
under the GWSA, providing for a RPS for electric utilities of 33% by 2020.
Impact of Developments on the City
The effect of these developments in the California energy markets on the Electric System cannot be fully
ascertained at this time. Also, volatility in energy prices in California may return due to a variety of factors which
affect both the supply and demand for electric energy in the western United States. These factors include, but are
not limited to, the adequacy of generation resources to meet peak demands, the availability and cost of renewable
energy, the impact of greenhouse emission legislation and regulations, fuel costs and availability, weather effects on
customer demand, transmission congestion, the strength of the economy in California and surrounding states and
levels of hydroelectric generation within the region (including the Pacific Northwest). Price volatility for electric
energy may contribute to greater volatility in the Electric System's Revenues from the sale (and purchase) of electric
energy and, therefore, could materially affect the financial condition of the Electric System. The City has power
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supply contracts and other arrangements relating to its system supply of power which are of specified durations.
The City undertakes resource planning activities and plans for its resource needs in order to mitigate against such
price volatility and its spot market rate exposure. See "THE ELECTRIC SYSTEM Power Supply Resources"
herein.
Future Regulation
The electric industry is subject to recurrent reform. States routinely consider major changes to the way in
which they regulate the electric industry. Recently, both further deregulation and forms of additional regulation
have been proposed for an industry that has been highly regulated throughout its history. The City is unable to
predict at this time the impact that any such considerations will have on the operations and finances of the Electric
System or the electric utility industry generally.
OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY
Energy Policy Act of 1992
The Energy Policy Act made fundamental changes in the federal regulation of the electric utility industry,
particularly in the area of transmission access under Sections 211, 212 and 213 of the Federal Power Act. The
purpose of these changes, in part, was to bring about increased competition in the electric utility industry.
As amended by the Energy Policy Act, Sections 211, 212 and 213 of the Federal Power Act provide FERC
authority, upon application by any electric utility, federal power marketing agency or other person or entity
generating electric energy for sale or resale, to require a transmitting utility to provide transmission services
(including any enlargement of transmission capacity necessary to provide such services) to the applicant at rates,
charges, terms and conditions set by FERC based on standards and provisions in the Federal Power Act. Under the
Energy Policy Act, electric utilities owned by municipalities and other public agencies which own or operate electric
power transmission facilities which are used for the sale of electric energy at wholesale are "transmitting utilities"
subject to the requirements of Sections 211, 212 and 213. The Energy Policy Act specifically denies FERC the
authority to mandate "retail wheeling" under which a retail customer located in one utility's service area could
obtain power from another utility or from a non -utility power generator.
Federal Energy Legislation
The Energy Policy Act of 2005 ("EPACT 2005") addresses a wide array of energy matters that could affect
the entire electric utility industry, including the Electric System. It expands FERC's jurisdiction to require open
access transmission of municipal utilities that sell more than four million megawatt hours of energy and to order
refunds under certain circumstances for municipal utilities that sell more than eight million megawatt hours of
energy. EPACT 2005 requires that FERC conclude its investigation into the allegations of overcharges during the
California energy crisis in 2000 and 2001 and submit a report to Congress. It also provides for mandatory reliability
standards to increase system reliability and minimize blackouts, criminal penalties for manipulative energy trading
practices and the repeal of the Public Utility Holding Company Act of 1935, which prohibited certain mergers and
consolidations involving electric utilities. EPACT 2005 also requires the creation of an electric reliability
organization to establish and enforce, under FERC supervision, mandatory reliability standards to increase system
reliability and minimize blackouts. Failure to comply with such mandatory standards exposes a utility to significant
fines and penalties by such electric reliability organization.
Under EPACT 2005, by February 2007 IOUs were required to offer each of its customer classes a time -
based rate schedule to enable customers to manage energy use through advanced metering and communications
technology. It authorizes FERC to exercise eminent domain powers to construct and operate transmission lines if
FERC determines a state has unreasonably withheld approval. EPACT 2005 contains provisions designed to
increase imports of liquefied natural gas and incentives to support renewable energy technologies, including a new
two-year program for tax credit bonds for local governments, such as the City, to finance certain renewable energy
facilities. EPACT 2005 also extends for 20 years the Price -Anderson Act, which concerns nuclear power liability
protection, and provides incentives for the construction of new nuclear plants.
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The City is unable to -predict at this time the impact that EPACT 2005 will have on the operations and
finances of the Electric System or the electric utility industry generally.
Other General Factors
The electric utility industry in general has been, or in the future may be, affected by a number of factors
which could impact the financial condition and competitiveness of many electric utilities and the level of utilization
of generating and transmission facilities. In addition to the factors discussed herein, such factors include, among
others, (a) effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative
requirements, (b) changes resulting from conservation and demand -side management programs on the timing and
use of electric energy, (c) changes resulting from a national energy policy, (d) effects of competition from other
electric utilities (including increased competition resulting from mergers, acquisitions, and "strategic alliances" of
competing electric (and natural gas) utilities and from competitors transmitting less expensive electricity from much
greater distances over an interconnected system) and new methods of producing low-cost electricity, (e) the repeal
of certain federal statutes that would have the effect of increasing the competitiveness of many IOU's, (f) increased
competition from independent power producers and marketers, brokers and federal power marketing agencies,
(g) "self -generation" or "distributed generation" (such as microturbines and fuel cells) by industrial and commercial
customers and others, (h) issues relating to the ability to issue tax-exempt obligations, including severe restrictions
on the ability to sell to nongovernmental entities electricity from generation projects and transmission line service
from transmission projects financed with outstanding tax-exempt obligations, (i) effects of inflation on the operating
and maintenance costs of an electric utility and its facilities, 0) changes from projected future load requirements,
(k) increases in costs and uncertain availability of capital, (1) shifts in the availability and relative costs of different
fuels (including the cost of natural gas), (m) sudden and dramatic increases in the price of energy purchased on the
open market that may occur in times of high peak demand in an area of the country experiencing such high peak
demand, such as has occurred in California, (n) inadequate risk management procedures and practices with respect
to, among other things, the purchase and sale of energy and transmission capacity, (o) other legislative changes,
voter initiatives, referenda and statewide propositions, (p) effects of changes in the economy, population and
demand of customers in the City's service area, (q) effects of possible manipulation of the electric markets and
(r) natural disasters or other physical calamities, including, but not limited to, earthquakes. Any of these factors (as
well as other factors) could have an adverse effect on the financial condition of any given electric utility and likely
will affect individual utilities in different ways.
The City cannot predict what effects such factors will have on its business operations and financial
condition, but the effects could be significant. This Official Statement includes a brief discussion of certain of these
factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change
subsequent to the date hereof. Extensive information on the electric utility industry is available from the legislative
and regulatory bodies and other sources in the public domain, and potential purchasers of the 2008B Bonds should
obtain and review such information.
Environmental Issues
Electric utilities are subject to continuing environmental regulation. Federal, state and local standards and
procedures which regulate the environmental impact of electric utilities are subject to change. These changes may
arise from continuing legislative, regulatory and judicial action regarding such standards and procedures.
Consequently, there is no assurance that any City facility will remain subject to the regulations currently in effect,
will always be in compliance with future regulations or will always be able to obtain all required operating permits.
An inability to comply with environmental standards could result in additional capital expenditures to comply,
reduced operating levels or the complete shutdown of individual electric generating units not in compliance.
There is concern by the public, the scientific community and Congress regarding environmental damage
resulting from the use of fossil fuels. Congressional support for the increased regulation of air, water and soil
contaminants is building, and there are a number of pending or recently enacted legislative proposals which may
affect the electric utility industry. The above -mentioned concerns and Congressional support have led to an
increased level of environmental enforcement by the EPA and state and local authorities. Increased environmental
regulation under the provisions of the federal Clean Air Act have created certain barriers to new facility
development and modification of existing facilities. The additional costs, including time, human resources,
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uncertainty and delay, could affect the rate of return relating to investment in power project development. As such,
there may be additional costs for purchased power from affected resources. Moreover, these additional costs may
upset existing cost assumptions for utilities.
The City cannot predict at this time whether any additional legislation or rules will be enacted which will
affect the Electric System's operations, and if such laws or rules are enacted, what the costs to the City might be in
the future because of such action.
A number of studies have been conducted regarding the potential long-term health effects resulting from
exposure to electric and magnetic fields ("EMF") created by high voltage transmission and distribution equipment as
well as by electrical appliances, computers, and other electrical devices. Additional studies are being conducted to
determine the relationship between EMF and certain adverse health effects, if any. At this time, it is not possible to
predict the extent of the costs and other impacts, if any, which the EMF concern may have on electric utilities,
including the Electric System.
CONSTITUTIONAL LIMITATIONS ON TAXES
Articles XIIIC and XIIID of the State Constitution
Proposition 218, a State ballot initiative known as the "Right to Vote on Taxes Act," was approved by the
voters of the State of California on November 5, 1996. Proposition 218 added Articles XIIIC and XIIID to the State
Constitution. Article XIIID creates additional requirements for the imposition by most local governments (including
the City) of general taxes, special taxes, assessments and "property -related" fees and charges. Article XIIID
explicitly exempts fees for the provision of electric service from the provisions of such article. Nevertheless,
Proposition 218 could indirectly affect some California municipally -owned electric utilities. For example, to the
extent Proposition 218 reduces a city's general fund revenues, that city could seek to increase the transfers from its
electric utility to its general fund.
Article XIIIC expressly extends the people's initiative power to reduce or repeal previously -authorized
local taxes, assessments, and fees and charges. The terms "fees and charges" are not defined in Article XIIIC,
although the California Supreme Court held in Bighorn -Desert View Water Agency v. Verjil, 39 Ca1.4th 205 (2006),
that the initiative power described in Article XIIIC may apply to a broader category of fees and charges than the
property -related fees and charges governed by Article XIIID. Moreover, in the case of Bock v. City Council of
Lompoc, 109 Cal.App.3d 52 (1980), the Court of Appeal determined that electric rates are subject to the initiative
power. Thus, even electric service charges (which are expressly exempted from the provisions of Article XIIID)
might be subject to the initiative provision of Article XIIIC, thereby subjecting such fees and charges imposed by
the City to reduction by the electorate. The City believes that even if the electric rates of the City are subject to the
initiative power, under Article XIIIC or otherwise, the electorate of the City would be precluded from reducing
electric rates and charges in a manner adversely affecting the payment of the 2008B Bonds by virtue of the
"impairment of contracts clause" of the United States and California Constitutions.
Future Initiatives
Articles XIIIC and XIIID, were each adopted pursuant to measures qualified for the ballot pursuant to
California's constitutional initiative process. From time to time other initiative measures could be adopted. by
California voters. The adoption of any such initiatives might place limitations on the ability of the City to increase
revenues or to increase appropriations.
LITIGATION
There is no controversy or litigation of any nature now pending or threatened restraining or enjoining the
issuance of the 2008B Bonds or in any way contesting or affecting the validity of the 2008B Bonds or any
proceedings of the City taken with respect to the issuance or sale thereof. In addition, there is no litigation pending
or threatened against the City which, in the opinion of the City Attorney, would materially adversely affect the
Electric System, the financial condition of the City or the sources of payment for the 2008B Bonds.
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TAX MATTERS
In the opinion of Orrick, Herrington & Sutcliffe LLP, as Bond Counsel to the City ("Bond Counsel"),
interest on the 2008B Bonds is exempt from State of California personal income taxes and is not excluded from
gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended
(the "Code"). Bond Counsel expresses no opinion regarding any federal or other state tax consequences related to
the ownership or disposition of, or the accrual or receipt of interest on, the 2008B Bonds. The proposed form of
opinion of Bond Counsel relating to the 2008B Bonds is set forth in Appendix D hereto.
The following is a summary of certain of the United States federal income tax consequences of the
ownership of the 2008B Bonds as of the date hereof. Each prospective investor should consult with its own tax
advisor regarding the application of United States federal income tax laws, as well as any state, local, foreign or
other tax laws, to its particular situation.
This summary is based on the Code, as well as Treasury regulations and, administrative and judicial rulings
and practice. Legislative, judicial and administrative changes may occur, possibly with retroactive effect, that could
alter or modify the continued validity of the statements and conclusions set forth herein. This summary is intended
as a general explanatory discussion of the consequences of holding the 2008B Bonds generally and does not purport
to furnish information in the level of detail or with the investor's specific tax circumstances that would be provided
by an investor's own tax advisor. For example, it generally is addressed only to original purchasers of the 2008B
Bonds that are "U.S. holders" (as defined below), deals only with 2008B Bonds held as capital assets within the
meaning of Section 1221 of the Code and does not address tax consequences to holders that may be relevant to
investors subject to special rules, such as individuals, trusts, estates, tax-exempt investors, foreign investors, cash
method taxpayers, dealers in securities, currencies or commodities, banks, thrifts, insurance companies, electing
large partnerships, mutual funds, regulated investment companies, real estate investment trusts, FASITs, S
corporations, persons that hold 2008B Bonds as part of a straddle, hedge, integrated or conversion transaction, and
persons whose "functional currency" is not the U.S. dollar. In addition, this summary does not address alternative
minimum tax issues or the indirect consequences to a holder of an equity interest in a holder of 2008B Bonds.
As used herein, a "U.S. holder" is a "U.S. person" that is a beneficial owner of a 2008B Bond. A "non-
U.S. investor" is a holder (or beneficial owner) of a 2008B Bond that is not a U.S. Persona For these purposes, a
"U.S. person" is a citizen or resident of the United States, a corporation or partnership created or organized in or
under the laws of the United States or any political subdivision thereof (except, in the case of a partnership, to the
extent otherwise provided in Treasury regulations), an estate the income of which is subject to United States federal
income taxation regardless of its source or a trust if (i) a United States court is able to exercise primary supervision
over the trust's administration and (ii) one or more United States persons have the authority to control all of the
trust's substantial decisions.
Tax Status of the 2008B Bonds
The 2008B Bonds will be treated, for federal income tax purposes, as a debt instrument. Accordingly,
interest will be included in the income of the holder as it is paid (or, if the holder is an accrual method taxpayer, as it
is accrued) as interest.
Holders of the 2008B Bonds that allocate a basis in the 2008B Bonds that is greater than the principal
amount of the 2008B Bonds should consult their own tax advisors with respect to whether or not they should elect to
amortize such premium under section 171 of the Code.
If a holder purchases the 2008B Bonds for an amount that is less than the principal amount of the 2008B
Bonds, and such difference is not considered to be de minimis, then such discount will represent market discount
that ultimately will constitute ordinary income (and not capital gain). Further, absent an election to accrue market
discount currently, upon a sale or exchange of a 2008B Bond, a portion of any gain will be ordinary income to the
extent it represents the amount of any such market discount that was accrued through the date of sale. In addition,
absent an election to accrue market discount currently, the portion of any interest expense incurred or continued to
carry a market discount bond that does not exceed the accrued market discount for any taxable year, will be
deferred.
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Although the 2008B Bonds are expected to trade "flat," that is, without a specific allocation to accrued
interest, for federal income tax purposes, a portion of the amount realized on sale attributed to the 2008B Bonds will
be treated as accrued interest and thus will be taxed as ordinary income to the seller (and will not be subject to tax in
the hands of the buyer).
Sale and Exchangeof 2008B Bonds
Upon a sale or exchange of a 2008B Bond, a holder generally will recognize gain or loss on the 2008B
Bonds equal to the difference between the amount realized on the sale and its adjusted tax basis in such 2008B
Bond. Such gain or loss generally will be capital gain (although any gain attributable to accrued market discount of
the 2008B Bond not yet taken into income will be ordinary). The adjusted basis of the holder in a 2008B Bond will
(in general) equal its original purchase price and decreased by any principal payments received on the 2008B Bond.
In general, if the 2008B Bond is held for longer than one year, any gain or loss would be long term capital gain or
loss, and capital losses are subject to certain limitations.
Foreign Investors
Distributions on the 2008B Bonds to a non-U.S. holder that has no connection with the United States other
than holding its 2008B Bond generally will be made free of withholding tax, as long as that the holder has complied
with certain tax identification and certification requirements.
Circular 230
Under 31 C.F.R. part 10, the regulations governing practice before the Internal Revenue Service (Circular
230), we and our tax advisors are (or may be) required to inform you that:
• Any advice contained herein, including any opinions of counsel referred to herein, is not intended or
written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be
imposed on the taxpayer;
• Any such advice is written to support the promotion or marketing of the 2008B Bond and the transactions
described herein (or in such opinion or other advice); and
• Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax
advisor.
Possible Recognition of Taxable Gain or Loss upon Defeasance of the 2008B Bonds
Defeasance of any 2008B Bond may result in a reissuance thereof, in which event a holder will recognize
taxable gain or loss equal to the difference between the amount realized from the sale, exchange or retirement (less
any accrued qualified stated interest which will be taxable as such) and the holder's adjusted tax basis in the 2008B
Bond.
APPROVAL OF LEGALITY
The issuance of the 2008B Bonds is subject to the approving opinion of Orrick, Herrington & Sutcliffe
LLP, Los Angeles, California, Bond Counsel to the City, substantially in the form set forth as Appendix D. Certain
legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, a Professional
Corporation, Newport Beach, California, and for the City by the City Attorney.
RATINGS
Moody's Investors Service, Inc. and Standard & Poor's Ratings Group have assigned the 2008B Bonds the
ratings of "_" and "_," respectively. The ratings reflect only the respective views of the rating agencies and any
explanation of the significance of such ratings may be obtained only from such rating agencies as follows: Moody's
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Investors Service, 7 World Trade Center at 250 Greenwich Street, New York, New York 10007; and Standard &
Poor's, 55 Water Street, New York, New York 10041. There is no assurance that the ratings will remain in effect
for any given period of time or that they will not be revised downward or withdrawn entirely by such rating
agencies, or either of them, if, in their respective judgments, circumstances so warrant. Any downward revision or
withdrawal of any rating may have an adverse effect on the market price of the 2008B Bonds.
UNDERWRITING
RBC Capital Markets Corporation (the "Underwriter") has agreed, subject to certain conditions, to
purchase the 2008B Bonds at a price of $ (representing the $[PAR AMOUNT].00 aggregate principal
amount of the 2008B Bonds [less $ original issue discount] and less $ Underwriter's discount).
The purchase contracts provide that the Underwriter will purchase all the 2008B Bonds to be purchased thereunder
if any are purchased. The 2008B Bonds may be offered and sold by the Underwriter to certain dealers and others at
prices louver than the public offering price stated on the cover page of this Official Statement, and such public
offering price may be changed, from time to time, by the Underwriter.
FINANCIAL STATEMENTS
[Include June 30, 2008 financials if available.] The audited financial reports of the City, as of June 30,
2007 and June 30, 2006, are included in Appendix A to this Official Statement. The financial reports have been
audited by Macias, Gini & O'Connell LLP, Los Angeles, California, independent accountants (the "Independent
Accountants") as stated in their reports appearing in Appendix A. The City has not requested nor did the City obtain
permission from the Independent Accountants to include the audited financial statements for the Fiscal Years ended
June 30, 2007 and June 30, 2006 as an appendix to this Official Statement. No review or investigation with respect
to subsequent events has been undertaken in connection with such financial reports by the Independent Accountants.
The financial statements set forth in Appendix A include the City's General Fund and all other funds of the
City, in addition to the Light and Power Fund through which the operations of the Electric System are accounted.
The 2008B Bonds are not secured by a legal or equitable pledge of, or lien or charge upon any property of the City
or any of its income or receipts except Net Revenues of the City's Electric System and the other funds pledged
therefor pursuant to the Indenture. Neither the faith and credit nor the taxing power of the City, the State nor any
public agency is pledged to the payment of the principal of and interest on the 2008B Bonds.
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EXECUTION AND DELIVERY
The execution and delivery of this Official Statement has been duly authorized by the City.
CITY OF VERNON, CALIFORNIA
M
Leonis C. Malburg
Mayor
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APPENDIX A
AUDITED FINANCIAL STATEMENTS OF THE CITY
FOR THE FISCAL YEARS ENDED JUNE 30, 2007 AND JUNE 30, 2006
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APPENDIX B
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following is a brief summary of certain provisions of the Indenture not previously discussed in this
Official Statement. Such summary is not intended to be definitive, and reference is made to the Indenture in its
entirety for the complete terms thereof Capitalized terms used in this summary which are not otherwise defined in
this Official Statement have the meanings ascribed to such terms in the Indenture.
DEFINITIONS
."Accountant's Certificate" means a certificate signed by an Independent Certified Public Accountant
selected by the City.
"Accreted Value" means, with respect to any Capital Appreciation Obligation and as of any date, the Initial
Amount thereof plus the interest accrued thereon from its delivery date, compounded at the approximate interest rate
with respect to such Capital Appreciation Obligation specified in or pursuant to the Issuing Instrument authorizing
the issuance of such Capital Appreciation Obligation on each date specified therein. The applicable Accreted Value
at any date shall be the amount set forth in the Accreted Value Table as of such date, if such date is a compounding
date, and if not, shall be determined by straight-line interpolation with reference to such Accreted Value Table.
"Accreted Value Table" means, with respect to Capital Appreciation Obligations, the table denominated as
such in, and to which reference is made in, the Issuing Instrument authorizing the issuance of such Capital
Appreciation Obligations.
"Additional Bonds" means Bonds issued in accordance with the terms and conditions of the Indenture for
the purposes set forth in the Indenture.
"Additional Parity Obligations" means Parity Obligations, including Additional Bonds, issued for the
purposes set forth in the Indenture and satisfying the conditions set forth in the Indenture.
"Adjusted Debt Service" means, for any period of time, the Debt Service for such period minus the sum of
the amount of such Debt Service with respect to Outstanding Parity Obligations to be paid during such period from
the proceeds of Parity Obligations, Subordinate Obligations or other funds as set forth in a certificate of the City.
"Adjusted Net Revenues" means, with respect to a certificate to be delivered in connection with Additional
Parity Obligations pursuant to the Indenture, for any Calculation Period, as calculated by the City or an Independent
Engineer, the Adjusted Revenues for such Calculation Period less the Operation and Maintenance Expenses for such
Calculation Period, plus at the option of the City, any or all of the following: (i) an allowance for any estimated
increase in Revenues from any additions or improvements to or extensions of the Electric System, made but not in
service during the applicable Calculation Period or to be made with the proceeds of any Additional Parity
Obligations with respect to which such certificate relates, with the proceeds of other Obligations theretofore issued
by the City and available for such purpose or with other available funds of the City reserved by the City for such
purpose, such allowance to be in an amount equal to the estimated additional average annual Net Revenues to be
derived from such additions, improvements and extensions during the twelve month period after placing each such
addition, improvement or extension in service, all as shown by a certificate of the City or an Independent Engineer;
and (ii) an allowance for any increases in rates and charges for the Electric Service of the Electric System and which
have been approved by the City Council but which during all or any part of the applicable Calculation Period were
not in effect, such allowance to be in an amount equal to seventy-five percent (75%) of the amount by which the
Revenues for the applicable Calculation Period would have increased if such increase in rates and charges had been
in effect for that portion of such Calculation Period during which such increase was not in effect.
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"Adjusted Revenues" means, for any period of time, the Revenues for such period less the amount of such
Revenues which have been deposited in the Expense Stabilization Fund during such period plus the amount of
withdrawals during such period from the Expense Stabilization Fund.
"Advance Refunded Municipal Securities" means any bonds or other obligations of any state of the United
States of America or of any agency, instrumentality or local government unit of any such state (a) which are rated
"AAA" by Standard and Poor's, "AAA" by Fitch or "Aaa" by Moody's, (b) which are not callable prior to maturity
or as to which irrevocable instructions have been given to the trustee, fiscal agent or other fiduciary for such bonds
or other obligations by the obligor to give due notice of redemption and to call such bonds or other obligations for
redemption on the date or dates specified in such instructions, (c) which are secured as to principal and interest and
redemption premium, if any, by a fund consisting only of cash or bonds or other obligations of the character
described in clause (i) of the definition of Defeasance Securities which fund may be applied only to the payment of
such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity
date or dates thereof or the redemption date or dates specified in the irrevocable instructions referred to in clause (b)
above, as appropriate, and (d) as to which the principal of and interest on the bonds and obligations of the character
described in clause (i) of the definition of Defeasance Securities which have been deposited in such fund, along with
any cash on deposit in such fund, have been verified by an Accountant's Certificate as being sufficient to pay
principal of and interesf and redemption premium, if any, on such bonds or other obligations on the maturity date or
dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to in clause (b)
above, as applicable.
"Applicable Parity Obligations" means, with respect to a certificate to be delivered in connection with
Additional Parity Obligations pursuant to the Indenture and as of the date of such certificate, all of the Parity
Obligations Outstanding on such date plus the Additional Parity Obligations proposed to be issued.
"Authorized Denominations" means, with respect to Bonds of any Series, the denomination or
denominations designated as such in the Supplemental Indenture authorizing such Bonds.
"Authorized City Representative" means the City Administrator of the City, and any other officer of the
City duly authorized to act as an Authorized City Representative for purposes of the Indenture by the City Council
or written authorization of the City Administrator of the City.
"Balloon Indebtedness" means, with respect to any Series of Obligations twenty-five percent (25%) or
more of the principal of which matures on the same date or within a 12-month period (with Sinking Fund
Installments on Term Obligations deemed to be payments of matured principal), that portion of such Series of
Obligations which matures on such date or within such 12-month period. For purposes of this definition, the
principal amount maturing on any date shall be reduced by the amount of such indebtedness which is required, by
the documents governing such indebtedness, to be amortized by prepayment or redemption prior to its stated
maturity date.
"Beneficial Owner" means, with respect any Book -Entry Bond, the beneficial owner of such Bond as
determined in accordance with the applicable rules of the Securities Depository for such Book -Entry Bonds.
"Bond" means any of the City of Vernon Electric System Revenue Bonds authorized pursuant to the
Indenture and a Supplemental Indenture.
"Bond Counsel" means Orrick, Herrington & Sutcliffe LLP or another attorney or firm of attorneys of
recognized national standing in the field of law relating to municipal securities and to exclusion of interest thereon
from income for federal income tax purposes selected by the City.
"Bond Debt Service" means, for any period of time, the sum of (a) the interest payable during such period
on all Outstanding Bonds, assuming that all Outstanding Bonds which are Serial Obligations are retired as scheduled
and that all Outstanding Bonds which are Term Obligations are redeemed or paid from Sinking Fund Installments as
scheduled, (b) that portion of the principal amount of all Outstanding Bonds which are Serial Obligations maturing
on each principal payment date during such period, including the Final Compounded Amount of any Bonds which
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are Capital Appreciation Obligations and Serial Obligations, (c) that portion of the principal amount of all
Outstanding Bonds which are Term Obligations required to be redeemed or paid from Sinking Fund Installments
during such period (together with the redemption premiums, if any, thereon).
"Bond Ordinance" means the City of Vernon Municipal Facilities Revenue Bond Law constituting Article
XI of the City Code of the City of Vernon.
"Bond Register" means the registration books for the ownership of Bonds maintained by the Trustee
pursuant to the Indenture.
"Bondowner" or "Owner" means, with respect to a Bond, the registered owner of such Bond as set forth in
the Bond Register.
"Book -Entry Bonds" means Bonds registered in the name of a nominee of DTC, or any successor
Securities Depository for the Bonds or a nominee thereof, as the registered owner thereof pursuant to the terms and
provisions of the Indenture.
"Budget" means, as of any date, the budget for the Electric System prepared by the City pursuant to the
Indenture in effect as of such date.
"Business Day" means, with respect to each Series of Bonds, unless otherwise provided with respect to a
Series of Bonds in the Supplemental Indenture authorizing the issuance of such Series, any, day of the year other
than (i) a Saturday, (ii) a Sunday, (iii) any day which shall be in Los Angeles, California or New York, New York a
legal holiday or a day on which banking institutions are authorized or required by law or other government action to
close, and (iv) any day on which the banks are authorized or required by law or other government action to close in
the State of New York or State of California or any city in which the Principal Office of any Paying Agent or any
Credit Provider for such Series of Bonds is located.
"Calculation Period" means, with respect to any certificate to be provided pursuant to the Indenture, any
twelve consecutive month period within the eighteen consecutive months ending immediately prior to the issuance
of the Additional Parity Obligations to which such certificate relates.
"Capital Appreciation Obligations" mean any Obligations the interest on which is compounded and not
scheduled to be paid until the maturity or prior redemption of such Obligations.
"Capital Improvement" means, to the extent chargeable to a capital account of the Electric System, or
otherwise eligible for amortization, under Generally Accepted Accounting Principles any land, improvement,
facility, equipment and other property of any nature whatsoever which is used in the Electric System including but
not limited to: (i) any addition, betterment, replacement, renewal, extension or improvement of or to the Electric
System, including, without limitation, capacity rights in electric generation resources, rights to the transmission
capability of electric transmission resources, acquisition of emission credits or other environmental assets for
facilities of the Electric System, land or any interests therein; and (ii) capital costs for the extension, reinforcement,
enlargement or other improvement of facilities or property, or the acquisition of interests therein, not included as
part of the Electric System, determined by the City to be necessary or convenient in connection with the utilization
of the Electric System.
"Charter" means the Charter of the City of Vernon.
"City" means the City of Vernon, California and its successors.
"City Administrative Code" means the Code of the City of Vernon.
"City Council" means the City Council of the City established pursuant to the Charter.
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"Code" means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a
section of the Code in the Indenture shall be deemed to include the applicable United States Treasury Regulations
thereunder and also includes all amendments and successor provisions unless the context clearly requires otherwise.
"Collateral Requirement" means, with respect to a Qualified Swap Agreement, that such Qualified Swap
Agreement includes provisions to the effect that: (i) if the counterparty's (or, if applicable, the counterparty's
guarantor's) ratings fall below "Aa" by Moody's or "AA" by S&P, or are suspended or withdrawn, the counterparty
shall provide collateral in the form of cash or Defeasance Securities, or a combination thereof; (ii) that the collateral
is to be held by the City or a third party custodian acceptable to the City; (iii) that the City shall have a perfected
security interest in the collateral; (iv) that the amount of the collateral shall be at least equal to one hundred percent
of the amount, if any, that the counterparty would be obligated to pay the City in the event of the early termination
of the transactions under the Qualified Swap Agreement; (v) that there may be deducted from the amount of the
collateral a threshold amount of not more than $1,000,000, except that if the counterparty's (or, if applicable, the
counterparty's guarantor's) ratings fall below "A" by Moody's or "A" by S&P, or are suspended or withdrawn, the
threshold amount shall be zero; and (vi) the amount of the required collateral and the value of the collateral posted
shall be valued no less frequently than monthly.
"Commercial Paper Program" means a program of short-term Obligations having the characteristics of
commercial paper in that such Obligations have a stated maturity not later than 270 days from their date of issue and
that maturing Obligations of such program may be paid with the proceeds of renewal short-term Obligations.
"Cost" means, with respect to any Capital Improvement, to the extent permitted under the Bond Ordinance,
all costs and expenses of planning, designing, acquiring, constructing, installing and financing such Capital
Improvement, placing such Capital Improvement in operation, disposal of such Capital Improvement, and obtaining
governmental approvals, certificates, permits and licenses with respect to the applicable Capital Improvement paid
or incurred by the City. Payment of Cost shall include the reimbursement to the City for any of the costs included in
this definition of Cost paid by the City and not previously reimbursed to the City and which are not to be reimbursed
from contributions in aid of construction. The term Cost shall include, but shall not be limited to: (a) costs of
preliminary investigation and development, the performance or acquisition of feasibility and planning studies, and
the securing of regulatory approvals, as well as costs for land and land rights, engineering and contractors' fees,
labor, materials, equipment, utility services and supplies, legal fees and financing expenses; (b) working capital and
reserves therefor in such amounts as shall be determined by the City; (c) interest accruing in whole or in part on
Parity Obligations prior to and during the acquisition, construction and installation of a Capital Improvement, or any
portion thereof, and for such additional period as the City may determine; (d) the deposit or deposits from the
proceeds of the Bonds in any funds or accounts required by the Indenture or any Supplemental Indenture; (e) the
payment of principal, premium, if any, and interest when due (whether at the maturity of principal or at the due date
of interest or upon redemption or otherwise) of any note or other evidence of indebtedness the proceeds of which
were applied to any of the costs of the applicable Capital Improvement or Capital Asset described in this definition;
(f) Training and testing costs which are properly allocable to the acquisition, placing in operation, or construction of
a Capital Improvement; (g) All costs of insurance applicable to the period of acquisition of the Capital Asset and the
acquisition, construction, installation and placing the Capital Improvement in operation; (h) All costs relating to
injury and damage claims arising out of the acquisition, construction, installation and placing the Capital
Improvement in operation less proceeds of insurance; (i) legally required or permitted federal, state and local taxes
and payments in lieu of taxes applicable to the acquisition, construction, installation and placing the Capital
Improvement in operation, or any portions thereof; 0) amounts due the United States of America as rebate of
investment earnings with respect to the proceeds of Parity Obligations the proceeds of which were applied, in whole
or in part, to the Capital Improvement or as penalties in lieu thereof; (k) amounts payable with respect to capital
costs for the expansion, reinforcement, enlargement or other improvement of facilities, whether or not such facilities
constitute a part of the Electric System, determined by the City to be necessary in connection with the utilization of
the applicable Capital Improvement and the costs associated with the removal from service or reductions in service
of any facilities as a result of the expansion, reinforcement, enlargement or other improvement of such facilities or
the acquisition, construction, installation or placing in service of the Capital Improvement; (1) Costs of Issuance of
any Parity Obligations the proceeds of which were applied, in whole or in part, to the Capital Improvement; (m) fees
and expenses pursuant to any lending or credit facility or agreement applicable to the period of the acquisition,
construction, installation and placing in operation the Capital Improvement; and (n) To the extent chargeable to a
capital account of the Electric System under Generally Accepted Accounting Principles, all other costs incurred by
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the City, properly allocable to the acquisition, construction, or installation of the Capital Improvement, or any
portion thereof, or the placing of the Capital Improvement or any portion thereof in operation.
"Costs of Issuance" means, to the extent permitted by the Bond Ordinance, all items of expense directly or
indirectly payable by or reimbursable to the City and related to the original authorization, execution, sale and
delivery of Parity Obligations, including but not limited to advertising and printing costs, costs of preparation and
reproduction of documents, including disclosure documents and documents relating to the sale of such Parity
Obligations, initial fees and charges (including counsel fees) of any fiscal agent, any paying agent and any Credit
Provider, legal fees and charges, financial advisor fees and expenses, fees and expenses of other consultants and
professionals, rating agency fees, fees and charges for preparation, execution, transportation and safekeeping of
Parity Obligations and any other cost, charge or fee in connection with the authorization, issuance, sale or original
delivery of Parity Obligations.
"Credit Provider" means any municipal bond insurance company, bank or other financial institution or
organization which is performing in all material respects its obligations under any Credit Support Instrument for
some or all of the Parity Obligations.
"Credit Provider Bonds" means any Bonds paid as to principal, Redemption Price, Purchase Price and/or
interest with funds provided under a Credit Support Instrument for so long as such Bonds are held by or for the
account of, or are pledged to, the applicable Credit Provider or any assignee thereof in accordance with the
applicable Credit Support Agreement.
"Credit Provider Reimbursement Obligations" means obligations of the City to pay from the Net Revenues
and amounts in the Light and Power Fund (other than the Operating Reserve) amounts due under a Credit Support
Agreement, including without limitation amounts advanced by a Credit Provider pursuant to a Credit Support
Instrument as credit support or liquidity for Parity Obligations and the interest with respect thereto.
"Credit Support Agreement" means, with respect to any Credit Support Instrument, the agreement or
agreements (which may be the Credit Support Instrument itself) between the City and the applicable Credit Provider,
as originally executed or as it may from time to time be replaced, supplemented or amended in accordance with the
provisions thereof, providing for the reimbursement to the Credit Provider for payments under such Credit Support
Instrument or for extensions of credit made to the City by the Credit Provider, and the interest thereon, and includes
any subsequent agreement pursuant to which a substitute Credit Support Instrument is provided, together with any
related pledge agreement, security agreement or other security document.
"Credit Support Instrument" means a policy of insurance, a letter of credit, a stand-by purchase agreement,
revolving credit agreement or other credit arrangement pursuant to which a Credit Provider provides credit and/or
liquidity support with respect to the payment of interest, principal, Redemption Price or Purchase Price of any Parity
Obligations but shall not include a Reserve Financial Guaranty.
"Debt Service" means, for any period of time, the sum of (a) the interest payable during such period on all
Outstanding Parity Obligations, assuming that all Outstanding Serial Parity Obligations are retired as scheduled and
that all Outstanding Term Parity Obligations are redeemed or paid from Sinking Fund Installments as scheduled, (b)
that portion of the principal amount of all Outstanding Serial Parity Obligations maturing on each principal payment
date during such period, including the Final Compounded Amount of any Capital Appreciation Obligations and (c)
that portion of the principal amount of all Outstanding Term Parity Obligations required to be redeemed or paid
from Sinking Fund Installments becoming due during such period (together with the premiums, if any, thereon).
"Debt Service Fund" means the City of Vernon Electric System Debt Service Fund established pursuant to
the Indenture.
"Debt Service Reserve Fund" means the City of Vernon Electric System Debt Service Reserve Fund
established pursuant to the Indenture.
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"Debt Service Reserve Requirement" means, as of any date of calculation, an amount equal to the least of
(a) ten percent (10%) of the initial offering price to the public of the Bonds as determined under the Code, or (b) the
greatest amount of Bond Debt Service in any Fiscal Year during the period commencing with the Fiscal Year in
which the determination is being made and terminating with the last Fiscal Year in which any Bond is due, or (c)
one hundred twenty-five percent (125%) of the sum of the Bond Debt Service for all Fiscal Years during the period
commencing with the Fiscal Year in which such calculation is made (or if appropriate, the first full Fiscal Year
following the execution and delivery of any Bonds) and terminating with the last Fiscal Year in which any Bond
Debt Service is due, divided by the number of such Fiscal Years, all as computed and determined by the City and
specified in writing to the Trustee; provided, however that in determining Bond Debt Service with respect to any
Bonds that constitute Variable Rate Indebtedness, the interest rate on such Bonds for any period as to which such
interest rate has not been established shall be assumed to be (i) with respect to Bonds which are Tax -Exempt, the ten
year historical average of the SIFMA Index ending with the week preceding the date of calculation, and (ii) with
respect to Bonds which are not Tax -Exempt, the ten year historical average of the One Month USD LIBOR Rate
ending with the month preceding the date the calculation is made or if the One Month USD LIBOR Rate is not
available for such period, another similar rate or index selected by the City.
"Debt Service Reserve Valuation Date" means the Business Day preceding each July 1, commencing July
1, 2009.
"Defeasance Securities" means any of the following securities, if and to the extent the same are at the time
legal investments for funds of the City: (i) any bonds or other obligations which as to principal and interest
constitute direct obligations of, or obligations unconditionally guaranteed by, the United States of America,
including obligations of any agency or corporation which has been or may hereafter be created pursuant to an Act of
Congress as an agency or instrumentality of the United States of America to the extent unconditionally guaranteed
by the United States of America; and (ii) Advance Refunded Municipal Securities.
"Electric Service" means the services, commodities and products furnished, made available or provided by
the Electric System.
"Electric System" means the electrical energy generation, transmission and distribution system of the City
established pursuant to Ordinance No. 1022 of the City (codified as Section 2.91 of the City Administrative Code)
and referred to in the City Administrative Code as the Vernon Electric System, comprising all electric generation,
transmission and distribution facilities and all general plant facilities related thereto now owned by the City and all
other facilities properties, structures or works for the generation, transmission or distribution of electricity hereafter
acquired by the City, including all contractual rights for electricity or the transmission thereof, together with all
additions, betterments, extensions or improvements to such facilities, properties, structures or works or any part
thereof, and any additional contract rights for electricity or the transmission thereof, hereafter acquired.
"Event of Default" means an event described as such in the Indenture
"Electronic" means, with respect to notice, notice through telecopy, telegraph, telex, facsimile
transmission, internet, e-mail, dedicated electronic link or other electronic means of communication capable of
producing a written record.
"Escrow Agent" means the Trustee or a bank or trust company organized under the laws of any state. of the
United States, or a national banking association, appointed by the City to hold in trust moneys set aside for the
payment or redemption of, or interest installments on, a Bond or Bonds, or any portion thereof, deemed paid and
defeased pursuant to the Indenture.
"Expense Stabilization Fund" means the City of Vernon Electric System Expense Stabilization Fund
established pursuant to the Indenture.
"Event of Bankruptcy" means any of the following with respect to any Person: (a) the commencement by
such person of a voluntary case under the Federal Bankruptcy Code or any other applicable federal or state
bankruptcy, insolvency or similar laws; (b) failure by such Person to timely controvert the filing of a petition with a
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court having jurisdiction over such Person to commence an involuntary case against such person under the Federal
Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency or similar laws; (c) such Person
shall admit in writing its inability to pay its debts generally as they become due; (d) a receiver, trustee, custodian or
liquidator of such Person or such Person's assets shall be appointed in any proceeding brought against the Person or
such Person's assets; (e) assignment of assets by such person for the benefit of its creditors; or (f) the entry by such
Person into an agreement of composition with its creditors.
"Favorable Opinion of Bond Counsel means, with respect to any action requiring such an opinion, an
Opinion of Bond Counsel to the effect that such action shall not, in and of itself, adversely affect the Tax -Exempt
status of interest on the Bonds or such portion thereof as shall be specified in the provisions of the Indenture or the
Supplemental Indenture requiring such an opinion.
"Federal Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy," as the same
may be amended and supplemented, and any successor statute.
"Fiduciary" means the Trustee and any Paying Agent for Bonds appointed as provided in the Indenture.
"Final Compounded Amount" means the Accreted Value of any Capital Appreciation Obligation on its
maturity date.
"First Supplemental Indenture" means the First Supplemental Indenture of Trust, dated as of September 1,
2008, between the City and the Trustee supplementing the Master Indenture, as the same may be amended and
supplemented in accordance with the provisions of the Master Indenture and relating to the 2008B Bonds.
"Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June
30, or any other twelve-month period selected and designated as the official Fiscal Year of the City.
"Franchise Payment" means the payment in lieu of franchise tax added to each Electric System customer
bill to be paid to the City's General Fund and any successor or replacement payment.
"Fund" means each of the funds established under the Indenture.
"Generally Accepted Accounting Principles" means generally accepted accounting principles applied on a
consistent basis set forth in the opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants applicable to a government -owned utility applying all statements and
interpretations issued by the Governmental Accounting Standards Board and statements and pronouncements of the
Financial Accounting Standards Board which are not in conflict with the statements and interpretations issued by the
Governmental Accounting Standards Board or in such other statements by such other entity as may be approved by
a significant segment of the accounting profession, that are applicable to the circumstances as of the date of
determination.
"Indenture" means, the Master Indenture, as supplemented and amended from time to time by
Supplemental Indentures.
"Independent Certified Public Accountant" means a Person who is: (i) a certified public accountant, or a
firm of certified public accountants; (ii) appointed by the City to perform acts, prepare certificates or otherwise carry
out the duties provided for an Independent Certified Public Accountant in this Master Indenture or any
Supplemental Indenture; (iii) which is independent pursuant to the Statement on Auditing Standards No. 1 of the
American Institute of Certified Public Accountants; (iv) which is of recognized standing with respect to accounting
matters for municipally -owned electric utilities; and (v) which is licensed to practice in the State of California.
"Independent Engineer" means a Person who is: (i) a consulting engineer, or a firm of consulting engineers;
(ii) appointed by the City to perform acts, prepare certificates or otherwise carry out the duties provided for an
Independent Engineer in this Master Indenture or any Supplemental Indenture; (iii) which is of national recognized
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standing with respect to engineering matters for electric utilities; and (iv) which is licensed to practice in the State of
California.
"Initial Amount" means the Accreted Value of a Capital Appreciation Obligation on its date of issuance
and delivery to the original purchaser thereof.
"Interest Account" means the account by that name in the Debt Service Fund established pursuant to the
Indenture.
"Interest Payment Date" means, with respect to a Series of Bonds, each date on which interest on Bonds of
such Series is scheduled to be paid as set forth in, or determined in accordance with, the Supplemental Indenture
authorizing the issuance of such Series.
"Issuing Instrument" means any, indenture, trust agreement or other instrument or agreement under which
Obligations are issued.
"Light and Power Fund" means the Light and Power Department Fund established pursuant to Ordinance
No. 950 of the City (codified as Section 2.65 of the City Administrative Code) and shall include any successor or
replacement fund established by the City for the collection of revenues and the payment of expenses of the Electric
System.
"Master Indenture" means the Indenture of Trust, dated as of September 1, 2008 between the City and the
Trustee, as the provisions thereof may be modified or amended from time to time in accordance with the Indenture.
"Maximum Adjusted Annual Debt Service" means, with respect to a certificate to be delivered in
connection with Additional Parity Obligations pursuant to the Indenture, as of any date and with respect to the
Applicable Parity Obligations, the maximum amount of Adjusted Debt Service becoming due on the Applicable
Parity Obligations in the then current or any future Fiscal Year, as adjusted as provided in this definition and
calculated by the City or by an Independent Engineer. For purposes of calculating Maximum Adjusted Annual Debt
Service, the following adjustments and assumptions shall be made with respect to Debt Service on the Applicable
Parity Obligations coming due ineach Fiscal Year:
(a) in determining the amount of Debt Service constituting principal due in each Fiscal Year,
principal payments with respect to Applicable Parity Obligations which are or upon issuance shall be, part
of a Commercial Paper Program, but which would not constitute Balloon Indebtedness, shall be treated as
if such Applicable Parity Obligations were to be amortized with substantially level annual Debt Service
payments over a term of 40 years commencing on the date the calculation of Maximum Adjusted Annual
Debt Service is made,
(b) if all or any portion or portions of the Applicable Parity Obligations constitute, or upon
issuance would constitute, Balloon Indebtedness, then, for purposes of determining Maximum Adjusted
Annual Debt Service, each maturity which constitutes, or upon issuance would constitute, Balloon
Indebtedness shall be treated as if it were to be amortized with substantially level annual Debt Service
payments over a term of 40 years commencing on the date which is the first anniversary of the initial
issuance of such Applicable Parity Obligations;
(c) if any Outstanding Parity Obligations constitute Tax -Exempt Variable Rate Indebtedness
(except to the extent paragraph (g) applies), the interest rate on such Applicable Parity Obligations for any
period as to which such interest rate has not been established shall be assumed to be the ten year historical
average of the SIFMA Index ending with the week preceding the date of calculation;
(d) if any Outstanding Parity Obligations constitute Variable Rate Indebtedness which is not Tax -
Exempt (except to the extent paragraph (g) applies), the interest rate on such Parity Obligations for any
period as to which such interest rate has not been established shall be assumed to be 110% of the average
One Month USD LIBOR Rate during the calendar quarter preceding the calendar quarter in which the
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calculation of Maximum Adjusted Annual Debt Service is=ade or if the One Month USD LIBOR Rate is
not available for such period, another similar rate or index selected by the City;
(e) if the Additional Parity Obligations proposed to be issued shall be Tax -Exempt Variable Rate
Indebtedness (except to the extent subsection (h) applies), then the interest rate on such Parity Obligations
shall be assumed to be the ten year historical average of the SIFMA Index ending with the week preceding
the date the calculation of Aggregate Adjusted Annual Debt Service or Maximum Adjusted Annual Debt
Service is made;
(f) if the Additional Parity Obligations proposed to be issued shall be Variable Rate Indebtedness
which is not Tax -Exempt (except to the extent subsection (h) applies) then the interest rate on such Parity
Obligations shall be assumed to be the ten year historical average of the One Month USD LIBOR Rate
ending with the month preceding the date the calculation is made, or if the One Month USD LIBOR Rate is
not available for such period, another similar rate or index selected by the City;
(g) if a Qualified Swap Agreement has been entered into in connection with any Outstanding
Parity Obligations, the interest rate on such Outstanding Parity Obligations for each Fiscal Year or portion
thereof during which payments are to be exchanged by the parties under such Qualified Swap Agreement
shall be determined for purposes of calculating Maximum Adjusted Annual Debt Service by adding: (1) the
amount of Debt Service paid or to be paid by the City as interest on the Outstanding Parity Obligations
during such Fiscal Year or portion thereof (determined as provided in paragraph (c) or (d), as applicable, if
such Outstanding Parity Obligations constitute Variable Rate Indebtedness) and (2) the net amount (which
may be a negative amount) paid or to be paid by the City under the Qualified Swap Agreement (after giving
effect to payments made and received, and to be made and received, by the City under the Qualified Swap
Agreement) during such Fiscal Year or portion thereof, and for this purpose any variable rate of interest
agreed to be paid under the Qualified Swap Agreement shall be deemed to be the rate at which the related
Outstanding Parity Obligations constituting Variable Rate Indebtedness is assumed to bear interest;
(h) if a Qualified Swap Agreement has been entered into or upon issuance of such Additional
Parity Obligation will be entered into, by the City with respect to any Additional Parity Obligations
proposed to be issued, the interest on such proposed Additional Parity Obligations for each Fiscal Year or
portion thereof during which payments are to be exchanged under the Qualified Swap Agreement shall be
determined for purposes of calculating Maximum Adjusted Annual Debt service by adding: (1) the amount
of Debt Service to be paid by the City as interest on such Additional Parity Obligations during such Fiscal
Year or portion thereof (determined as provided in paragraph (e) or (0, as applicable, if such Additional
Parity Obligations are to constitute Variable Rate Indebtedness) and (2) the net amount (which may be a
negative amount) to be paid by the City under the Qualified Swap Agreement (after giving effect to
payments to be made and received by the City under the Qualified Swap Agreement) during such Fiscal
Year or portion thereof, and for this purpose any variable rate of interest agreed to be paid under the
Qualified Swap Agreement shall be deemed to be the rate at which the related Additional Parity
Obligations which are to constitute Variable Rate Indebtedness shall be assumed to bear interest; and
(i) if any of the Applicable Parity Obligations are, or upon issuance shall be, Paired Obligations,
the interest thereon shall be the resulting linked rate or effective fixed rate to be paid with respect to such
Paired Obligations.
"Moody's" means Moody's Investors Service, Inc. and any successor entity rating Parity Obligations at the
request of the City.
"Net Payments" means with respect to a Qualified Swap Agreement, the amount payable by the City on
each scheduled payment date under such Qualified Swap Agreement net of the amounts payable by the counterparty
under such Qualified Swap Agreement on such scheduled payment date.
"Net Transferable Income" means, with respect to any Fiscal Year, the Net Revenues for such Fiscal Year
less the Debt Service for such Fiscal Year.
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"Nominee" means the nominee of the Securities Depository for the Book -Entry Bonds in whose name such
Bonds are to be registered. The initial Nominee shall be Cede & Co., as the nominee of DTC.
"One Month USD LIBOR Rate" means the British Banker's Association average of interbank offered rates
in the London market for United States dollar deposits for a one month period as reported in the Wall Street Journal
or, if not reported in such newspaper, as reported in such other source as may be selected by the City.
"Opinion of Bond Counsel" means a written opinion signed by Bond Counsel.
"Outstanding" when used as of any particular time with respect to Obligations, means, except as otherwise
provided in the Indenture, all Obligations theretofore or thereupon being issued or incurred by the City, except (a)
Obligations theretofore cancelled or surrendered for cancellation; (b) Obligations paid or deemed to be paid within
the meaning of any defeasance provisions of the Issuing Instrument pursuant such Obligations were issued; and (c)
Obligations in lieu of or in substitution for which replacement Obligations have been issued.
"Paired Obligations" shall mean any Series (or portion thereof) of Parity Obligations designated as Paired
Obligations in the Issuing Instrument authorizing the issuance thereof, which are simultaneously issued (a) the
principal of which is of equal amount maturing and to be redeemed (or cancelled after acquisition thereof) on the
same dates and in the same amounts, and (b) the interest rates which, taken together, result in an irrevocably fixed
interest rate obligation of the City for the terms of such Paired Obligations.
"Parity Obligations" means Bonds and any Obligations which are payable from the Net Revenues and
amounts in the Light and Power Fund other than the Operating Reserve on a parity with the payment of the Bonds
and which satisfy the applicable conditions of the Indenture, including without limitation Credit Provider
Reimbursement Obligations and, with respect to Qualified Swap Agreements, the Net Payments, but not the
Termination Payments and other payments, due thereunder. i
"Participants" means, with respect to a Securities Depository for Book -Entry Bonds, those participants
listed in such Securities Depository's book -entry system as having an interest in such Bonds.
"Paying Agent" means, with respect to a Series of Bonds, the Trustee and any banking corporation,
banking association or trust company designated as paying agent for such Series of Bonds pursuant to the Indenture,
and its successor or successors appointed in the manner provided in the Indenture.
"Permitted Investments" means any of the following obligations if and to the extent that they are
permissible investments of funds of the City as stated in its current investment policy (the Trustee may rely on the
investment directions of the City that the investment is approved by the City's investment policy) and to the extent
then permitted by law:
(a) Direct obligations of the United States (including obligations issued or held in book -entry
form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and
interest on which are unconditionally guaranteed by the United States.
(b) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following federal agencies and provided such obligations are backed by the full faith and credit of the United
States (stripped securities are only permitted if they have been stripped by the agency itself):
(i) Farmers Home Administration ("FmHA")
Certificates of beneficial ownership
(ii) Federal Housing Administration Debentures ("FHA")
(iii) General Services Administration
Participation certificates
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(iv) Government National Mortgage Association ("GNMA!')
GNMA - guaranteed mortgage -backed bonds
GNMA - guaranteed pass -through obligations (participation certificates)
(v) United States Maritime Administration
Guaranteed Title XI financing
(vi) United States Department of Housing and Urban Development
Project Notes
Local Authority Bonds
(c) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following non -full faith and credit United States government agencies (stripped securities are only permitted
if they have been stripped by the agency itself):
(i) Federal Home Loan Bank System
Senior debt obligations
(ii) Federal Home Loan Mortgage Corporation ("FHLMC")
Participation Certificates
Senior debt obligations
(iii) Federal National Mortgage Association ("FNMA")
Mortgage -backed securities and senior debt obligations (excluded are stripped
mortgage securities which are valued greater than par on the portion of unpaid
principal)
(iv) Student Loan Marketing Association
Senior debt obligations
(v) Resolution Funding Corporation obligations (only the interest component of
REFCORP strips .which have been stripped by request to the Federal Reserve
Bank of New York in book entry form are acceptable)
(vi) Farm Credit Svstem
Consolidated system -wide bonds and notes
(d) Money market funds registered under the Federal Investment Company Act of 1940,
whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of "AAAm-G,"
"AAA-m" or "AA-m" and if rated by Moody's rated "Aaa," "Aal" or "Aa2," including funds for which the Trustee
or any of its affiliates (including any holding company, subsidiaries, or other affiliates) provides investment, advisory
or other management services, provided such funds satisfy the criteria contained in the Indenture.
(e) Certificates of deposit secured at all times by collateral described in (a) and/or (b) above.
Such certificates must be issued by commercial banks (including affiliates of the Trustee), savings and loan
associations or mutual savings banks. The collateral must be held by a third party and the City or the Trustee must
have a perfected first security interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit accounts or money market deposits
(including those of the Trustee and its affiliates) which are fully insured by FDIC, including BIT and SAIF.
(g) Investment agreements with, or guaranteed by, a domestic or foreign bank or corporation
(other than a life or property casualty insurance company) the long-term debt of which is rated at least "AA" by
S&P and "Aa" by Moody's, and which agreements are acceptable to each Credit Provider whose acceptance is
required by a Supplemental Indenture or a Credit Support Agreement.
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better by S&P. (h) Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-1" or
(i) Bonds or notes issued by any state or municipality which are rated by Moody's and S&P
in one of the two highest rating categories assigned by such agencies.
0) Federal funds or bankers acceptances with a maximum term of one year of any bank
(including those of the Trustee and its affiliates) which has an unsecured, uninsured and unguaranteed obligation
rating of "Prime - 1" or "A3" or better by Moody's and "A-1" or "A" or better by S&P.
(k) Repurchase Agreements for 30 days or less must satisfy the following criteria.
Repurchase Agreements which exceed 30 days must be acceptable to each Credit Provider whose acceptance is
required by a Supplemental Indenture or a Credit Support Agreement.
(i) Repurchase agreements must be between the City or the Trustee and a dealer
bank or securities firm
(1) Primary dealers on the Federal Reserve reporting dealer list must be
rated "A" or better by S&P and Moody's, or
(2) Banks must be rated "A" or above by S&P and Moody's.
(ii) The written repurchase agreements contract must include the following:
(1) Securities which are acceptable for transfer are:
(a) Securities described in subsection (a) or (b) of this
definition, or
(b) Securities of FNMA or FHLMC described in
subsection (c) of this definition
(2) The collateral must be delivered to the City, the Trustee (if Trustee is
not supplying the collateral) or third party acting as agent for the Trustee (if the
Trustee is supplying the collateral) before/simultaneously with payment.
(3) Valuation of Collateral
(a) The securities must be valued weekly, marked -to -
market at current market price plus accrued interest
(b) The value of collateral in the case of securities
described in subsections (a) or (b) of this definition
must be equal to 104% of the amount of cash
transferred by the City or the Trustee to the dealer
bank or security firm under the repurchase
agreements plus accrued interest. The value of
collateral in the case of securities of FNMA or
FHLMC described in subsection (c) of this definition
must be equal to 105% of the amount of cash
transferred by the City or the Trustee to the dealer
bank or security firm under the repurchase agreement
plus accrued interest. If the value of securities held
as collateral falls below the required percentage of
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the value of the cash transferred, then additional cash
and/or acceptable securities must be transferred.
(iii) Legal Opinion An opinion of counsel selected by the City, which may be the
City Attorney or other counsel retained by the City, to the effect that the
repurchase agreement meets guidelines under state law for legal investment of
public funds must be received by the City or the Trustee.
(1) Any state administered pool investment fund in which the City is statutorily permitted or
required to invest will be deemed a permitted investment, including, but not limited to the Local Agency Investment
Fund in the treasury of the State.
(m) Advance Refunded Municipal Securities.
"Person" means an individual, corporation, firm, association, partnership, trust or other legal entity or
group of entities, including a governmental entity or any agency or political subdivision thereof.
"Principal Account" means the account by that name in the Debt Service Fund established pursuant to the
Indenture.
"Principal Office" means, with respect to: (i) the Trustee, the principal office of such Trustee in Los
Angeles, California; and (ii) a Paying Agent or a Credit Provider, the office designated as such in writing by such
party to the Trustee, except that with respect to presentation of Bonds for payment or for registration of transfer and
exchange such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust
agency business shall be conducted.
"Prudent Utility Practice" means any of the practices, methods, and acts which, in the exercise of
reasonable judgment, in light of the facts, including but not limited to, the practices, methods, and acts engaged in or
approved by a significant portion of the electric utility industry prior thereto, known at the time the decision was
made, would have been expected to accomplish the desired result consistent with cost-effectiveness, reliability,
safety, and expedition. It is recognized that Prudent Utility Practice is not intended to be limited to optimum
practice, method, or act to the exclusion of all others, but rather is a spectrum of possible practices, methods, or act
which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with cost-
effectiveness, reliability, safety, and expedition.
"Purchase Price" means: (i) with respect to Bonds of any Series, the purchase price set forth or determined
pursuant to the Supplemental Indenture authorizing the Bonds of such Series to be paid to the Owners of such Bonds
when such Bonds are tendered for purchase or deemed tendered for purchase in accordance with the provisions of
such Supplemental Indenture; and (ii) with respect to other Parity Obligations, the purchase price set forth in the
Issuing Instrument authorizing such Parity Obligations to be paid to the owners of such Parity Obligations when
such Parity Obligations are tendered or deemed tendered for purchase in accordance with the provisions of such
Issuing Instruments.
"Qualified Swap Agreement" means a Public Finance Contract entered into by the City and satisfying the
conditions of the Indenture.
"Rating Agency" means, as of any time and to the extent it is then providing or maintaining a rating on
Parity Obligations at the request of the City, each of Moody's or Standard & Poor's, or in the event that neither
Moody's or Standard & Poor's then maintains a rating on Parity Obligations at the request of the City, any other
nationally recognized rating agency then providing or maintaining a rating on the Bonds at the request of the City.
"Rating Category" means (1) with respect to any long-term rating category, all ratings designated by a
particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other
modifier and (2) with respect to any short-term or commercial paper rating category, all ratings designated by a
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particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus
sign or other modifier.
"Rating Confirmation" means written evidence from each Rating Agency then rating Outstanding Parity
Obligations at the request of the City to the effect that, following the event which requires the Rating Confirmation,
the then current rating for each Outstanding Parity Obligation shall not be lowered or withdrawn solely as a result of
the occurrence of such event.
"Rebate Fund" means the City of Vernon Electric System Rebate Fund established pursuant to the
Indenture.
"Record Date" means, with respect to an Interest Payment Date for a Series of Bonds, the date or dates
specified as such in the Supplemental Indenture authorizing such Series of Bonds.
"Redemption Date" means; with respect to any Bonds to be redeemed in accordance with the Indenture and
the Supplemental Indenture authorizing such Bonds, the redemption date set forth in notice of redemption of such
Bonds given in accordance with the terms of the Indenture.
"Redemption Fund" means the City of Vernon Electric System Redemption Fund established pursuant to
the Indenture.
"Redemption Price" means, with respect to any redemption of a Bond prior to its maturity, the amount to
be paid upon such redemption of the Bond as set forth in, or determined in accordance with, the Supplemental
Indenture authorizing such Bond.
"Refunding Bonds" means Bonds issued in accordance with the terms and conditions of the Indenture for
the purposes, and satisfying the conditions of the Indenture.
"Refunding Parity Obligations" means Parity Obligations, including Refunding Bonds, issued for the
purposes set forth in the Indenture and satisfying the conditions set forth in the Indenture.
"Representation Letter" the letter or letters of representation from the City to, or other instrument or
agreement with, a Securities Depository ` for Book -Entry Bonds, in which the City, among other things, makes
certain representations to the, Securities Depository with respect to the Book -Entry Bonds, the payment thereof and
delivery of notices with respect thereto.
"Reserve Financial Guaranty" means a policy of municipal bond insurance or surety bond issued by a
municipal bond insurer or a letter of credit issued by a bank or other institution if the obligations insured by such
insurer or issued by such bank or other institution, as the case may be, have ratings at the time of issuance of such
policy or surety bond or letter of credit in the highest rating category (without regard to qualifiers) by S&P and
Moody's and, if rated by A.M. Best & Company, also in the highest rating category (without regard to qualifiers) by
A.M. Best & Company.
"Reserve Financial Guaranty Provider" means an issuer of a Reserve Financial Guaranty.
"Rule 15c2-12" means Rule 15c2-12 of the Securities and Exchange Commission adopted pursuant to the
Securities Exchange Act of 1934, as amended, as the same may be amended and supplemented from time to time.
"Securities Depository" means a trust company or other entity which provides a book -entry system for the
registration of ownership interests of Participants in securities and which is acting as security depository for Book -
Entry Bonds.
"Serial Obligations" means Obligations for which no Sinking Fund Installments are established.
"Serial Parity Obligations" means Serial Obligations which are Parity Obligations.
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"Series" means Obligations issued at the same time or sharing some other common term or characteristic
and designated in the Issuing Instrument pursuant to which such Obligations were issued as a separate issue or series
of Obligations.
"SIFMA Index" means, as of any date, The Securities Industry and Financial Markets Association
Municipal Swap Index as of the most recent date for which such index was published or such other weekly, high-
grade index comprised of seven-day, Tax -Exempt variable rate demand notes produced by Municipal Market Data,
Inc., or its successor, or as otherwise designated by The Securities Industry and Financial Markets Association;
provided, however, that; if such index is no longer produced by Municipal Market Data, Inc. or its successors, then
"SIFMA Index" shall mean such other reasonably comparable index as may be selected by the City.
"Sinking Fund Account" means the account by that name in the Debt Service Fund established pursuant to
the Indenture.
"Sinking Fund Installment" means, with respect to any Term Parity Obligations, each amount so designated
for such Term Parity Obligations in the Issuing Instrument authorizing the issuance of such Parity Obligations
requiring payments by the City from the Net Revenues to be applied to the retirement of such Parity Obligations on
and prior to the stated maturity date thereof.
"Standard & Poor's" means Standard & Poor's Rating Services and any successor entity rating Parity
Obligations at the request of the City.
"State" means the State of California.
"Subordinate Obligation" means any Obligation which is expressly made subordinate and junior in right of
payment from the Net Revenues and amounts in the Light and Power Fund other than the Operating Reserve to the
payment of Parity Obligations and which complies with the provisions of the Indenture.
"Supplemental Indenture" means any supplemental indenture supplementing or amending the Indenture as
theretofore in effect, entered into by the City and the Trustee in accordance with the Indenture.
"Tax Certificate" means a certificate relating to the requirements of the Code signed on behalf of the City
and delivered in connection with the issuance of a Series of Bonds.
"Tax -Exempt" means, with respect to interest on any obligations of a state or local government, including
the Bonds, that such interest is excluded from the gross income of the holders thereof (other than any holder who is
a "substantial user" of facilities financed with such obligations or a "related person" within the meaning of
Section 147(a) of the Code) for federal income tax purposes, whether or not such interest is includable as an item of
tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including
any alternative minimum tax or environmental tax under the Code.
"Tax -Exempt Securities" means bonds, notes or other securities the interest on which is Tax -Exempt.
"Tender Indebtedness" means any Parity Obligations or portions of Parity Obligations, a feature of which is
an option or obligation, on the part of the owners thereof under the terms of such Parity Obligations, to tender all or
a portion of such Parity Obligations to the City, a fiscal agent, a paying agent, a tender agent or other agent for
purchase and requiring that such Parity Obligations or portions thereof be purchased at the applicable Purchase Price
if properly presented.
"Termination Payment" means with respect to a Qualified Swap Agreement, the amount payable by the
City as a result of the termination of such Qualified Swap Agreement prior to its scheduled expiration date.
"Term Obligations" means Obligations which are payable on or before their specified maturity dates from
Sinking Fund Installments established for that purpose and calculated to retire such Obligations on or before their
specified maturity dates.
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"Term Parity Obligations" means Term Obligations which are Parity Obligations.
"Trustee" means, The Bank of New York Mellon Trust Company, N.A., as trustee for the Bonds under the
Indenture and any successor satisfying the requirements of the Indenture.
"Unrealized Item" means each item of revenue or expense of the Electric System recognized as a revenue
or expense of the Electric System in accordance with Generally Accepted Accounting Principles which are due to
unrealized gains or losses caused by marking assets or liabilities of the Electric System to market.
"Variable Rate Indebtedness" means any Obligation, other than Paired Obligations, the interest rate on
which to the maturity thereof is not established at a rate which is not subject to fluctuation or subsequent adjustment,
either at the time of issuance of such Obligation or some subsequent date.
THE INDENTURE
Authorization of Bonds
The Indenture provides certain terms and conditions upon which Bonds of the City to be designated as
"City of Vernon Electric System Revenue Bonds" may be issued from time to time as authorized by Supplemental
Indentures. The aggregate principal amount of Bonds which may be executed, authenticated and delivered under the
Indenture is not limited except as may be provided therein or as may be limited by law.
Indenture to Constitute Contract
In consideration of the purchase and acceptance of each Bond issued under the Indenture by those who
shall own the same from time to time, the provisions of each Bond and the provisions of the Indenture applicable to
such Bond shall be deemed to be and shall constitute a contract between the City and the Owner of such Bond.
No Recourse on Bonds
Neither the members of the City nor the officers or employees of the City shall be individually liable on the
Bonds or in respect of any undertakings by the City under the Indenture, any Supplemental Indenture or any Bond.
Paying Agent
The City appoints the Trustee as a Paying Agent for the Bonds of each Series, and may at any time or from
time to time appoint one or more other Paying Agents having the qualifications set forth in the Indenture as an
additional Paying Agent for the Bonds of one or more Series.
The Trustee shall signify its acceptance of the duties and obligations imposed upon it by the Indenture,
including the duties of Paying Agent for the Bonds, by the execution and the delivery of the Indenture to the City
and by such execution and delivery the Trustee shall be deemed to have accepted such duties and obligations with
respect to all the Bonds thereafter to be issued, but only, however, upon the terms and conditions set forth in the
Indenture and no implied covenants shall be read into the Indenture against the Trustee. Each Paying Agent other
than the Trustee shall signify its acceptance of the duties and obligations imposed upon it by the Indenture by
executing and delivering to the City and to the Trustee a written acceptance thereof. The Principal Offices of the
Paying Agents are designated as the respective offices or agencies of the City for the payment of the principal and
any applicable Redemption Price of the Bonds.
General Provisions for Issuance of Bonds
All (but not less than all) the Bonds of each Series shall be executed by the City for issuance under the
Indenture and delivered to the Trustee and thereupon shall be authenticated by the Trustee and by it delivered to the
City or upon its order, but only upon the receipt by the Trustee of the following items (upon which the Trustee may
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conclusively rely in determining whether the conditions precedent for the issuance and authentication of such Series
of Bonds have been satisfied):
(1) An executed counterpart of the Indenture, as amended to the date of the initial delivery of
such Series of Bonds, and an executed counterpart of the Supplemental Indenture authorizing the issuance
of such Series of Bonds, which Supplemental Indenture shall specify: (i) the sources of payment for the
Bonds of such Series other than the Trust Estate, if any; (ii) the Series designation of such Bonds; (iii) the
authorized principal amount of the Bonds of such Series; (iv) the purposes for which such Series of Bonds
are being issued, which, for Bonds other than the 2008B Bonds, shall be one of the purposes specified in
the provisions of the Indenture relating to additional bonds or refunding bonds; (v) the date or manner of
determining the date of the Bonds of such Series; (vi) the maturity date or dates of the Bonds of such Series
and either the _principal amount of the Bonds of such Series maturing on each such maturity date or the
method for determining such principal amount; (vii) which, if any, of the Bonds of such Series shall
constitute Serial Obligations and which, if any, shall constitute Term Obligations; (viii) the interest rate or
rates on the Bonds of such Series or the manner of determining such interest rate or rates; (ix) the Interest
Payment Dates for the Bonds of such Series or the manner of establishing such Interest Payment Dates; (x)
the Authorized Denominations of, and the manner of numbering and lettering, the Bonds of such Series;
(xi) the Redemption Price or Prices, if any, and, subject to the applicable provision of the Indenture, the
redemption terms for the Bonds of such Series; (xii) the Sinking Fund Installments, if any, for the Bonds of
such Series which constitute Term Obligations, provided that each Sinking Fund Installment, if any, shall
fall upon an Interest Payment Date for the Bonds of such Series; (xiii) if any of the Bonds of such Series
constitute Tender Indebtedness: (A) the source of payment of the Purchase Price of such Bonds, (B) the
terms and conditions, including Purchase Price, for the exercise by the Owners or Beneficial Owners of
such Bonds of the purchase, (C) any extension options granted with respect to such Bonds and (D) the
terms and conditions, including Purchase Price, upon which the Bonds of such Series shall be subject to
mandatory tender for purchase; (xiv) if the Bonds of such Series are not to be Book -Entry Bonds, a
statement to such effect; (xv) if the Bonds of such Series are Tax -Exempt Securities, the account in the
Rebate Fund established for such Series and the terms and conditions thereof, (xvi) the application of the
proceeds of the sale of such Series of Bonds including the amount, if any, to be deposited in the funds and
accounts under the Indenture; (xvii) the forms of the Bonds of such Series and of the certificate of
authentication thereon; and (xviii) the appropriate funds and accounts, if any, relating to such Series of
Bonds established under such Supplemental Indenture;
(2) An Opinion of Bond Counsel, dated the date of the initial delivery of such Series of
Bonds, to the effect that the Indenture, as amended to such date, as supplemented by the Supplemental
Indenture authorizing the issuance of such Series of Bonds, constitutes the valid and binding obligation of
the City;
(3) With respect to any Additional Bonds other than the 2008B Bonds, the Trustee shall have
received the certificate with respect to the satisfaction of the conditions for the Issuance of Additional
Parity Obligations contained in the Indenture;
(4) With respect to any Refunding Bonds, the Trustee shall have received a copy of the
Opinion of Bond Counsel required by the Indenture; and
(5) Such further documents, moneys and securities as are required by the applicable
provisions of the Indenture or of the Supplemental Indenture authorizing the issuance of such Series of
Bonds.
After the original issuance of Bonds of any Series, no Bonds of such Series shall be issued except in lieu of
or in substitution for other Bonds of such Series pursuant to the Indenture.
Additional Bonds
One or more Series of Additional Bonds may be issued, authenticated and delivered upon original issuance
for the purpose of paying all or a portion of the Costs of any Capital Improvement or Capital Asset. Additional
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Bonds may be issued in a principal amount sufficient to pay such Costs, including making of any deposits into the
funds or accounts required by the provisions of the Indenture and providing amounts for Costs of Issuance of such
Additional Bonds.
Refunding Bonds
One or more Series of Refunding Bonds maybe issued, authenticated and delivered upon original issuance
for the purpose of refunding all or any portion of the Outstanding Parity Obligations. Refunding Bonds may be
issued in a principal amount sufficient to accomplish such refunding including providing amounts for the Costs of
Issuance of such Refunding Bonds, and the making of any deposits into the funds and accounts required by the
applicable provisions of the Indenture.
Refunding Bonds of each Series shall be authenticated and delivered by the Trustee only upon receipt by
the Trustee (in addition to the documents required by the Indenture) of an Opinion of Bond Counsel to the effect that
the Parity Obligations (or the portion thereof) to be refunded are deemed paid pursuant to the Issuing Instrument
authorizing such Parity Obligations. Such Opinion of Bond Counsel may rely upon an Accountant's Certificate as
to the sufficiency of available funds to pay such Parity Obligations. The Trustee may conclusively rely on such
Opinion of Bond Counsel in determining whether the conditions precedent for the issuance and authentication of
such Series of Refunding Bonds have been satisfied.
Conditions to Issuance of Parity Obligations
Without regard to the last paragraph under this heading, the City may, at any time and from time to time,
issue or enter into a transaction under a Qualified Swap Agreement, the Net Payments under which shall constitute
Parity Obligations, provided (i) the transaction shall relate to a principal amount of Outstanding Parity Obligations
or investments held under an Issuing Instrument for Parity Obligations, in each case as specified by an Authorized
City Representative; (ii) the notional amount of the transaction shall not exceed the principal amount of the related
Parity Obligation or the amount of such investments, as applicable; and (iii) either: (x) at the time of entering into
the transaction, the counterparty (or a guarantor of the counterparty's obligations under the transaction) shall be
rated at least "Aa" by Moody's or "AA" by S&P and the Qualified Swap Agreement shall include the Collateral
Requirements; or (y) the City has received a Rating Confirmation from each Rating Agency then rating Parity
Obligations at the request of the City with respect to such transaction.
Without regard to the last paragraph under this heading, the City may, at any time and from time to time,
issue Refunding Parity Obligations provided that the Trustee receives an Opinion of Bond Counsel to the effect that
the Parity Obligations to be refunded are deemed paid pursuant to the Issuing Instrument authorizing such Parity
Obligations.
Without regard to the last paragraph under this heading, the City may issue the 2008B Bonds.
Without regard to the last paragraph under this heading, the City may, at any time and from time to time,
enter into Credit Support Agreements or otherwise become obligated for Credit Provider Reimbursement
Obligations with respect to Parity Obligations.
The City may, at any time and from time to time, issue any Additional Parity Obligations, provided the City
obtains or provides either (x) a certificate or certificates, prepared by the City or at the City's option by an
Independent Engineer, showing: (i) that the Adjusted Net Revenues for the applicable Calculation Period, which
Calculation Period shall be selected by the City in its sole discretion, shall have amounted to at least 1.25 times the
Maximum Adjusted Annual Debt Service on all Parity Obligations to be Outstanding immediately after the issuance
of the proposed Additional Parity Obligations; and (ii) that the Net Revenues for such applicable Calculation Period
shall have amounted to at least 1.00 times the Maximum Adjusted Annual Debt Service on all Parity Obligations to
be Outstanding immediately after the issuance of the proposed Additional Parity Obligations; or (y) a certificate or
certificates, prepared by the City or at the City's option by an Independent Engineer, showing: (i) that the projected
Adjusted Net Revenues during each of the five complete Fiscal Years beginning with the first Fiscal Year following
the issuance of such Parity Obligations in which interest thereon is not capitalized, in whole or in part, shall have
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r
amounted to at least 1.25 times the Maximum Adjusted Annual Debt Service on all Parity Obligations to be
Outstanding during the applicable Fiscal Year; and (ii) that the projected Net Revenues during each of the five
complete Fiscal Years beginning with the first Fiscal Year following the issuance of such Parity Obligations in
which interest thereon is not capitalized, in whole or in part, shall have amounted to at least 1.00 times the
Maximum Adjusted Annual Debt Service on all Parity Obligations to be Outstanding during the applicable Fiscal
Year. For purposes of preparing the certificate or certificates described in clause (x) of this subsection, the City and
any Independent Engineer shall utilize and rely on financial statements prepared by the City which have been
subject to audit by an Independent Certified Public Accountant but may utilize and rely upon the books and records
of the City or any financial statements prepared by the City which have not been subject to audit by an Independent
Certified Public Accountant if audited financial statements for the particular Calculation Period selected by the City
are not available.
Conditions of Issuance of Subordinate Obligations
The City may, at any time or from time to time, issue Subordinate Obligations without satisfying the
requirements of the Indenture relating to Parity Obligations for any purpose in connection with the Electric System,
including, without limitation, the financing of a part of the cost of acquisition and construction of any Capital
Improvement or the refunding of any Subordinate Obligations or Outstanding Parity Obligations (or portions
thereof). Such Subordinate Obligations may be secured by a pledge of Revenues and amounts in the Light and
Power Fund, provided that any such pledge shall be, and shall be expressed to be, subordinate and junior in all
respects to the pledge of the Revenues and amounts in the Light and Power Fund securing such Parity Obligations as
may be Outstanding from time to time, including Parity Obligations issued after the issuance of such Subordinate
Obligations. Such Subordinate Obligations may be payable from Net Revenues and amounts in the Light and Power
Fund other than the Operating Reserve, provided that any such payment shall be, and shall be expressed to be,
subordinate and junior in all respects to the payment from such sources of such Parity Obligations as may be
Outstanding from time to time, including Parity Obligations issued after the issuance of such Subordinate
Obligations.
The Issuing Instrument for Subordinate Obligations shall contain provisions (which shall be binding on all
owners of such Subordinate Obligations) not more favorable to the owners of such Subordinate Obligations than the
following:
(1) If an Event of Bankruptcy with respect to the City shall occur and be continuing, the
owners of all Outstanding Parity Obligations shall be entitled to receive payment in full in cash of all
principal, interest and all other payments due with respect to all such Parity Obligations, including any
Termination Payments, before the owners of the Subordinate Obligations are entitled to receive any
payment from the Net Revenues and amounts in the Light and Power Fund with respect to the Subordinate
Obligations.
(2) In the event that any Subordinate Obligation is declared due and payable before its
expressed maturity because of the occurrence of an event of default (under circumstances when the
provisions of (1) above shall not be applicable), the owners of all Parity Obligations Outstanding at the
time such Subordinate Obligation so becomes due and payable because of such event of default, shall be
entitled to receive payment in full in cash of all principal, interest and all other payments due with respect
to all such Parity Obligations before the owners of such Subordinate Obligation are entitled to receive any
accelerated payment from Net Revenues and amounts in the Light and Power Fund with respect to such
Subordinate Obligation. For purposes of this subdivision (2), a Termination Payment with respect to a
Public Finance Contract which is not a Qualified Swap Agreement shall not be considered a declaration of
amounts due and payable before expressed maturity even if declared due and payable because of the
occurrence of an event of default.
(3) If any default with respect to any Outstanding Parity Obligation shall have occurred and
be continuing (under circumstances when the provisions of (1) above shall not be applicable), the owners of
all Outstanding Parity Obligations shall be entitled to receive payment in full in cash of all principal,
interest and all other payments due with respect to all such Parity Obligations as the same become due and
payable in accordance with the provisions of the Issuing Instrument authorizing the issuance of such Parity
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Obligations before the owners of the Subordinate Obligations are entitled to receive, subject to the
provisions of (5) below, any payment from the Net Revenues and amounts in the Light and Power Fund
with respect to the Subordinate Obligations.
(4) No Bondowner or owner of other Outstanding Parity Obligations shall be prejudiced in
his right to enforce subordination of the Subordinate Obligations by any act or failure to act on the part of
the City or the Trustee.
(5) The Subordinate Obligations may provide that the provisions (1), (2), (3) and (4) above
are solely for the purpose of defining the relative rights of the Owners of the Bonds and the owners of all
other Outstanding Parity Obligations on the one hand, and the owners of Subordinate Obligations on the
other hand, and that nothing therein shall impair, as between the City and the owners of the Subordinate
Obligations, the obligation of the City, which may be unconditional and absolute, to pay to the owners of
such Subordinate Obligations the principal thereof and premium, if any, and interest thereon in accordance
with their terms, nor shall anything in the Indenture prevent the owners of the Subordinate Obligations
from exercising all remedies otherwise permitted by applicable law, or under the Subordinate Obligations
or the Issuing Instruments authorizing the Subordinate Obligations, upon default under such Subordinate
Obligations or Issuing Instruments, subject to the rights under (1), (2), (3) and (4) above of the Owners of
Outstanding Bonds and the owners of other Outstanding Parity Obligations to receive payment from the
Net Revenues and amounts in the Light and Power Fund otherwise payable or deliverable to the owners of
the Subordinate Obligations; and the Subordinate Obligations may provide that, insofar as a trustee, fiscal
agent or paying agent for such Subordinate Obligations is concerned, the foregoing provisions shall not
prevent the application by such trustee, fiscal agent or paying agent of any moneys deposited with such
trustee, fiscal agent or paying agent for the purpose of the payment of or on account of the principal (and
premium, if any) and interest on such Subordinate Obligations if such trustee, fiscal agent or paying agent
did not have knowledge at the time of such application that such payment was prohibited by the foregoing
provisions.
Any Subordinate Obligations may have such rank or priority with respect to any other Subordinate
Obligations as may be provided in the Issuing Instrument, authorizing the issuance or securing.of such Subordinate
Obligations and may contain such other provisions as are not in conflict with the provisions of the Indenture.
Credit Provider Bonds.
Subject only to the provisions of the Indenture relating to bonds constituting special obligations,
notwithstanding any other provision contained in the Indenture to the contrary, Bonds which are Credit Provider
Bonds shall have terms and conditions, including terms of maturity, payment, prepayment and interest rate, as shall
be specified in the applicable Credit Support Agreement.
Funds and Accounts
Establishment. To ensure the payment when due and payable, whether at maturity or upon redemption or
upon acceleration, of the principal of, Redemption Price, if any, and interest on the Bonds, the Indenture establishes
the following funds and accounts, to be held and maintained by the Trustee and applied as provided in the Indenture
for so long as any of the Bonds are Outstanding: the City of Vernon Electric System Debt Service Fund, comprised
of an Interest Account, a Principal Account and a Sinking Fund Account; the City of Vernon Electric System
Redemption Fund; the City of Vernon Electric System Debt Service Reserve Fund; the City of Vernon Electric
System Rebate Fund; and the City of Vernon Electric System Expense Stabilization Fund.
Debt Service Fund. (a) From the moneys paid by the City pursuant to the provisions of the Indenture
relating to payments of interest, principal and Sinking Fund Installments due with respect to Outstanding Bonds by
the City, the Trustee, upon receipt of such moneys, shall deposit the following amounts in the following specified
accounts within the Debt Service Fund: (1) For deposit in the Interest Account, an amount equal to the interest
payable on the Outstanding Bonds on the applicable Interest Payment Date; (2) For deposit in the Principal Account,
an amount equal to the principal of the Outstanding Bonds maturing on the applicable maturity date; and (3) For
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deposit in the Sinking Fund Account, an amount equal to the Sinking Fund Installment due on the applicable
Sinking Fund Installment due date.
(b) From the moneys paid by the City pursuant to the provisions of the Indenture relating to other types of
payments due with respect to Outstanding Bonds by the City, the Trustee, upon receipt of such moneys, shall deposit
the following amounts in the following specified accounts within the Debt Service Fund: (1) For deposit in the
Interest Account, an amount equal to the interest on the Outstanding Bonds then payable; and (2) For deposit in the
Principal Account, an amount equal to the principal of the Outstanding Bonds then payable.
(c) In the event that Bonds which are Term Obligations purchased or redeemed at the option of the City are
deposited with the Trustee for the credit of the Sinking Fund Account not less than forty-five (45) days prior to the
due date for any Sinking Fund Installment for such Bonds, such deposit shall satisfy (to the extent of 100% of the
principal amount of such Bonds) any obligation of the City to make a payment to the Trustee pursuant to the
Indenture, with respect to such Sinking Fund Installments. Any Bond so deposited with the Trustee shall be
cancelled and shall no longer be deemed to be Outstanding for any purpose. Upon making the deposit with the
Trustee of Bonds which are Term Obligations as provided in the Indenture, the City may specify the dates and
amounts of Sinking Fund Installments for such Bonds as to which the City's obligations to make a payment to the
Trustee pursuant to the Indenture shall be satisfied.
(d) Except as described below: (i) amounts deposited in the Interest Account shall remain therein until
expended for the payment of interest on the Bonds; (ii) amounts deposited in the Principal Account shall remain
therein until expended for the payment of principal of the Bonds; and (iii) amounts deposited in the Sinking Fund
Account shall remain therein until expended for the redemption or payment at maturity from Sinking Fund
Installments of Bonds which are Term Obligations.
(e) The Trustee shall apply amounts in the Interest Account to the payment when due of interest on the
Outstanding Bonds. The Trustee shall apply amounts in the Principal Account to the payment when due of principal
of the Outstanding Bonds. The Trustee shall apply amounts in the Sinking Fund Account to the redemption (or
payment at maturity) of the Bonds which are Term Obligations.
In the event one or more Paying Agents have been appointed for the Bonds, moneys may be transferred by
the Trustee to such Paying Agents from the appropriate account in the Debt Service Fund for deposit into a special
trust account to ensure the payment when due of the principal of, Redemption Price, if any, and interest on the
Bonds. In the event that any principal of, Redemption Price or interest on, any Bond has been paid from amounts
made available pursuant to a Credit Support Instrument, amounts in the appropriate accounts in the Debt Service
Fund with respect to such Bond, and any such amounts transferred by the Trustee from the Debt Service Fund to a
Paying Agent for such Bond pursuant to the Indenture, shall be paid to the applicable Credit Provider as a
reimbursement of the amounts so paid.
Redemption Fund. From the moneys paid by the City pursuant the provisions of the Indenture relating to
payments by the City, the Trustee shall deposit in the Redemption Fund an amount equal to the Redemption Price of
the Bonds to be redeemed. Said moneys shall be set aside in said Fund and shall be applied on or after the
redemption date to the payment of the Redemption Price of the Bonds to be redeemed and, except as otherwise
provided in the Indenture, shall be used only for that purpose. In the event one or more Paying Agents have been
appointed for the Bonds which are to be redeemed with moneys in the Redemption Fund, amounts in the
Redemption Fund may be transferred from such Fund by the Trustee to the Paying Agent for the Bonds to be
redeemed for deposit into a special trust account held by such Paying Agent to ensure the payment when due the
Redemption Price of the Bonds to be redeemed. In the event that the Redemption Price of a Bond has been paid by
a Credit Provider pursuant to a Credit Support Instrument, amounts in the Redemption Fund with respect to such
Redemption Price, and any such amounts transferred by the Trustee from the Redemption Fund to a Paying Agent
for such Bonds pursuant to the Indenture, shall be paid to such Credit Provider as a reimbursement of the amounts so
paid. If, after all of the Bonds designated for redemption have been redeemed and cancelled or paid and cancelled,
there are moneys remaining in the Redemption Fund, said moneys shall be transferred to the Interest Account;
provided, however, that if said moneys are part of the proceeds of Refunding Obligations said moneys shall be
applied as provided in the Issuing Instrument authorizing the issuance of such Refunding Obligations.
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Debt Service Reserve Fund. The Indenture provides the Trustee shall draw upon or otherwise take such
action as is necessary in accordance with the terms of the Reserve Financial Guaranties on deposit in the Debt
Service Reserve Fund to receive payments with respect thereto (including the giving of notice as required
thereunder): (i) on any date on which moneys will be required to be withdrawn from the Debt Service Reserve Fund
and applied to the payment of principal or Redemption Price of, or interest on, any Bonds and such withdrawal
cannot be met by amounts on deposit in the Debt Service Reserve Fund; (ii) on the first Business Day which is at
least. ten (10) days prior to the expiration date of each Reserve Financial Guaranty, in an amount equal to the
deficiency which would exist in the Debt Service Reserve Fund if such Reserve Financial Guaranty expired, unless a
substitute Reserve Financial Guaranty with an expiration date not earlier than 180 days after the expiration date of
the expiring Reserve Financial Guaranty is acquired prior to such date or the City deposits funds in the Debt Service
Reserve Fund before such date so that the amount in the Debt Service Reserve Fund on such date (without regard to
such expiring Reserve Financial Guaranty) is at least equal to the Debt Service Reserve Requirement.
Rebate Fund. Each Supplemental Indenture authorizing a Series of Bonds which are Tax -Exempt
Securities shall establish an account in the Rebate Fund in connection with such Series. Each such account in the
Rebate Fund shall have such terms and conditions as shall be provided in the Supplemental Indenture establishing
such account.
Investment of Certain Funds. Moneys held in the Debt Service Fund and the Redemption Fund shall be
invested and reinvested by the Trustee to the fullest extent practicable in securities described in clauses (a) through
(c) of the definition of "Permitted Investments" in the Indenture which mature not later than such times as shall be
necessary to provide moneys when reasonably expected to be needed for payments to be made from such Funds.
Moneys held in the Debt Service Reserve Fund shall be invested and reinvested by the Trustee to the fullest extent
practicable in securities described in clauses (a), (b), (c), (g), 6) and (m) of the definition of "Permitted Investments"
in the Indenture which mature, or which may be drawn upon without penalty, at any time upon not more than two
Business Days notice not later than five years from the time of such investment. Moneys held in the Expense
Stabilization Fund may be invested and reinvested in Permitted Investments which mature or which may be drawn
upon without penalty at any time upon not more than two Business Days notice, not later than ten years from the
time of such investment. The Trustee shall make all such investments of moneys held by it in accordance with
directions of an Authorized City Representative, which directions shall be consistent with the Indenture and
applicable law, and which directions shall be written.
Interest or other income any Fund created under the Indenture shall be paid into such Fund.
In making any investment in any Permitted Investments with moneys in any Fund established under the
Indenture, the Trustee may combine such moneys with moneys in any other Fund but solely for the purposes of
making such investment in such Investments and provided that any amount so combined shall be separately
accounted for.
Nothing in the Indenture shall prevent any Permitted Investments acquired as investments of moneys in any
Fund from being issued or held in book -entry form on the books of the Department of the Treasury or the Federal
Reserve System of the United States.
Valuation and Sale of Investments. Obligations purchased as an investment of moneys in any Fund shall be
deemed at all times to be a part of such Fund and any profit realized from the liquidation of such investment shall be
credited to such Fund and any loss resulting from the liquidation of such investment shall be charged to the
respective Fund.
In computing the amount in the Debt Service Reserve Fund for any purpose under the Indenture,
obligations purchased as an investment of moneys in the Debt Service Reserve Fund are to be valued at the
amortized cost thereof.
Except as otherwise provided in the Indenture, the Trustee may sell or present for redemption, or otherwise
liquidate any security purchased as an investment, and take all actions necessary to draw funds under any such
investment, whenever it shall be necessary in order to provide moneys to meet any payment or transfer from any
Fund held by it or in accordance with directories of an Authorized City Representative, which directions shall be
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consistent with the Indenture and applicable law and which directions shall be written. Any security purchased as an
investment may be credited on a pro-rata basis to more than one Fund and need not be sold in order to provide for
the transfer of amounts from one Fund to another, provided that such obligation is an appropriate Permitted
Investment for the purposes of the Fund to which it is to be transferred. The Trustee shall not be liable or
responsible for making any such investment in the manner provided above or for any loss resulting from any such
investment. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other
applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as
they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee
will furnish the City periodic cash transaction statements which include detail for all investment transactions made
by the Trustee under the Indenture.
Covenants
Compliance with Indenture. The City shall punctually pay the Bonds in strict conformity with the terms of
the Indenture and the Bonds, and shall faithfully observe and perform all the agreements, conditions, covenants and
terms contained in the Indenture required to be observed and performed by it, which obligations shall be absolute
and unconditional but which shall be special obligations of the City as provided in the Indenture.
Collection of Rates and Charges. The City shall have in effect at all times rules and regulations requiring
each consumer or customer located on any premises connected with the Electric System to pay the rates and charges
applicable to the Electric Service provided to such premises and providing for the billing thereof and for a due date
and a delinquency date for each bill. The City shall not permit any part of the Electric System or any facility thereof
to be used or taken advantage of free of charge by any corporation, firm or person, or by any public agency
(including the United States of America, the State of California and any city, county, district, political subdivision,
public corporation or agency of any thereof). Nothing in the Indenture shall prevent the City, in its sole and
exclusive discretion, from permitting other parties from selling electricity to retail customers within the service area
of the Electric System; provided, however, that permitting such sales shall not relieve the City of its obligations
under the Indenture.
Application of Light and Power Fund. During each Fiscal Year, and subject to the provisions of the
Indenture requiring amounts in the Light and power Fund to be applied to amounts due under the Indenture, the City
may apply amounts in the Light and Power Fund, other than the Revenues for such Fiscal Year, to any lawful
purpose as determined by the City, provided that so long as an Event of Default has occurred and is continuing, or
the Trustee otherwise has control of amounts in the Light and Power Fund, no amounts may be paid from the Light
and Power Fund except for Operation and Maintenance Expenses, amounts required to be paid in such Fiscal Year
pursuant to the Indenture and the Issuing Instrument for any Parity Obligations or the Issuing Instruments for
Subordinate Obligations, or when such payment has been certified by an Independent Engineer as being consistent
with Prudent Utility Practice.
Creation of Prior Liens on Trust Estate. The City shall not issue any bond, note, or other evidence of
indebtedness payable from or secured by the Trust Estate or any part thereof on a basis which is in any manner prior
or superior to the lien on, pledge of and security interest in the Trust Estate securing the Outstanding Bonds pursuant
to the Indenture; or (ii) except for Parity Obligations with respect to the Revenues and/or amounts in the Light and
Power Fund, in any manner on a parity with the lien on, pledge of and security interest in the Revenues and amounts
in the Light and Power Fund securing the Outstanding Bonds pursuant to the Indenture. Nothing in the Indenture
shall prevent the City from issuing Subordinate Obligations in accordance with Section 2.08.
Against Encumbrances. The City shall pay or cause to be paid when due all sums of money that may
become due or purporting to be due for any labor, services, materials, supplies or equipment furnished, or alleged to
have been furnished, to or for the City in, upon, about or relating to the Electric System and shall keep the Electric
System free of any and all liens against any portion of the Electric System. In the event any such lien attaches to or
is filed against any portion of the Electric System, the City shall cause each such lien to be fully discharged and
released at the time the performance of any obligation secured by any such lien matures or becomes due, except that
if the City desires to contest any such lien it may do so if contesting such lien shall not materially impair operation
of the Electric System. If any such lien shall be reduced to final judgment and such judgment or any process as may
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be issued for the enforcement thereof is not promptly stayed, or if so stayed and such stay thereafter expires, the City
shall forthwith pay or cause to be paid and discharged such judgment.
Sale or Other Disposition of Property. The City shall not sell, transfer or otherwise dispose of any of the
works, plant, properties, facilities or other part or rights of the Electric System or any real or personal property
comprising a part of the Electric System if such sale, transfer or disposition would cause the City to be unable to
satisfy the requirements of the provisions of the Indenture relating to rates for electric service.
Operation and Maintenance of the Electric System; Budgets. The City shall maintain and preserve the
Electric System in good repair and working order at all times and shall operate the Electric System in an efficient
and economical manner and shall pay all Operation and Maintenance Expenses as they become due and payable.
The City shall prepare, not later than the last day of each Fiscal Year, a Budget for the Electric System
approved by the City Council setting forth the estimated Revenues, Operation and Maintenance Expenses, scheduled
Debt Service and other payments estimated to be paid from the Revenues and amounts in the Light and Power Fund
during the next succeeding Fiscal Year. The Electric System Budget for any Fiscal Year may be amended at any
time during such Fiscal Year provided that such amended Budget shall include all payments coming due in such
Fiscal Year with respect to Obligations payable from Revenues or amounts in the Light and Power Fund. In the
event the City fails to have a Budget approved by the City Council as required by the Indenture with respect to any
Fiscal Year, then references in the Indenture to the amount of Operation and Maintenance Expenses included in the
Budget as of any time shall be deemed to be the Operation and Maintenance Expenses in the latest Budget approved
by the City Council as adjusted for an inflation factor equal to ten percent'for each Fiscal Year from the approval of
such Budget by the City Council to the applicable time of determination of the Operation and Maintenance Expenses
included in the Budget.
Insurance. The City shall procure and maintain such insurance relating to the Electric System which it
shall deem advisable or necessary to protect its interests and the interests of the Trustee and the Owners of the
Bonds, which insurance shall afford protection in such amounts and against such risks as are usually covered in
connection with public electric utility systems similar to the Electric System; provided, that any such insurance may
be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and
manner as is, in the opinion of an accredited actuary, actuarially sound. All policies of insurance required to be
maintained under the Indenture shall provide that the Trustee shall be given thirty (30) days' written notice of any
intended cancellation thereof or reduction of coverage provided thereby.
Payment of Taxes and Compliance with Governmental Regulations. The City shall pay and discharge all
taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Electric
System or any part thereof when the same shall become due. The City shall duly observe and conform with all valid
regulations and requirements of any governmental authority relative to the operation of the Electric System or any
part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity
or application thereof shall be contested in good faith and contesting such validity or application shall not materially
impair the operations or financial condition of the Electric System or the performance of the City under the
Indenture and all Outstanding Bonds.
Tax Covenants. (a) The City covenants it shall not take any action, or fail to take any action, if any such
action or failure to take action would adversely affect the Tax-exempt status of interest on any Bond under Section
103 of the Code. Without limiting the generality of the foregoing, the City shall comply with the requirements of
the Tax Certificate, if any, delivered in connection with the issuance of each Series of Bonds.
In the event that at any time the City is of the opinion that, in order to comply with its obligations under
paragraph (a) above, it is necessary or helpful to restrict or limit the yield on the investment of any moneys in any of
the Funds held by the Trustee pursuant to the Indenture, the City shall so instruct the Trustee in writing, and cause
the Trustee to take such action as may be necessary in accordance with such instructions.
(b) Notwithstanding any provisions of the Indenture, if the City shall provide to the Trustee an Opinion of
Bond Counsel to the effect that any specified action required under the Indenture or a Tax Certificate is no longer
required or that some further or different action is required to maintain the Tax -Exempt status of the Bonds under
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Section 103 of the Code, the City and the Trustee may conclusively rely on such opinion -in complying with the
requirements of the Indenture and of the applicable Tax Certificate, and the covenants under the Indenture shall be
deemed to be modified to that extent.
(c) The covenants described in the foregoing shall survive payment in full or discharge of the Bonds.
Amendments to Indenture
Amendments Permitted. (a) Subject to the provisions of paragraph (d) below, the provisions of the
Indenture or of any Supplemental Indenture and the rights and obligations of the City and of the Owners of the
Outstanding Bonds and of the Fiduciaries may be modified, amended or supplemented from time to time and at any
time by a Supplemental Indenture or Supplemental Indentures, with the written consent of each Credit Provider
whose consent is required by a Supplemental Indenture or a Credit Support Agreement, when the written consent of
the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding shall have been filed
with the Trustee; or if less than all of the Outstanding Bonds are affected, the written consent of the Owners of at
least a majority in aggregate principal amount of all affected Outstanding Bonds; provided that if such modification,
amendment or supplement shall, by its terms, not take effect so long as any Bonds of any particular Series and
maturity remain Outstanding, and, with respect to Bonds which are Tender Indebtedness if the conditions of
paragraph (d) below are satisfied, the consent of the Owners of such Bonds shall not be required and such Bonds
shall not be deemed to be Outstanding for the purpose of any the calculation of Outstanding Bonds. No such
modification, amendment or supplement shall (1) reduce the aforesaid percentage of Bonds the consent of the
Owners of which is required to effect any such modification, amendment or supplement without the consent of the
Owners of all of the Bonds then Outstanding; (2) extend the fixed maturity of any Bond, or reduce the principal
amount thereof, or reduce the amount of any Sinking Fund Installment therefor, or extend the due date of any such
Sinking Fund Installment, or reduce the rate of interest on any Bond or extend the time of payment of interest
thereon, without the consent of the Owner of each Bond so affected; (3) except as otherwise provided with respect to
a Bond constituting Tender Indebtedness in the Supplemental Indenture authorizing such Bond and subject to the
satisfaction of the conditions of subsection (g) of this Section, reduce the Redemption Price due on the redemption
of any Bond or change the date or dates when any Bond is subject to redemption; or (4) modify the rights or
obligations of any Fiduciary without the consent of such Fiduciary.
It shall not be necessary for the consent of the Owners to approve the particular form of any Supplemental
Indenture, but it shall be sufficient if such consent shall approve the substance thereof.
Unless waived by the Owner of an affected Bond or Bonds, prior to the entry into any Supplemental
Indenture by the City and the Trustee for any of the purposes described under this heading, the City shall cause
notice of the proposed Supplemental Indenture to be mailed, by first class mail, postage prepaid, to the Owners of all
Outstanding Bonds (or the affected Outstanding Bonds) at their addresses appearing on the Bond Register. Such
notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are
on file at the office of the Trustee for inspection by each Owner of an Outstanding Bond.
Whenever, at any time after the date of the mailing of notice of the proposed entry into a Supplemental
Indenture pursuant to the foregoing, the City shall have received an instrument or instruments in writing executed in
accordance with the Indenture by or on behalf of the Owners of not less than a majority in aggregate principal
amount of the Bonds then Outstanding, or if less than all of the Outstanding Bonds are affected, by the Owners of
not less than a majority in aggregate principal amount of the affected Outstanding Bonds, which instrument or
instruments shall refer to the proposed Supplemental Indenture described in the notice of the proposed Supplemental
Indenture and shall consent to such Supplemental Indenture in substantially the form referred to in such notice,
thereupon, but not otherwise, the City and the Trustee may enter into such Supplemental Indenture in substantially
such form, without liability or responsibility to any Owner of any Bond, whether or not such Owner shall have
consented thereto.
(b) The Indenture or any Supplemental Indenture may be supplemented from time to time and at any time
by a Supplemental Indenture or Supplemental Indentures, which the City and the Trustee may enter into with the
consent of each Credit Provider whose consent is required by a Supplemental Indenture or a Credit Support
Agreement but without the consent of the Owner of any Bond, to provide for the issuance of a Series of Additional
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Bonds or a Series of Refunding Bonds in accordance with the terms and conditions of the Indenture, and
establishing the terms and conditions thereof, including the rights of any Credit Provider for such Additional Bonds
or Refunding Bonds, which may include permitting such Credit Provider to act for and on behalf of the Owners of
such Additional Bonds or Refunding Bonds for any or all purposes of the Indenture except that no such Credit
Provider shall be authorized to extend the fixed maturity of any Bond, or reduce the principal amount thereof, or
reduce the amount of any Sinking Fund Installment therefor, or extend the due date of any such Sinking Fund
Installment, or reduce the rate of interest on any Bond or extend the time of payment of interest thereon, without the
consent of the Owner of each Bond so affected; or except as otherwise provided with respect to a Bond constituting
Tender Indebtedness in the Supplemental Indenture authorizing such Bond and subject to the satisfaction of the
conditions of paragraph (g) below, reduce the Redemption Price due on the redemption of any Bond or change the
date or dates when any Bond is subject to redemption.
(c) The Indenture and any Supplemental Indenture and the rights and obligations of the City, the
Fiduciaries and the Owners of the Outstanding Bonds may also be modified, amended or supplemented from time to
time and at any time by a Supplemental Indenture or Supplemental Indentures, which the City and the Trustee may
enter into with the consent of each Credit Provider whose consent is required by a Supplemental Indenture or a
Credit Support Agreement but without the consent of any Owners of Bonds (but with the consent of any affected
Fiduciary), so long as" such modification, amendment or supplement shall not materially, adversely affect the
interests of the Owners of the Outstanding Bonds, including without limitation, for any one or more of the following
purposes:
(i) to add to the covenants and agreements of the City contained in the Indenture
other covenants and agreements thereafter to be observed, or to surrender any right or power in the
Indenture reserved to or conferred upon the City;
(ii) to pledge, provide or assign any additional security for the Bonds (or any portion
thereof), including transferring control of the amounts in the Light and Power Fund to the Trustee; provided
that if the City transfers control of the amounts in the Light and Power Fund to the Trustee, the Trustee
shall return such control at the request of the City only if no Event of Default has occurred and is
continuing and if such return has been consented to, by the Owners of a majority in aggregate principal
amount of the Bonds then Outstanding and with the consent of each Credit Provider whose consent is
required by a Supplemental Indenture or a Credit Support Agreement;
(iii) to add to the covenants and agreements of the City contained in the Master
Indenture or a Supplemental Indenture other covenants and agreements thereafter to be observed, to pledge,
provide or assign any security for the Bonds (or any portion thereof), or to surrender any right or power in
the Indenture reserved to or conferred upon the City;
(iv) to make such provisions for the purpose of curing any ambiguity, inconsistency or
omission, or of curing or correcting any defective provision, contained in the Indenture or a Supplemental
Indenture, or in regard to matters or questions arising under the Indenture or a Supplemental Indenture, as
the City may deem necessary or desirable; or
(v) to modify, amend or supplement the Indenture or a Supplemental Indenture in such
manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended,
or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as
may be permitted by said act or similar federal statute.
(d) Notwithstanding anything to the contrary contained in the Indenture, the provisions of the Indenture or
any Supplemental Indenture may also be modified, amended or supplemented by a Supplemental Indenture or
Supplemental Indentures, including amendments which would otherwise be described in paragraph (a) above,
without the consent of the Owners of Bonds constituting Tender Indebtedness if either (i) the effective date of such
Supplemental Indenture is a date on which such Bonds are subject to mandatory tender for purchase pursuant to the
Indenture or (ii) the applicable notice described in the Indenture is given to Owners of such Bonds at least thirty (30)
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days before the effective date of such Supplemental Indenture, and on or before such effective date, the Owners of
such Bonds have the right to demand purchase of such Bonds pursuant to the Indenture.
(e) If the Supplemental Indenture authorizing the issuance of a Series of Bonds provides that a Credit
Provider for all or any portion of the Bonds of such Series shall have the right to consent to Supplemental Indentures
which require the consent of the Owners of the Bonds of such Series pursuant to the Indenture, then for the purposes
of sending notice of any proposed Supplemental Indenture and for determining whether the Owners of the requisite
percentage of Bonds have consented to such Supplemental Indenture, but subject to the provisions of paragraph (b)
above, references to the Owners of such Bonds shall be deemed to be to the applicable Credit Provider.
(f) For purposes of the foregoing, it shall not be necessary that consents of the Owners of any particular
percentage of Outstanding Bonds of any affected Series be obtained but it shall be sufficient for such purposes if the
consent of the Owners of a majority in aggregate principal amount of the combination of affected Outstanding
Bonds shall be obtained.
(g) Notwithstanding anything to the contrary contained in the Indenture, if authorized by the Supplemental
Indenture authorizing the issuance of a Bond constituting Tender Indebtedness, any premium due on the redemption
of such Bond and the date or dates when such Bond is subject to redemption may be modified or amended as
provided in such Supplemental Indenture if either: (i) the effective date of such modification or amendment is a date
on which such Bond is subject to mandatory tender for purchase pursuant to such Supplemental Indenture; or (ii)
notice of such modification or amendment has been mailed to the Owner of such Bond at the address set forth in the
Bond Register at least thirty (30) days before the effective date of such modification or amendment and on or before
such effective date, the Owner of such Bond has the right to demand purchase of such Bond pursuant to such
Supplemental Indenture.
Upon the City and the Trustee entering into any Supplemental Indenture pursuant to the Indenture, the
Indenture shall be deemed to be modified, amended or supplemented in accordance therewith, and the respective
rights, duties and obligations under the Indenture of the City, the Fiduciaries and all Owners of Outstanding Bonds
shall thereafter be determined, exercised and enforced subject in all respects to such modification, amendment and
supplement, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the
terms and conditions of the Indenture for any and all purposes.
For purposes of modifications, amendments and supplements to the Indenture, Bonds owned or held by or
for the account of the City, or any funds of the City, shall not be deemed Outstanding for the purpose of consent or
other action or any calculation of Outstanding Bonds provided for in the Indenture, and the City shall not be entitled
with respect to such Bonds to give any consent or take any other action provided for in the Indenture as an Owner of
Bonds. At the time of any consent or other action taken under the Indenture, the City shall furnish the Trustee a
certificate of an Authorized City Representative upon which the Trustee may rely, describing all Bonds so to be
excluded.
Defeasance
Bonds (or portions of Bonds) for the payment or redemption of which moneys shall have been set aside and
shall be held in trust by an Escrow Agent at the maturity date or redemption date or other date when the Owner is
entitled to receive the principal thereof, as applicable, shall be deemed to have been paid within the meaning and
with the effect expressed in the provisions of the Indenture relating to payment of bonds upon defeasance. Any
Outstanding Bond (or any portion thereof such that both the portion thereof which is deemed paid and the portion
which is not deemed paid pursuant to the Indenture shall be in an Authorized Denomination) shall prior to the
maturity, redemption date or other payment date thereof, be deemed to have been paid within the meaning and with
the effect expressed in the provisions of the Indenture relating to payment of bonds upon defeasance (except that the
obligations described under the applicable provisions of the Indenture relating to payment of bonds and the giving of
the notices of the redemption of Bonds to be redeemed as provided in the Indenture shall continue) if (1) in case said
Bond (or portion thereof) is to be redeemed on any date prior to maturity, the City shall have given the Trustee
irrevocable instructions to give notice of redemption of such Bond (or portion thereof) on said date as provided in
the Indenture, (2) there shall have been deposited with an Escrow Agent either moneys in an amount which shall be
sufficient, or Defeasance Securities, the principal of and the interest on which when due shall provide -moneys
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which, together with the moneys, if any, held by such Escrow Agent for such purpose, shall be sufficient, in each
case as evidenced by an Accountant's Certificate, to pay when due the principal amount of; and any redemption
premiums on, said Bond (or portion thereof) and interest due and to become due on said Bond (or portion thereof)
on and prior to the redemption date, maturity date or other payment date thereof, as the case may be, and (3) if such
Bond (or portion thereof) is not to be paid or redeemed within 60 days of the date of the deposit required by
(2) above, the City shall have given the Trustee, in form satisfactory to it, instructions to mail, as soon as practicable,
by first class mail, postage prepaid, to the Owner of such Bond, at the last address, if any, appearing upon the Bond
Register, a notice that the deposit required by (2) above has been made with an Escrow Agent and that said Bond (or
the applicable portion thereof) is deemed to have been paid in accordance with the Indenture and stating such date
upon which moneys are to be available for the payment of the principal amount of, and any redemption premiums
on, said Bond. Any notice given pursuant to (3) above with respect to Bonds which constitute less than all of the
Outstanding Bonds of any Series and maturity shall specify the letter and number or other distinguishing mark of
each such Bond. Any notice given pursuant to (3) above with respect to less than the full principal amount of a
Bond shall specify the principal amount of such Bond which shall be deemed paid pursuant to the Indenture and
notify the Owner of such Bond that such Bond must be surrendered as provided in the Indenture. The receipt of any
notice required by this paragraph shall not be a condition precedent to any Bond being deemed paid in accordance
with this paragraph and the failure of any Owner to receive any such notice shall not affect the validity of the
proceedings for the payment of Bonds in accordance with the Indenture. Neither Defeasance Securities nor moneys
deposited with an Escrow Agent pursuant to the Indenture, nor principal or interest payments on any such
Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for, the
payment of the principal amount of, and any redemption premiums on, said Bonds and the interest thereon; provided
that any cash received from principal or interest payments on such Defeasance Securities deposited with an Escrow
Agent, (A) to the extent such cash shall not be required at any time for such payment, as evidenced by an
Accountant's Certificate, shall be paid over upon the written direction of an Authorized City Representative,
including a transfer to the City free and clear of any trust, lien, pledge or assignment securing said Bonds, and (B) to
the extent such cash shall be required for such payment at a later date, shall, to the extent practicable, at the written
direction of an Authorized City Representative, be reinvested in Defeasance Securities maturing at times and in
amounts, which together with the other funds to be available to the Escrow Agent for such purpose, shall be
sufficient to pay when due the principal amount of, and any redemption premiums on, said Bonds and the interest to
become due on said Bonds on and prior to such redemption date, maturity date or other payment date thereof, as the
case may be, as evidenced by an Accountant's Certificate.
Nothing in the Indenture shall prevent the City from substituting for the Defeasance Securities held for the
payment or redemption of Bonds (or portions thereof) other Defeasance Securities which, together with the moneys
held by the Escrow Agent for such purpose, as evidenced by an Accountant's Certificate, shall be sufficient to pay
when due the principal amount of, and any redemption premiums on, the Bonds (or portions thereof) to be paid or
redeemed, and the interest due on the Bonds (or portions thereof) to be paid or redeemed at the times established
with the initial deposit of Defeasance Securities for such purpose provided that the City shall deliver to the Escrow
Agent a Favorable Opinion of Bond Counsel with respect to such substitution.
If there shall be deemed paid pursuant to the Indenture less than all of the full principal amount of a Bond,
the City shall execute and the Trustee shall authenticate and deliver, upon the surrender of such Bond, without
charge to the Owner of such Bond, a new Bond or Bonds for the principal amount of the Bond so surrendered which
is deemed paid pursuant to the Indenture and another new Bond or Bonds for the balance of the principal amount of
the Bond so surrendered, in each case of like Series, maturity and other terms, and in any of the Authorized
Denominations.
Upon the deposit with an Escrow Agent, in trust, at or before maturity or the applicable redemption date, of
money or Defeasance Securities in the necessary amount to pay or redeem Outstanding Bonds (or portions thereof),
and to pay the interest thereto to such maturity or redemption date, as applicable, (provided that, if such Bonds are to
be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the
Indenture or provision satisfactory to the Trustee shall have been made for giving such notice), all liability of the
City in respect of such Bonds shall cease, terminate and be completely discharged, except that the City shall remain
liable for such payment but only from, and the Bondowners shall thereafter be entitled only to payment (without
interest accrued thereon after such redemption date or maturity date, as applicable) out of, the money and
Defeasance Securities deposited with the Escrow Agent as aforesaid for their payment, subject, however, to the
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provisions of the Indenture relating to transfers to the City's general fund and bonds deemed paid; provided that no
Bond which constitutes Tender Indebtedness shall be deemed to be paid within the meaning of the Indenture unless
the Purchase Price of such Bond, if tendered for purchase in accordance with the Indenture, could be paid when due
from such moneys or Defeasance Securities (as evidenced by an Accountant's Certificate) or a Credit Support
Instrument is provided in connection with such Purchase Price.
Events of Default; Remedies
Events of Default. Each of the following shall constitute an Event of Default under the Indenture: (i) if
default shall be made in the payment of the principal or Redemption Price of or Sinking Fund Installment for, or
interest on, any Outstanding Bond, when and as the same shall become due and payable, whether on an Interest
Payment Date, at maturity, by call for redemption, or otherwise; (ii) if default shall be made by the City in the
performance or observance of any other of the covenants, agreements or conditions on its part in the Indenture or in
the Outstanding Bonds contained, and such default shall continue for a period of 120 days after written notice
thereof to the City by the Trustee or to the City and to the Trustee by the Owners of not less than 10% in principal
amount of the Bonds Outstanding; provided, however, if such default is such that it can be corrected by the City but
not within the applicable period specified above, it shall not constitute an Event of Default if corrective action is
instituted by the City within thirty (30) days of the City's receipt of the notice of the default required by this
paragraph and diligently pursued until the default is corrected; or (iii) an Event of Bankruptcy shall have occurred
and be continuing with respect to the City; or (iv) if an event of default (as defined in the applicable Issuing
Instrument) shall have occurred and be continuing with respect to any Parity Obligation.
Application of Revenues and Other Moneys After Default. (a) Notwithstanding anything to the contrary
contained in the Indenture, including Article V of this Indenture, the City covenants that if an Event of Default shall
happen and shall not have been remedied, the City, upon the demand of the Trustee, shall cause control of amounts
in the Light and Power Fund to be transferred to the Trustee and shall cause to be paid over to the Trustee by the
first Business Day of each month, all Revenues received by the City with respect to the preceding month.
(b) During the continuance of an Event of Default, the Trustee shall apply all Revenues and amounts
in the Light and Power Fund received by or available to the Trustee pursuant to any right given or action taken under
the provisions of the Indenture, in the following order of priority:
First: To the payment of the reasonable and proper charges, expenses and liabilities of
the Fiduciaries, including reasonable fees of counsel, and the payment of the reasonable and
proper charges, expenses and liabilities of the fiduciaries for Parity Obligations, including
reasonable fees of counsel.
Second: To the payment of the Operation and Maintenance Expenses.
Third: To the payment of the principal and Redemption Price of and interest on the
Outstanding Bonds, and the principal and redemption price of and interest on the other
Outstanding Parity Obligations, then due and payable; provided however, that in the event the
amount of Net Revenues and amounts in the Light and Power Fund available for such payment are
not sufficient to make all the payments required by this clause, the Trustee shall apply the Net
Revenues and available amounts in the Light and Power Fund to the payment of the principal and
Redemption Price of and interest on all Outstanding Parity Obligations then due and payable
ratably (based on the respective amounts to be paid), without any discrimination on preferences.
Fourth: To the payment of any Termination Payments due and payable under the
Qualified Swap Agreements; provided however, that in the event the amount of Net Revenues and
available amounts in the Light and Power Fund are not sufficient to make all the payments
required by this clause with respect to all Qualified Swap Agreements, the Trustee shall apply the
Net Revenues and available amounts in the Light and Power Fund to the payment of the
Termination Payments then due and payable under all Qualified Swap Agreements ratably (based
on the respective amounts to be paid), without any discrimination on preferences.
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Fifth: To the transfer to the Debt Service Reserve Fund for the Bonds and to each debt
service reserve fund for other Outstanding Parity Obligations, the amount, if any, necessary so that
the amount on deposit in the Debt Service Reserve Fund shall equal the Debt Service Reserve
Requirement and the amount in each debt service reserve fund for other Outstanding Parity
Obligations shall equal the amount required to be on deposit in such debt service reserve fund
under the applicable Issuing Instrument; provided that that in the event the amount of Net
Revenues and amounts in the Light and Power Fund available for such payment are not sufficient
to make all the payments required by this clause, the Trustee shall apply the Net Revenues and
available amounts in the Light and Power Fund to the transfer to the Debt Service Reserve Fund
and each debt service reserve fund for other Outstanding Parity Obligations ratably (based on the
respective amounts to be paid), without any discrimination or preferences.
Sixth: To the payment of amounts due with respect to outstanding Subordinate
Obligations (which shall not include Termination Payments for Qualified Swap Agreements) in
accordance with the provisions of the Issuing Instrument pursuant to which such Subordinate
Obligations have been issued.
(c) In the event that on any date all payments required to be made from Net Revenues and amounts in
the Light and Power Fund available for such payment are not made in full as required by this Section, then no
payment shall be made which has a priority under this Section lower than the delinquent payment until all
delinquent payments with a higher priority have been made in full.
(d) If and whenever all overdue installments of interest on all Outstanding Bonds and Outstanding
Parity Obligations, together with the reasonable and proper fees, charges, expenses and liabilities of the Trustee and
any other fiduciary for Parity Obligations, including reasonable fees of counsel, and all other sums payable for the
account of the City under the Indenture, including the principal and Redemption Price of all Outstanding Bonds and
Outstanding Parity Obligations and unpaid interest on all Outstanding Bonds and Outstanding Parity Obligations
which shall then be payable, shall be paid for by the account of the City, or provision satisfactory to the Trustee shall
be made for such payment, and all defaults under the Indenture, the Outstanding Bonds and the Outstanding Parity
Obligation shall be made good or secured to the satisfaction of the Trustee or provision deemed by the Trustee to be
adequate shall be made therefor, the Trustee, at the request of the City and with the consent of the Owners of a
majority in aggregate principal of the Bonds then Outstanding and with the consent of each Credit Provider whose
consent is required by a Supplemental Indenture or a Credit Support Agreement, shall transfer control of amounts in
the Light and Power Fund to the City and pay over all unexpended Revenues in the hands of the Trustee (except
Revenues deposited or pledged, or required by the terms of the Indenture to be deposited or pledged, with the
Trustee), and thereupon the City and the Trustee shall be restored, respectively, to their former positions and rights
under the Indenture. No such payment by the Trustee nor such restoration of the City and the Trustee to their former
positions and rights shall extend to or affect any subsequent default under the Indenture or impair any right
consequent thereon.
(e) The Trustee may in its discretion establish special record dates for the determination of the
Owners of Bonds for various purposes hereof, including without limitation, payment of defaulted interest and giving
direction or consent to the Trustee.
Right to Accelerate Upon Default. Notwithstanding anything contrary in the Indenture or in the Bonds,
upon the occurrence of an Event of Default, the Trustee may, with the consent of each Credit Provider whose
consent is required by a Supplemental Indenture or a Credit Support Agreement, and shall, at the direction of the
Owners of a majority in principal amount of Outstanding Bonds (other than Bonds owned by or on behalf of the
City) by written notice to the City, declare the principal of the Outstanding Bonds and the interest thereon to be
immediately due and payable, whereupon such principal and interest shall, without further action, become and be
immediately due and payable.
Appointment of Receiver. If an Event of Default shall happen and shall not have been remedied, and upon
the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the
Owners of the Bonds under the Indenture, the Trustee shall be entitled to make application for the appointment of a
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receiver or custodian of the Revenues and amounts in the Light and Power Fund, pending such proceedings, with
such power as the court making such appointment shall confer.
Enforcement Proceedings. (a) If an Event of Default shall happen and shall not have been remedied, then
and in every such case, the Trustee, by its agents and attorneys, may, with the consent of each Credit Provider whose
consent is required by a Supplemental Indenture or a Credit Support Agreement, proceed, and upon the written
request of the Owners of not less than a majority in principal amount of the Bonds at the time Outstanding (other
than Bonds owned by or on behalf of the City), with the consent of each Credit Provider whose consent is required
by a Supplemental Indenture or a Credit Support Agreement, after receiving indemnification satisfactory to it as set
forth in paragraph (d) below, shall proceed, to protect and enforce its rights and the rights of the Owners of the
Outstanding Bonds by a suit or suits in equity or at law, whether for damages or the specific performance of any
covenant contained in the Indenture, to enforce the security interest in, pledge of and lien on the Trust Estate granted
pursuant to the Indenture, or in aid of the execution of any power granted in the Indenture or any remedy granted
under applicable provisions of the laws of the State of California, or for an accounting by the City as if the City were
the trustee of an express trust, or in the enforcement of any other legal or equitable right as the Trustee, being
advised by counsel, shall deem most effectual to enforce any of its rights or to require the City to perform any of its
duties under the Indenture.
(b) All rights of action under the Indenture may be prosecuted and enforced by the Trustee without the
possession of any of the Bonds or the production thereof in the trial or other proceedings, and any such suit or
proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust.
(c) If an Event of Default shall occur and be continuing, upon commencing a suit in equity or upon other
commencement of judicial proceedings by the Trustee to enforce any right under the Indenture, the Trustee shall be
entitled to exercise any and all rights and powers conferred in the Indenture and otherwise provided by law to be
exercised by the Trustee as the trustee of an express trust.
(d) Regardless of the happening of an Event of Default, the Trustee shall have power to, but unless
requested in writing by the Owners of a majority in principal amount of the Bonds then Outstanding and furnished
with reasonable security and indemnity, shall be under no obligation to, institute and maintain such suits and
proceedings as it may be advised shall be necessary or expedient to prevent any impairment of the security under the
Indenture by any acts which may be unlawful or in violation of the Indenture, and such suits and proceedings as the
Trustee may be advised shall be necessary or expedient to preserve or protect its interests and the interests of the
Owners of the Bonds.
(e) If the Trustee or any Owner or Owners of Outstanding Bonds have instituted any proceeding to enforce
any right or remedy under the Indenture and such proceeding has been discontinued or abandoned for any reason, or
has been determined adversely to the Trustee or to such Owner or Owners, then and in every such case the City, the
Trustee and the Owners shall, subject to any determination in such proceeding, be restored severally and
respectively to their former positions under the Indenture, and thereafter all rights and remedies of the Trustee and
the Owners shall continue as though no such proceeding had been instituted.
Restriction on Owner's Action. (a) Except as otherwise provided in paragraph (b) below, no Owner of any
Bond shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of any
provision of the Indenture or the execution of any trust under the Indenture or for any remedy given under the
Indenture or existing at law or in equity or by statute unless such Owner shall have previously given to the Trustee
written notice of the happening of an Event of Default, as provided in the Indenture, and the Owners of at least
twenty-five percent in principal amount of the Bonds then Outstanding shall have filed a written request with the
Trustee, and shall have offered it reasonable opportunity, either to exercise the powers granted in the Indenture or by
the applicable laws of the State of California or to institute such action, suit or proceeding in its own name, and
unless such Owners shall have offered to the Trustee adequate security and indemnity against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee shall have refused to comply with such request for a
period of 60 days after receipt by it of such notice, request and offer of indemnity, it being understood and intended
that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect,
disturb or prejudice the pledge created by the Indenture, or to enforce any right under the Indenture, except in the
manner therein provided; and that all proceedings at law or in equity to enforce any provision of the Indenture shall
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be instituted, had and maintained in the manner provided in the Indenture and for the ratable benefit of all Owners of
the Outstanding Bonds, subject only to the provisions of the Indenture relating to Credit Providers.
(b) Nothing in the Indenture or in the Bonds contained shall affect or impair the obligation of the City,
which is absolute and unconditional, to pay on the respective due dates thereof and at the places therein expressed,
but solely from the Net Revenues, amounts in the Light and Power Fund available for such payment in accordance
with the Indenture and the amounts in the Funds, other than the Rebate Fund, held by the Trustee under the
Indenture, the principal amount, or Redemption Price if applicable, of the Bonds, and the interest thereon, to the
respective Owners thereof, or affect or impair the right, which is also absolute and unconditional, of any Owner to
institute suit for the enforcement of any such payment from such sources.
Remedies Not Exclusive. No remedy by the terms of the Indenture conferred upon or reserved to the
Trustee or the Owners of the Bonds is intended to be exclusive of any other remedy, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given under the Indenture or existing at
law or in equity or by statute whether effective on or after the effective date of the Indenture. The assertion or
employment of any right or remedy, under the Indenture or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Effect of Waiver and Other Circumstances. (a) No delay or omission of the Trustee or any Owner of a
Bond to exercise any right or power arising upon the happening of an Event of Default shall impair any right or
power or shall be construed to be a waiver of any such Event of Default or be an acquiescence therein; and every
power and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercised from time
to time and as often as may be deemed expedient by the Trustee or by the Owners of the Bonds.
(b) The Owners of not less than sixty percent in principal amount of the Bonds at the time Outstanding, or
their attorneys -in -fact duly authorized, may on behalf of the Owners of all of the Bonds, waive any Event of Default
and its consequences. No such waiver shall extend to any subsequent or Event of Default or impair any right
consequent thereon unless the provisions of this paragraph (b) have been satisfied with respect to such subsequent
Event of Default.
Notice of Default. The Trustee shall, within thirty (30) days after obtaining knowledge thereof, mail
written notice of the occurrence of any Event of Default to each Credit Provider, each Reserve Financial Guaranty
Provider and each Owner of Bonds then Outstanding at such Owner's address appearing in the Bond Register.
Credit Providers
Except as limited by the Indenture, a Supplemental Indenture authorizing a Series of Bonds may provide
that any Credit Provider providing a Credit Support Instrument with respect to Bonds of such Series may exercise
any right under the Indenture or the Supplemental Indenture authorizing the issuance of such Series of Bonds given
to the Owners of the Bonds to which such Credit Support Instrument relates in lieu of such Owners.
All provisions under the Indenture or a Supplemental Indenture authorizing the exercise of rights by a
Credit Provider with respect to Bonds of a Series, including without limitation actions relating to consents,
approvals, directions, waivers, appointments and requests, shall be deemed not to require or permit such consents,
approvals, directions, waivers, appointments, requests or other actions and shall be read as if the Credit Provider
were not mentioned therein (i) during any period during which there is a default by such Credit Provider under the
applicable Credit Support Instrument or (ii) after the applicable Credit Support Instrument shall for any reason cease
to be valid and binding on the Credit Provider, or shall be declared to be null and void by final judgment of a court
of competent jurisdiction, or after the Credit Support Instrument has been rescinded, repudiated or terminated (other
than in accordance with its terms), or after a receiver, conservator or liquidator has been appointed for the Credit
Provider; provided, however, that the payment of amounts due or that may become due (including without limitation
all indemnity payments) to the Credit Provider or any other person identified under such Credit Provider's Credit
Support Agreement pursuant to the terms of the Indenture, Supplemental Indenture and/or such Credit Support
Agreement shall continue in full force and effect. The foregoing shall not affect any other rights of a Credit
Provider, including rights as the Owner of a Credit Provider Bond.
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All provisions in the Indenture relating to the rights of a Credit Provider shall be of no force and effect if
there is no Credit Support Instrument in effect and all amounts owing to the Credit Provider under the Credit
Support Agreement have been paid.
Reserve Financial Guaranty Providers
All provisions under the Indenture or a Supplemental Indenture authorizing the exercise of rights by a
Reserve Financial Guaranty Provider with respect to Bonds of a Series, including without limitation actions relating
to consents, approvals, directions, waivers, appointments and requests, shall be deemed not to require or permit such
consents, approvals, directions, waivers, appointments, requests or other actions and shall be read as if the Reserve
Financial Guaranty Provider were not mentioned therein (i) during any period during which there is a default by
such Reserve Financial Guaranty Provider under the applicable Reserve Financial Guaranty or (ii) after the
applicable Reserve Financial Guaranty shall for any reason cease to be valid and binding on the Reserve Financial
Guaranty Provider, or shall be declared to be null and void by final judgment of a court of competent jurisdiction, or
after the Reserve Financial Guaranty has been rescinded, repudiated or terminated, or after a receiver, conservator or
liquidator has been appointed for the Reserve Financial Guaranty Provider; provided, however, that the payment of
amounts due (including without limitation all indemnity payments) to the Reserve Financial Guaranty Provider
pursuant to the terms of the Indenture, any Supplemental Indenture, and/or any Reserve Financial Guaranty shall
continue in full force and effect. The foregoing shall not affect any other rights of a Reserve Financial Guaranty.
All provisions in the Indenture relating to the rights of a Reserve Financial Guaranty Provider shall be of no
force and effect if there is no Reserve Financial Guaranty Provider in effect issued by such Reserve Financial
Guaranty Provider and all amounts owing to such Reserve Financial Guaranty Provider under the Reserve Financial
Guaranty have been paid.
Unclaimed Moneys
Anything in the Indenture or any Supplemental Indenture to the contrary notwithstanding, any moneys held
by the Trustee, an Escrow Agent or any Paying Agent in trust for the payment and discharge of any of the Bonds
which remain unclaimed for two years after the date when such Bonds have become due and payable, either at their
stated maturity dates, tender for purchase or by call for redemption, if such moneys were held by the Trustee, an
Escrow Agent or a Paying Agent at such date, or for two years after the date of deposit of such moneys if deposited
with the Trustee, an Escrow Agent or a Paying Agent after the date when such Bonds or the Purchase Price thereof
became due and payable, shall be repaid by such Trustee, Escrow Agent or Paying Agent to the City, as its absolute
property and free and clear of any trust, lien, pledge or assignment securing said Bonds, and such Trustee, Escrow
Agent or Paying Agent shall thereupon be released and discharged with respect thereto and the Owners of such
Bonds shall look only to the City for the payment of such Bonds; provided, however, that before being required to
make any such payment to the City, the Trustee, the Escrow Agent or the Paying Agent, as applicable, shall, at the
expense of the City, mail, postage prepaid to the Owners of such Bonds, at the last address appearing upon the Bond
Register a notice that said moneys remain unclaimed and that, after a date named in said notice, which date shall be
not less than 30 days after the date of the mailing of such notice, the balance of such moneys then unclaimed shall be
returned to the City.
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APPENDIX C
BOOK -ENTRY ONLY SYSTEM
The information in this section concerning DTC and DTC's book -entry only system has been obtained
from sources that the City believes to be reliable, but the City takes no responsibility for the completeness or
accuracy thereof. The following description of the procedures and record keeping with respect to beneficial
ownership interests in the Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the
Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the
Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based
solely on information provided by DTC.
The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds
(the "Bonds"). The Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's
partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -
registered Bond certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such
maturity, and will be deposited with DTC.
DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants
("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants
of sales and other securities transactions in deposited securities, through electronic computerized book -entry
transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of
securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The
Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear
through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are
on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com
and www.dtc.org.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will
receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to
receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is
discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the
name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such
other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts
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such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from, time to time.
Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the
Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the
Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial
Owners may wish to provide their names and addresses, to the registrar and request that copies of notices be
provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being
redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such
maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC. nominee) will consent or vote with respect to Bonds
unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC
mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Principal, Redemption Price and interest payments on the Bonds will be made to Cede & Co., or such other
nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the
Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Trustee, or the City, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal, Redemption Price and interest payments
to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the
responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the
responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of
Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving
reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is
not obtained, Bond certificates are required to be printed and delivered.
The City may decide to discontinue use of the system of book -entry -only transfers through DTC (or a
successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.
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APPENDIX D
PROPOSED FORM OF OPINION OF BOND COUNSEL
Upon delivery of the 2008B Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City,
proposes to render its final opinion in connection with the 2008B Bonds in substantially the following form:
Date of Delivery
City Council
City of Vernon
4305 Santa Fe Avenue
Vernon, California 90058
City of Vernon
Electric System Revenue Bonds
2008 Taxable Series B
(Final Opinion)
Ladies and Gentlemen:
We have acted as bond counsel in connection with the issuance by the City of Vernon, California (the
"City") of $ aggregate principal amount of its Electric System Revenue Bonds, 2008 Taxable Series B
(the "2008 Series B Bonds"). The 2008 Series B Bonds have been issued pursuant to, the City of Vernon Municipal
Facilities Revenue Bond Law, constituting Article XI of the Vernon City Code (the "Bond Law") and an Indenture
of Trust, dated as of September 1, 2008 (as amended and supplemented, the "Indenture"), between the City and The
Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee"), as supplemented by the Second
Supplemental Indenture of Trust, dated as of 1, 2008, between the City and the Trustee. Capitalized
terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.
In such connection, we have reviewed the Charter, the Bond Law, the Indenture, certificates of the City, the
Trustee and others, opinions of counsel to the City, the Trustee and others, and such other documents, opinions and
matters to the extent we deemed necessary to render the opinions set forth herein.
The Indenture provides that the 2008 Series B Bonds are special obligations of the City, secured by a
pledge of the Trust Estate, and payable solely from the Net Revenues, amounts in the Light and Power Fund other
than the Operating Reserve and amounts in the Funds, other than the Rebate Fund, held by the Trustee under the
Indenture The Indenture further provides that the 2008 Series B Bonds are not secured by a legal or equitable
pledge of, or lien or charge upon, any property of the City or any of its income or receipts except the pledge of the
Trust Estate and that the pledge of Net Revenues and amounts in the Light and Power Fund pursuant to the
Indenture shall be on a parity with any pledge thereof securing Parity Obligations.
The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court
decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by
actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine or to inform
any person whether any such actions are taken or omitted or events .do occur or any other matters come to our
attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may
not be relied upon in connection with any such actions, events or matters. Our engagement with respect to the 2008
Series B Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have
assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the
due and legal execution and delivery thereof by, and validity against, any parties other than the City. We have
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assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the
documents and certificates, and of the legal conclusions contained in the opinions, referred to in the second
paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the
Indenture. We call attention to the fact that the rights and obligations under the 2008 Series B Bonds and the
Indenture and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent
conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable
principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against
municipal corporations in the State of California. We express no opinion with respect to any indemnification,
contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in
the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in
any of the assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the
description contained therein of, or the remedies available to enforce liens on, any of such assets. Finally, we
undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering
material relating to the 2008 Series B Bonds and express no opinion with respect thereto.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following
opinions:
The 2008 Series B Bonds constitute valid and binding special obligations of the City.
2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding
obligation of, the City. The Indenture creates a valid pledge, to secure the payment of the principal of and interest
on the 2008 Series B Bonds, of the Trust Estate, subject to the provisions of the Indenture permitting the application
thereof for the purposes and on the terms and conditions set forth therein.
3. Interest on the 2008 Series B Bonds is exempt from State of California personal income taxes.
We express no opinion regarding other tax consequences relating to the ownership or disposition of, or the accrual
or receipt of interest on, the 2008 Series B Bonds.
Faithfully yours,
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APPENDIX E
FORM OF CONTINUING DISCLOSURE AGREEMENT
The City of Vernon and the Bank of New York Mellon Trust Company, N.A. entered into a Continuing
Disclosure Agreement relating to the Bonds in the following form:
THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), executed and
entered into as of 1, 2008, is by and between The Bank of New York Mellon Trust Company, N.A., a
national banking association duly organized and existing under and by virtue of the laws of the United States of
America, as Trustee (the "Trustee"), and the City of Vernon, a municipal corporation and chartered city organized
and existing under and by virtue of the Constitution of the State of California and its Charter (the "City").
WITNESSETH:
WHEREAS, the City has issued $ aggregate principal amount of its Electric System Revenue
Bonds, 2008 Taxable Series B (the "2008 Series B Bonds") pursuant to an Indenture of Trust, dated as of September
1, 2008, as supplemented by a Second Supplemental Indenture of Trust, dated as of 1, 2008 (as so
supplemented, the "Indenture"), each between the City and the Trustee; and
WHEREAS, this Disclosure Agreement is being executed and delivered by the City and the Trustee for the
benefit of the Owners and Beneficial Owners of the 2008 Series B Bonds and in order to assist the underwriter of the
2008 Series B Bonds in complying with S.E.C. Rule 15c2-12(b)(5);
NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein contained,
the parties hereto agree as follows:
Section 1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any
capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following
capitalized terms shall have the following meanings:
"Annual Report" means any Annual Report provided by the City pursuant to, and as described in,
Sections 2 and 3 hereof.
"Disclosure Representative" means the City Clerk, the Acting City Clerk, the City Administrator of the
City, or such other officer or employee of the City as the City shall designate in writing to the Trustee from time to
time.
"Dissemination Agent" means any Dissemination Agent, including any successor Dissemination Agent,
appointed or engaged in writing by the City pursuant to Section 6 hereof and which has filed with the Trustee a
written acceptance of such designation.
"Listed Events" means any of the events listed in subsection (a) of Section 4 hereof.
"National Repository" means any Nationally Recognized Municipal Securities Information Repository for
purposes of the Rule.
"Official Statement" means the Official Statement, dated , 2008, relating to the 2008 Series B
Bonds.
"Participating Underwriter" means any original underwriter of the 2008 Series B Bonds required to
comply with the Rule in connection with the 2008 Series B Bonds.
"Repository" means each National Repository and each State Repository.
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"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as the same may be amended from time to time.
"State Repository" means any public or private repository or entity designated by the State of California
as a state repository for the purpose of the Rule and recognized by the Securities and Exchange Commission. As of
the date of this Disclosure Agreement, there is no State Repository.
Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination
Agent to, not later than 180 days following the end of each Fiscal Year of the City (which Fiscal Year ends on
June 30), commencing with the report for the 2007-08 Fiscal Year, provide to each Repository an Annual Report
which is consistent with the requirements of Section 3 hereof. The Annual Report may be submitted as a single
document or as separate documents comprising a package, and may include by reference other information as
provided in Section 3 hereof; provided that the audited financial statements of the City may be submitted separately
from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if
not available by that date. If the City's Fiscal Year changes, it shall give notice of such change in the same manner
as for a Listed Event under subsection (f) of Section 4 hereof.
(b) Not later than 15 Business Days prior to the date specified in subsection (a) of this Section for the
providing of the Annual Report to the Repositories, the City shall provide the Annual Report to the Dissemination
Agent, if any, and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Dissemination
Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if
the City is in compliance with the first sentence of this subsection (b).
(c) If the Dissemination Agent is unable to confirm that an Annual Report has been provided to
Repositories by the date required in subsection (a) of this Section, the Dissemination Agent shall send a notice to the
Municipal Securities Rulemaking Board and each State Repository, if any, in substantially the form attached as
Exhibit A.
(d) The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report the name and
address of each National Repository and each State Repository, if any; and
(ii) file a report with the City and (if the Dissemination Agent is not the Trustee) the Trustee
certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was
provided and listing all the Repositories to which it was provided.
Section 3. Content of Annual Reports. The City's Annual Report shall contain or incorporate by
reference the following:
(a) Audited financial statements of the City's Electric System including a balance sheet, a statement
of revenues, expenses and changes in retained earnings, and a statement of cash flows relating to the City's Light
and Power Fund prepared on the accrual basis of accounting. Such financial statements may be included as part of
the City's general purpose financial statements. If the Electric System's audited financial statements are not
available by the time the Annual Report is required to be filed pursuant to subsection (a) of Section 2 hereof, the
Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained
in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual
Report when they become available.
(b) An update of the information contained in the tables with the following headings in the Official
Statement for the most recently ended Fiscal Year:
(i) "CITY OF VERNON ELECTRIC SYSTEM POWER SUPPLY RESOURCES";
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(ii) "CITY OF VERNON ELECTRIC SYSTEM CUSTOMERS, RETAIL SALES,
REVENUES AND DEMAND";
(iii) "CITY OF VERNON ELECTRIC SYSTEM AVERAGE BILLING PRICE (CENTS
PER KILOWATT-HOUR)"; and
(iv) "CITY OF VERNON ELECTRIC SYSTEM HISTORICAL REVENUE, EXPENSES
AND DEBT SERVICE COVERAGE UNDER INDENTURE".
(c) In addition to any of the information expressly required to be provided under subsections (a) and
(b) of this Section, the City shall provide such further information, if any, as may be necessary to make the
specifically required statements, in the light of the circumstances under which they are made, not misleading.
Any or all of the items listed above may be included by specific reference to other documents, including
official statements of debt issues of the City or related public entities, which have been submitted to each of the
Repositories or the Securities and Exchange Commission. If the document included by reference is a final official
statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify
each such other document so included by reference.
Section 4. Reporting of Sisnificant Events. (a) Pursuant to the provisions of this Section, the City
shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2008
Series B Bonds, if material:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults.
(3) Unscheduled draws on debt service reserves reflecting financial difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial difficulties.
(5) Substitution of credit or liquidity providers, or their failure to perform.
(6) Adverse tax opinions or events affecting the tax-exempt status of the security.
(7) Modifications to rights of the Owners of the 2008 Series B Bonds.
(8) Contingent or unscheduled Series 2008 Bond calls.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the securities.
(11) Rating changes.
(b) The Trustee shall, within one Business Day of obtaining actual knowledge of the occurrence of
any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the
City promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f)
of this Section. For purposes of this subsection (b), "obtaining actual knowledge " means receipt of actual notice of
any of such Listed Events by a responsible officer of the Trustee's Corporate Trust Department.
(c) Whenever the City obtains knowledge of the occurrence of a Listed Event, whether because of a
notice from the Trustee pursuant to subsection (b) of this Section or otherwise, the City shall as soon as possible
determine if such event would be material under applicable Federal securities law.
OHS West:260528796.1 E-3
(d) If the City has determined that knowledge of the occurrence of a Listed Event would be material
under applicable Federal securities law, the City shall promptly notify the Dissemination Agent in writing. Such
notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f) of this Section.
(e) If in response to a request under subsection (b) of this Section, the City determines that the Listed
Event would not be material under applicable Federal securities law, the City shall so notify the Trustee in writing
and instruct the Trustee not to report the occurrence pursuant to subsection (0 of this Section.
(f) If the Dissemination Agent has been instructed by the City to report the occurrence of a Listed
Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking
Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in paragraphs
(8) and (9) of subsection (a) of this Section need not be given under this subsection any earlier than the notice (if
any) of the underlying event is given to Owners of affected 2008 Series B "Bonds pursuant to the Indenture.
Section 5. Termination of Reporting Obligation. The City's obligations under this Disclosure
Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2008 Series B
Bonds. If such termination occurs prior to the final maturity of the 2008 Series B Bonds, the City shall give notice
of such termination in the same manner as for a Listed Event under subsection (f) of Section 4 hereof.
Section 6. Dissemination Agent. The City may, from time to time, appoint or engage a
Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement and may discharge
any such Dissemination Agent, with or without appointing a successor Dissemination Agent; provided the Trustee
shall receive written notice of such appointment, engagement and discharge at the time thereof. The Dissemination
Agent may resign by providing thirty days written notice to the City.
Section 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Agreement, the City and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any
amendment so requested by the City to the extent that such amendment does not adversely affect the Trustee), and
any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of subsection (a) of Section 2 hereof,
Section 3 hereof or subsection (a) of Section 4 hereof, it may only be made in connection with a change in
circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or
status of an obligated person with respect to the 2008 Series B Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of Bond
Counsel, have complied with the requirements of the Rule at the time of the primary offering of the 2008 Series B
Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in
circumstances; and
(c) the proposed amendment or waiver (i) is approved by Owners of the 2008 Series B Bonds in the
manner provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in
the opinion of the Trustee or Bond Counsel, materially impair the interests of the Owners or Beneficial Owners.
If the annual financial information or operating data to be provided in the Annual Report is amended
pursuant to the provisions hereof, the annual financial information containing the amended operating data or
financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in
the type of operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be followed in
preparing financial statements, the annual financial information for the year in which the change is made shall
present a comparison between the financial statements or information prepared on the basis of the new accounting
principles and those prepared on the basis of the former accounting principles. The comparison shall include a
qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting
principles on the presentation of the financial information, in order to provide information to investors to enable
OHS West:260528796.1 E-4
them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison
shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories.
Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to
prevent the City from disseminating any other information, using the means of dissemination set forth in this
Disclosure Agreement or any other means of communication, or including any other information in any Annual
Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement.
If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in
addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under
this Disclosure Agreement to update such information or include it in any future Annual Report or notice of
occurrence of a Listed Event.
Section 9. Default. In the event of a failure of the City, the Trustee or the Dissemination Agent to
comply with any provision of this Disclosure Agreement, the Trustee may (and, at the written direction of any
Participating Underwriter or the Owners of at least 25% of the aggregate principal amount of the Outstanding 2008
Series B Bonds, shall with indemnification satisfactory to it), or any Owner or Beneficial Owner of the '2008 Series
B Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific
performance by court order, to cause the City, Trustee or the Dissemination Agent, as the case may be, to comply
with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be
deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event
of any failure of the City, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be
an action to compel performance.
Section 10. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII
of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were
(solely for this purpose) contained in the Indenture. The Dissemination Agent shall be entitled to the protections and
limitations from liability afforded to the Trustee thereunder. Neither the Trustee nor the Dissemination Agent shall
be responsible for the form or content of any Annual Report or notice of Listed Event. The Trustee and
Dissemination Agent shall receive reasonable compensation for its services provided under this Disclosure
Agreement. The Dissemination Agent (if other than the Trustee) shall have only such duties pursuant to this
Disclosure as are specifically set forth herein, and the City agrees to indemnify and save the Dissemination Agent,
its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur
arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses
(including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the
Dissemination Agent's gross negligence or willful misconduct. The obligations of the City under this Section shall
survive resignation or removal of the Dissemination Agent and payment of the 2008 Series B Bonds. Any company
succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor to
the Dissemination Agent hereunder without the execution or filing of any paper or any further act.
Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City,
the Trustee, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time i
to time of the 2008 Series B Bonds, and shall create no rights in any other person or entity.
Section 12. Governing Law. This Disclosure Agreement shall be interpreted governed by and
construed for all purposes in accordance with the laws of the State for contracts executed and to be performed in the
State.
Section 13. Counterparts. This Disclosure Agreement may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and the same instrument.
OHS West:260528796.1 E-5
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first
above written.
CITY OF VERNON
10
ATTEST:
Manuela Giron,
City Clerk
APPROVED AS TO FORM:
LIN
Jeff A. Harrison,
City Attorney
Leonis C. Malburg, Mayor
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee
LIM
Authorized Signatory
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EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Vernon
Name of Issue: City of Vernon Electric System Revenue Bonds, 2008 Taxable Series B (the "2008 Series B
Bonds")
Date of Issuance: , 2008
NOTICE IS HEREBY GIVEN that the City of Vernon (the "City") has not provided the Bank of New
York Mellon Trust Company, N.A., as trustee (the "Trustee") under an Indenture of Trust, dated as of September 1,
2008, as supplemented by a Second Supplemental Indenture of Trust, dated as of 1, 2008, each between
the City and the Trustee, an Annual Report with respect to the 2008 Series B Bonds as required Section 5.02 of such
Second Supplemental Indenture of Trust. [The City anticipates that the Annual Report will be filed by
Dated:
The Bank of New York Mellon Trust Company,
N.A., as Trustee, on behalf of the City of Vernon
By: _
Name:
Title:
cc: City of Vernon
E-7
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EXHIBIT D
Orrick, Herrington & Sutcliffe LLP
Draft of 10124108
CONTINUING DISCLOSURE AGREEMENT
THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"),
executed and entered into as of 1, 2008, is by and between The Bank of New York
Mellon Trust Company, N.A., a national banking association duly organized and existing under
and by virtue of the laws of the United States of America, as Trustee (the "Trustee"), and the
City of Vernon, a municipal corporation and chartered city organized and existing under and by
virtue of the Constitution of the State of California and its Charter (the "City").
WITNESSETH:
WHEREAS, the City has issued $ aggregate principal amount of its Electric
System Revenue Bonds, 2008 Taxable Series B (the "2008 Series B Bonds") pursuant to an
Indenture of Trust; dated as of September 1, 2008, as supplemented by a Second Supplemental
Indenture of Trust, dated as of 1, 2008 (as so supplemented, the "Indenture"), each
between the City and the Trustee; and
WHEREAS, this Disclosure Agreement is being executed and delivered by the City and
the Trustee for the benefit of the Owners and Beneficial Owners of the 2008 Series B Bonds and
in order to assist the underwriter of the 2008 Series B Bonds in complying with S.E.C. Rule
15c2-12(b)(5);
NOW, THEREFORE, for and in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
Section 1. Definitions. In addition to the definitions set forth in the Indenture, which
apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this
Section, the following capitalized terms shall have the following meanings:
"Annual Report" means any Annual Report provided by the City pursuant to, and as
described in, Sections 2 and 3 hereof.
"Disclosure Representative" means the City Clerk, the Acting City Clerk, the City
Administrator of the City, or such other officer or employee of the City as the City shall
designate in writing to the Trustee from time to time.
"Dissemination Agent" means any Dissemination Agent, including any successor
Dissemination Agent, appointed or engaged in writing by the City pursuant to Section 6 hereof
and which has filed with the Trustee a written acceptance of such designation.
"Listed Events" means any of the events listed in subsection (a) of Section 4 hereof.
"National Repository" means any Nationally Recognized Municipal Securities
Information Repository for purposes of the Rule.
"Official Statement" means the Official Statement, dated , 2008, relating to
the 2008 Series B Bonds.
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"Participating Underwriter" means any original underwriter of the 2008 Series B
Bonds required to comply with the Rule in connection with the 2008 Series B Bonds.
"Repository" means each National Repository and each State Repository.
"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time.
"State Repository" means any public or private repository or entity designated by the
State of California as a state repository for the purpose of the Rule and recognized by the
Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no
State Repository.
Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the
Dissemination Agent to, not later than 180 days following the end of each Fiscal Year of the City
(which Fiscal Year ends on June 30), commencing with the report for the 2007-08 Fiscal Year,
provide to each Repository an Annual Report which is consistent with the requirements of
Section 3 hereof. The Annual Report may be submitted as a single document or as separate
documents comprising a package, and may include by reference other information as provided in
Section 3 hereof, provided that the audited financial statements of the City may be submitted
separately from the balance of the Annual Report, and later than the date required above for the
filing of the Annual Report if not available by that date. If the City's Fiscal Year changes, it
shall give notice of such change in the same manner as for a Listed Event under subsection (f) of
Section 4 hereof.
(b) Not later than 15 Business Days prior to the date specified in subsection (a) of this
Section for the providing of the Annual Report to the Repositories, the City shall provide the
Annual Report to the Dissemination Agent, if any, and the Trustee (if the Trustee is not the
Dissemination Agent). If by such date, the Dissemination Agent has not received a copy of the
Annual Report, the Dissemination Agent shall contact the City to determine if the City is in
compliance with the first sentence of this subsection (b).
(c) If the Dissemination Agent is unable to confirm that an Annual Report has been
provided to Repositories by the date required in subsection (a) of this Section, the Dissemination
Agent shall send a notice to the Municipal Securities Rulemaking Board and each State
Repository, if any, in substantially the form attached as Exhibit A.
(d) The Dissemination Agent shall:
(i) determine each year prior to the date for providing the Annual Report the
name and address of each National Repository and each State Repository, if any; and
(ii) file a report with the City and (if the Dissemination Agent is not the
Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this
Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it
was provided.
OHS West:260528782.1 2
Section 3. Content of Annual Reports. The City's Annual Report shall contain or
incorporate by reference the following:
(a) Audited financial statements of the City's Electric System including a balance
sheet, a statement of revenues, expenses and changes in retained earnings, and a statement of
cash flows relating to the City's Light and Power Fund prepared on the accrual basis of
accounting. Such financial statements may be included as part of the City's general purpose
financial statements. If the Electric System's audited financial statements are not available by
the time the Annual Report is required to be filed pursuant to subsection (a) of Section 2 hereof,
the Annual Report shall contain unaudited financial statements in a format similar to the
financial statements contained in the Official Statement, and the audited financial statements
shall be filed in the same manner as the Annual Report when they become available.
(b) An update of the information contained in the tables with the following headings
in the Official Statement for the most recently ended Fiscal Year:
(i) "CITY OF VERNON ELECTRIC SYSTEM POWER SUPPLY
RESOURCES";
(ii) "CITY OF VERNON ELECTRIC SYSTEM CUSTOMERS, RETAIL
SALES, REVENUES AND DEMAND";
(iii) "CITY OF VERNON ELECTRIC SYSTEM AVERAGE BILLING
PRICE (CENTS PER KILOWATT-HOUR)"; and
(iv) "CITY OF VERNON ELECTRIC SYSTEM HISTORICAL REVENUE,
EXPENSES AND DEBT SERVICE COVERAGE UNDER INDENTURE".
(c) In addition to any of the information expressly required to be provided under
subsections (a) and (b) of this Section, the City shall provide such further information, if any, as
may be necessary to make the specifically required statements, in the light of the circumstances
under which they are made, not misleading.
Any or all of the items listed above may be included by specific reference to other
documents, including official statements of debt issues of the City or related public entities,
which have been submitted to each of the Repositories or the Securities and Exchange
Commission. If the document included by reference is a final official statement, it must be
available from the Municipal Securities Rulemaking Board. The City shall clearly identify each
such other document so included by reference.
Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this
Section, the City shall give, or cause to be given, notice of the occurrence of any of the following
events with respect to the 2008 Series B Bonds, if material:
(1) Principal and interest payment delinquencies.
(2) Non-payment related defaults.
OHS West: 260528782. 1 3
(3) Unscheduled draws on debt service reserves reflecting financial
difficulties.
(4) Unscheduled draws on credit enhancements reflecting financial
difficulties.
(5) Substitution of credit or liquidity providers, or their failure to perform.
(6) Adverse tax opinions or events affecting the tax-exempt status of the
security.
(7) Modifications to rights of the Owners of the 2008 Series B Bonds.
(8) Contingent or unscheduled Series 2008 Bond calls.
(9) Defeasances.
(10) Release, substitution, or sale of property securing repayment of the
securities.
(11) Rating changes.
(b) The Trustee shall, within one Business Day of obtaining actual knowledge of the
occurrence of any of the Listed Events, contact the Disclosure Representative, inform such
person of the event, and request that the City promptly notify the Dissemination Agent in writing
whether or not to report the event pursuant to subsection (f) of this Section. For purposes of this
subsection (b), "obtaining actual knowledge " means receipt of actual notice of any of such
Listed Events by a responsible officer of the Trustee'.s Corporate Trust Department.
(c) Whenever the City obtains knowledge of the occurrence of a Listed Event,
whether because of a notice from the Trustee pursuant to subsection (b) of this Section or
otherwise, the City shall as soon as possible determine if such event would be material under
applicable Federal securities law.
(d) If the City has determined that knowledge of the occurrence of a Listed Event
would be material under applicable Federal securities law, the City shall promptly notify the
Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the
occurrence pursuant to subsection (f) of this Section.
(e) If in response to a request under subsection (b) of this Section, the City
determines that the Listed Event would not be material under applicable Federal securities law,
the City shall so notify the Trustee in writing and instruct the Trustee not to report the occurrence
pursuant to subsection (f) of this Section.
(f) If the Dissemination Agent has been instructed by the City to report the
occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with
the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the
foregoing, notice of Listed Events described in paragraphs (8) and (9) of subsection (a) of this
OHS West:260528782.1 4
Section need not be given under this subsection any earlier than the notice (if any) of the
underlying event is given to Owners of affected 2008 Series B Bonds pursuant to the Indenture.
Section 5. Termination of Reporting Obligation. The City's obligations under this
Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in
full of all of the 2008 Series B Bonds. If such termination occurs prior to the final maturity of
the 2008 Series B Bonds, the City shall give notice of such termination in the same manner as for
a Listed Event under subsection (f) of Section 4 hereof.
Section 6. Dissemination Agent. The City may, from time to time, appoint or
engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure
Agreement and may discharge any such Dissemination Agent, with or without appointing a
successor Dissemination Agent; provided the Trustee shall receive written notice of such
appointment, engagement and discharge at the time thereof. The Dissemination Agent may
resign by providing thirty days written notice to the City.
Section 7. Amendment; Waiver. Notwithstanding any other provision of this
Disclosure Agreement, the City and the Trustee may amend this Disclosure Agreement (and the
Trustee shall agree to any amendment so requested by the City to the extent that such
amendment does not adversely affect the Trustee), and any provision of this Disclosure
Agreement may be waived, provided that the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of subsection (a) of Section 2
hereof, Section 3 hereof or subsection (a) of Section 4 hereof, it may only be made in connection
with a change in circumstances that arises from a change in legal requirements, change in law, or
change in the identity, nature or status of an obligated person with respect to the 2008 Series B
Bonds, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the
opinion of Bond Counsel, have complied with the requirements of the Rule at the time of the
primary offering of the 2008 Series B Bonds, after taking into account any amendments or
interpretations of the Rule, as well as any change in circumstances; and
(c) the proposed amendment or waiver (i) is approved by Owners of the 2008 Series
B Bonds in the manner provided in the Indenture for amendments to the Indenture with the
consent of Owners, or (ii) does not, in the opinion of the Trustee or Bond Counsel, materially
impair the interests of the Owners or Beneficial Owners.
If the annual financial information or operating data to be provided in the Annual Report
is amended pursuant to the provisions hereof, the annual financial information containing the
amended operating data or financial information shall explain, in narrative form, the reasons for
the amendment and the impact of the change in the type of operating data or r financial
information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be
followed in preparing financial statements, the annual financial information for the year in which
the change is made shall present a comparison between the financial statements or information
prepared on the basis of the new accounting principles and those prepared on the basis of the
OHS West:260528782.1 5
former accounting principles. The comparison shall include a qualitative discussion of the
differences in the accounting principles and the impact of the change in the accounting principles
on the presentation of the financial information, in order to provide information to investors to
enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably
feasible, the ' comparison shall be quantitative. A notice of the change in the accounting
principles shall be sent to the Repositories.
Section 8. Additional Information. Nothing in this Disclosure Agreement shall be
deemed to prevent the City from disseminating any other information, using the means of
dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Annual Report or notice of occurrence of a Listed Event,
in addition to that which is required by this Disclosure Agreement. If the City chooses to include
any information in any Annual Report or notice of occurrence of a Listed Event in addition to
that which is specifically required by this Disclosure Agreement, the City shall have no
obligation under this Disclosure Agreement to update such information or include it in any future
Annual Report or notice of occurrence of a Listed Event.
Section 9. Default. In the event of a failure of the City, the Trustee or the
Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee
may (and, at the written direction of any Participating Underwriter or the Owners of at least 25%
of the aggregate principal amount of the Outstanding 2008 Series B Bonds, shall with
indemnification satisfactory to it), or any Owner or Beneficial Owner of the 2008 Series B Bonds
may, take such actions as may be necessary and appropriate, including seeking mandate or
specific performance by court order, to cause the City, Trustee or the Dissemination Agent, as
the case may be, to comply with its obligations under this Disclosure Agreement. A default
under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture,
and the sole remedy under this Disclosure Agreement in the event of any failure of the City, the
Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action
to compel performance.
Section 10. Duties, Immunities and Liabilities of Trustee and Dissemination
Agent. Article VIII of the Indenture is hereby made applicable to this Disclosure Agreement as
if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The
Dissemination Agent shall be entitled to the protections and limitations from liability afforded to
the Trustee thereunder. Neither the Trustee nor the Dissemination Agent shall be responsible for
the form or content of any Annual Report or notice of Listed Event. The Trustee and
Dissemination Agent shall receive reasonable compensation for its services provided under this
Disclosure Agreement. The Dissemination Agent (if other than the Trustee) shall have only such
duties pursuant to this Disclosure as are specifically set forth herein, and the City agrees to
indemnify and save the Dissemination Agent, its officers, directors, employees and agents,
harmless against any loss, expense and liabilities which it may incur arising out of or in the
exercise or performance of its powers and duties hereunder, including the costs and expenses
(including attorneys fees) of defending against any claim of liability, but excluding liabilities due
to the Dissemination Agent's gross negligence or willful misconduct. The obligations of the
City under this Section shall survive resignation or removal of the Dissemination Agent and
payment of the 2008 Series B Bonds. Any company succeeding to all or substantially all of the
OHS West:260528782.1 6
Dissemination Agent's corporate trust business shall be the successor to the Dissemination Agent
hereunder without the execution or filing of any paper or any further act.
Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit
of the City, the Trustee, the Dissemination Agent, the Participating Underwriter and Owners and
Beneficial Owners from time to time of the 2008 Series B Bonds, and shall create no rights in
any other person or entity.
Section 12. Governing Law. This Disclosure Agreement shall be interpreted
governed by and construed for all purposes in accordance with the laws of the State for contracts
executed and to be performed in the State.
Section 13. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
OHS West:260528782.1 7
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement
as of the date first above written.
ATTEST:
Manuela Giron,
City Clerk
APPROVED AS TO FORM:
53
Jeff A. Harrison,
City Attorney
CITY OF VERNON
Leonis C. Malburg, Mayor
THE BANK OF NEW YORK MELLON
TRUST COMPANY, N.A., as Trustee
go
Authorized Signatory
OHS West: 260528782.1 8
EXHIBIT A
NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO
FILE ANNUAL REPORT
Name of Issuer: City of Vernon
Name of Issue: City of Vernon Electric System Revenue Bonds, 2008 Taxable Series B
(the "2008 Series B Bonds")
Date of Issuance: .2008
NOTICE IS HEREBY GIVEN that the City of Vernon (the "City") has not provided the
Bank of New York Mellon Trust Company, N.A., as trustee (the "Trustee") under an Indenture
of Trust, dated as of September 1, 2008, as supplemented by a Second Supplemental Indenture of
Trust, dated as of 1, 2008, each between the City and the Trustee, an Annual Report
with respect to the 2008 Series B Bonds as required Section 5.02 of such Second Supplemental
Indenture of Trust. [The City anticipates that the Annual Report will be filed by .]
Dated:
The Bank of New York Mellon Trust
Company, N.A., as Trustee, on behalf of the
City of Vernon
By: _
Name:
Title:
cc: City of Vernon
OHS West:260528782.1 A-1
AGREEMENT NOT
RECEIVED - LEGAL
DOES NOT. HAVE A
COPY IN THEIR FILE
Page 1 of 1
Juarez, Debbie
From: Muro, Evangelina
Sent: Monday, November 09, 2009 9:40 AM
To: Juarez, Debbie
Subject: RE: Resoution No. 9752 -Issuance of Bonds for Electric System Revenue
Debbie,
I have looked through our file and did not find a fully executed agreement.
From: Juarez, Debbie
Sent: Wednesday, October 14, 2009.9:15 AM
To Muro, Evangelina; Lehr, Judy
Subject: Resoution No. 9752 - Issuance of Bonds for Electric System Revenue
Please let me know if you have received any paperwork for the above -referenced. Thank you.
Ine6orah Juarez
Records Management Assistant
City of Vernon - City Clerk's Office
4305Santa EeAvenue
Vernon, CA 90058
(323) 583-8811
11 /9/2009